Australian Securities Commission v Marlborough Gold Mines Ltd

[1993] HCATrans 79

~

4

• '.I'

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Perth No PS of 1993

B e t w e e n -

THE AUSTRALIAN SECURITIES

COMMISSION

Appellant

and

MARLBOROUGH GOLD MINES LTD

(ACN 010 126 708)

Respondent

MASON CJ
BRENNAN J

DAWSON J

TOOHEY J

GAUDRON J

Marlborough(2) 1 17/3/93

TRANSCRIPT OF PROCEEDINGS

AT HOBART ON WEDNESDAY, 17 MARCH 1993, AT 10.23 AM

Copyright in the High Court of Australia

MR R.A. FINKELSTEIN, QC:  May it please the Court, I appear

with my learned friend, MR K.J. MARTIN, for the

appellant. (instructed by F.E. Low, Regional

General Counsel, Australian Securities Commission

(Western Australia))

MR A.R. EMMETT, QC:  May it please Your Honours, I appear

with my friend, MR D.M. STONE, for the respondent.

(instructed by Williams & Hughes)

MASON CJ: Yes, Mr Finkelstein?

MR FINKELSTEIN: If the Court pleases, we have had provided

to the Court a number of documents. There is a

folder which contains our outline of submissions

and some additional cases. That is a manilla

folder. Then there is a bundle of cases and a

folder containing extracts from statutes, but the

manilla folder first, because the first document

should be our summary outline.

MASON CJ: Yes.

MR FINKELSTEIN:  May it please the Court, the starting off

point of the analysis is section 115 of the

Corporations Law. What that shows is that when a company is registered or created, it must be given a particular status, and section 115(1) describes

the various types of company, that is, describes

the different status that a company may have, and

on incorporation it must adopt one of other of the

status set out in that subsection. The status is

defined by reference to the liability of the

members of the company, and that definition must,

by reason of section 117, be set out in the

company's memorandum. That is not the only thing

that has got to be set out in the memorandum, but

at least the status, by reference to the

liabilities of the members. In addition to that

requirement, section 117 requires the name of the

company to be in its memorandum, its share capital,

and the names of subscribers and the types of

shares taken up by them.

The constitution of the company, that is, its

memorandum, cannot be altered except when the

statute allows the alteration. That follows from

section 172(1) of the Law and it accords with basic

principles of company law. One of the cases that

we handed up in the manilla folder is the
well-known case of Ashbury Railway Carriage and

Iron Co v Riche, (1875) 7 House of Lords 653, and

the principle which has been part of company law

since modern companies, limited liability

companies, were established in 1855, is described

in the various speeches in Ashbury, and I want to

Marlborough(2) 2 17/3/93

refer the Court to one only, that of Lord Selborne,

at 693, but what His Lordship says there is echoed

a company set up by Act of Parliament

in the various other speeches of the members of the dealing with

as opposed to another form of corporation,

His Lordship refers to Hawkes v Eastern Counties

Railway, and says:

when I say that a statutory corporation,

created by Act of Parliament for a particular

purpose, is limited, as to all its powers, by

the purposes of its incorporation as defined

in that Act. The present and all other

companies incorporated by virtue of the

Companies Act of 1862 appear to me to be

statutory corporations within this principle.

The memorandum of association is under that

Act their fundamental, and (except in certain

specified particulars) their unalterable law;

and they are incorporated only for the objects

and purposes expressed in that memorandum.

A basic principle of company law is that the

memorandum of a company upon incorporation is its

unalterable law, save for the qualification that

the statute itself, that is the statute which gives

rise to the existence of this type of corporation,

permits the constitution or the memorandum of the

company to be changed, and the legislation does,

and always has in various limited respects, for

example, the name, which must be in the

constitution or memorandum, can be changed;

section 382 allows that.

The share capital of a company, which must be

described in the memorandum, can also be changed;

sections 193 and 195 of the Corporations Law allows

that. The objects of a company - and I note that

the memorandum is not required to contain the

objects of a company, but may do so - that appears

from section 117(2). If the memorandum contains

objects, the objects can be changed; section 172.

If it does not contain objects, or if the objects are to be added to, that can be done by the same

section.

Now, one thing that you cannot do, in our submission, because the Corporations Law does not

contemplate it, except in one respect, is to change

that part of the memorandum which defines the

status of the company. I said with one

qualification, the section that is at the heart of

this dispute, section 167 of the Corporations Law,

does deal with change of status and because it

deals with change of status does permit alteration

to the memorandum of the company concerned. But

Marlborough(2) 3 17/3/93

apart from section 167, there is no specific

provision anywhere in the Corporations Law which

allows the memorandum to be changed in such a way

as to alter that part of the memorandum which

defines the status of the corporation.

In the bundle of statutes that we handed to

the Court, there is a history of the forerunners of

section 167. What that shows is from the early

days of modern companies, I take it from 1862 on,

with the 1862 Companies Act of England, the only

change in status that was permitted was from an

unlimited liability company to a limited liability

company. And that is the change of status which is

now recognized in section 167(l)(a) of the current

Corporations Law. The third tab of statutes, and I

think if the colour coordinates work, it is under the orange tab, but it might be written in on the

tab itself. It will have UK changes of status, and

at all events, it starts at page 66.

If the Court goes to page 69, printed in at

the bottom of the page, you will see there the 1879

English Companies Act, section 5 of which, which

appears at page 70 of the book, sets out what was -

I am not saying this is the first provision dealing with conversion, but it is the type of conversion

that has been permitted, and that was permitted for

about 100 years before changes were made, from an

unlimited company to a limited company.

It is also interesting to note that, at least until 1961 with the Australian uniform Companies

Acts, conversion from unlimited to limited

liability company was dealt with as reregistration

and, if the Court looks at the 1908 English

consolidation of the Companies Act at 72, you will

see how it was dealt with. Section 57(1) of the

Companies (Consolidation) Act says that:

any company registered as unlimited may

register under this Act as limited -

Then, section 57(2) provides that:

On registration in pursuance of this section

the registrar shall close the former
registration of the company, and may dispense

with the delivery to him of copies of any

documents ..... save as aforesaid, the

registration shall take place in the same

manner and shall have effect as if it were the

first registration of the company -

Now, it is not clear precisely what was brought

about by a reregistration from one type of company,

a company having a particular status, to

Marlborough(2) 4 17/3/93

registration of a company having a different

status. When I say it is not clear, the cases do

not seem ever to have addressed the point. The

text book writers, especially Palmer, took the view

that a reregistration as a company of a different

status did not have the effect of destroying the

first company, that is, with its original status,

and creating a new company, but thought that the

legislation was merely a conversion maintaining the

company as a separate entity at all times.

But, whatever the position was, it has become

cleare_r in modern times, because the notion of

reregistration has gone from the legislation. But

at all events, the first point that I want to make

is, at the beginning when companies laws recognized

a change of status, it was this one type of change

of status, unlimited liability to limited

liability. When the uniform Companies Acts came

into force in Australia, a different form of

conversion or change of status was recognized, and

that was when a company was incorporated as a

company limited by guarantee, it could then convert

to a company limited by both shares and guarantee.

That seems to have been introduced in 1961 and

it now finds its way into section 167(l)(c) of the

Corporations Law. tn 1967, in the United Kingdom,
an additional conversion was permitted - I say

"conversion" but I really mean change of status,

and that was from a limited company to an unlimited

company, and that now finds its way into

section 167(l)(e) of the Corporations Law. The

forerunner of the present position, that is the

various permitted changes of status, seems first to

have come into Australia through Victoria in 1971

and in Western Australia, because it is a

Western Australian appeal, in 1973, and presumably

in the other States at around that time. And the changes of status that were permitted in Victoria

in 1971, WA in 1973 and around that time in the

other States, are the changes of status which are

now recognized in section 167.

Now, our principal submission is that the only

changes to status of a company that are permissible

are those contemplated by section 167. In our
outline of submissions, the Court will notice that

we have appended two tables, as it were: one which

sets out those changes of status which are
permissible and the last document sets out the
various other possible changes of status, but which

are not dealt with by section 167. That is the

last two pages of the outline under the heading,

Conversions not Permitted by Section 167. By "not

permitted" we mean no more or less than, if you

look at either section 167 or any other part of the

Marlborough(2) 5 17/3/93

Corporations Law, the legislation does not tell you
that the changes that we have set out on those

pages are permitted changes, and our submission is

that they are not permitted changes. They are

certainly not permitted by 167 and we say that they

are not contemplated as permissible under any other
provision of the Law and the only other relevant
provision, it seems to us, is section 411, which is

the scheme of arrangement provision.

The reasons why we say that the legislation

does not comprehend or contemplate any change of

status outside 167 are as follows, and I will

summarize them. First, the history of the

legislation, both in the United Kingdom and in

local jurisdiction, where permitted changes were added to as and when the Parliament thought that

another type of change was appropriate and should

be allowed. Secondly, and perhaps fundamentally,

apart from changes allowed by section 167, the

members of a body corporate, either on their own or

with the consent of every creditor of the body

corporate, do not have power by themselves to bring

about a change in status other than that permitted

by section 167.

The reason why is because the change of status

not permitted by section 167 is a change which

requires an alteration to the memorandum, and if we
are right and the memorandum is the unalterable
constitution of a company, only alterable when the

Parliament says it can be altered and, generally speaking, dictates terms about how the alteration

is to be brought about, there being no power given

to the members in the Law to alter that part of the

memorandum which defines the status of the company,

it is plainly, in our submission, beyond the power

of the members to bring about that change; beyond

the power of the members with or without creditors.

The third reason why we say that the Law does

not contemplate a conversion other than that

allowed by section 167 is that the change of status

which is allowed in 167 is not a section dealt with

in isolation. It relates with other provisions of

the Law, so that when particular changes of status are brought about, other parts of the Law say that

certain consequences either do or do not flow from

them. That is, there is an interrelationship between change of status and other rights and

obligations.	We point to two which we think are
very important.

In Part 5.6 of the Law, which contains the

winding up provisions, it appears at sections 514

and following - - -

Marlborough(2) 6 17/3/93

MASON CJ:  Can you give us the page?

MR FINKELSTEIN:  It depends on the print. I have got a CCH

publication, and that is at page 14,004.

MASON CJ: Yes.

MR FINKELSTEIN: Division 2 sets out the obligations of

members or, properly called, contributories, or a

company to make contribution in the event of a

winding up.	The general obligation is set out at
515:

Subject to this Division, a present or past

member is liable to contribute to the

company's property to an amount sufficient:

(a) to pay the company's debts and liabilities

and .....

(b) to adjust the rights of the

contributories -

Then there are specific provisions, naturally

enough, dealing with companies "limited by shares"
and companies "limited by guarantee" in 516 and 517

and in 518 companies "limited both by shares and by

guarantee", saying that the amount that they are

obliged to contribute is limited to the unpaid

amount on shares or the uncalled or unpaid amount

on the guarantee.

BRENNAN J:  Is there any significance in the use of the

words "need not contribute" in 516, for example?

MR FINKELSTEIN:  We take that to mean that if a member

wishes to make a contribution he may do so, but he

cannot be compelled to do so, and that is really

the basis of a limited liability corporation when it was - I think it goes back to the 1855 English

Act and the principle that was brought about for

the first time in the 1855 Act was to limit the

liability of members of the corporation.

Previously the liability was unlimited and it is

this division which gives statutory effect to the

status of such a company defined in its memorandum,

because section 117(l)(c), if I go back to it,

says:

if the company is a company limited by

shares -

the memorandum must state -

that the liability of the members is limited.

Marlborough(2) 7 17/3/93

So that is notice to the world that there is a

limitation on the obligation of a shareholder. Section 516 tells you what that limitation is; likewise with guarantee companies.

The Court will notice, however, in

sections 519, 523 and 524, express provision is

made about the liability of members in the case of

a company whose status has changed and, more

importantly, whose status has changed under

section 167. So that 519 provides despite 516,

that is a limit on the liability of a member, if

the company is a limited company by virtue of

change of status, and under 167(l)(a) that is a change of status from an unlimited company to a

limited company. So that, before the change of

status the liability of members was unlimited.

After the change it is limited and would be limited

to unpaid calls by virtue of section 516. 519 says

notwithstanding the change in status and the fact

that, as a consequence of the change of status, a

shareholder no longer has unlimited liability, it

now has limited liability, the member who - I am

sorry:

Despite sections 516, 517 and 518, if the

company ..... because a limited company by

virtue of a change of status under paragraph

167(l)(a), the amount that a member at the

time of the change of status, or a person who

at that time was a past member, is liable to

contribute in respect of the company's debts

and liabilities contracted before that time is

unlimited.

So that a day before insolvency a company cannot

convert from an unlimited liability company to a

limited liability company and avoid the obligations

that would fall on members in the event of an

insolvency. Now, the importance of it is that one

of the non-permitted changes - when I say non-

permitted, I mean not recognized by section 167 -

is from an unlimited company to a no liability

company. And that is the eighth non-permitted

change that we set out in our list.

TOOHEY J:  Mr Finkelstein, do you suggest that there is some

particular character attaching to the permitted

conversions on the one hand and some particular

character attaching to the non-permitted

conversions?

MR FINKELSTEIN:	Yes.
TOOHEY J: What is that?	I do not mean by reason of the

statute, but looking at the nature of the changes.

Marlborough(2)	3	17/3/93
MR FINKELSTEIN:	By reason of the consequences, yes.	In

almost all of the permitted changes, no

disadvantage would fall on any member or creditor

and in most, but not all, of the non-permitted

changes there is potential harm to either members

or creditors, and we see that as the dividing line

to explain why certain changes are permitted and

certain changes have not been allowed.

DAWSON J: Disadvantages which could be perhaps, but are

not, dealt with by statute.

MR FINKELSTEIN: That is exactly right, and the argument

that was accepted by the Full Court was that all of

those disadvantages could be cured by the court in
the exercise of its discretion under section 411 by

imposing terms and conditions. But the division

between what is permissible and what is not

permissible can be explained, I say not in every

case, but it is certainly true of most cases.

Disadvantage is obviated, but the best example is

if you look at section 167(l)(b):

a no liability company ..... may convert to a
company limited by shares.

There is a qualification: if all the shares are

fully paid up.

That is a mechanism by which the Parliament,

in the case of a permitted change, ensures that no

disadvantage accrues to members or creditors. Now,

in some cases the changes do not matter because

liability is not diminished, but in a conversion

under (l)(b) - (l)(b) is not there so much to

protect creditors but it protects members, because

a no liability company would ordinarily give

disproportionate rights to members. They are

entitled to dividends, regardless of the amount

that is being paid up; they are entitled to distribution of the assets on a winding up,

regardless of the amount paid up; and part of what

(l)(b) seeks to do is to equalize the status of

those persons so that the members themselves are

not disadvantaged.

And if I could go back to the winding up

provisions, section 519 protects creditors in one

case of conversion, the permissible kind, but does

not give the same protection in the case of the

impermissible conversion which we have identified.

The same is true of section 523 which also makes a

person who was a member liable, to an extent

greater than he would be under the new status of
the company and preserves his old status liability.

And the same again with section 524: that deals

with a change in status from a limited company to

Marlborough(2) 9 17/3/93

an unlimited company, and that deals with the

obligations of past members not existing members.

And while section 524 covers the case specified in

167(l)(e) it does not cover the eleventh change

that we have dealt with in the last part of our

outline, that is a conversion from a no liability

company to an unlimited liability company.

So that the first interrelationship and

protection given as consequence of a change is in

this general section on windings up. There are

other parts of the Act that do the same thing, and

can I take the Court to sections 396 and 397.	They
are at page 10,051 within the CCA print. Section 396(1) provides that:

If a no liability company ceases to carry on

business within 12 months after its

incorporation, shares issued for cash rank on

a winding up, to the extent of the capital

contributed by subscribing shareholders, in

priority to those issued to vendors or

promotors.

So, if you put in money you get your money out

first, if a no liability company goes out of

business within 12 months, and "no liability

company" is, by virtue of subsection (2), defined

to include:

a company that, having been incorporated as a

no liability company, changes its status.

There is a restriction in section 397:

Notwithstanding the constitution of a no

liability company, the holders of any shares

issued to vendors or promoters are not

entitled to any preference on the winding up

of the company.

And again in subsection (2): 

"no liability company" includes a company

that, having been incorporated as a no

liability company, changes its status under

section 167.

So that certain people are to be given advantages

in the winding up of a no liability company, 396;

certain people, vendors and promoters, are to

suffer a disadvantage on a winding up, 397; and in

each case it does not make any difference whether

at the time of winding up the company is still a no

liability company, it is enough if it has been.

Marlborough(2) 10 MR FINKELSTEIN, QC 17/3/93

In each case, however, its a change of status

under 167. The consequence of that is that if a

change of status is permitted outside section 167

the protections given by 396 and 397 are not

available, at least in the categories of change

that we describe in 9 and 10 of our list. And, we

would say, it would be an extraordinary result if

the protections of the type described in these two

sections, that seek to protect people who put in

cash and seek to disadvantage promoters in respect

of no liability companies that go out of business

quickly, would be avoided and it demonstrates that

a change of status under 167 is not contemplated.

And the last point, which is a point that I

identified earlier in the reasons why section 167

should be seen as the exclusive means or categories

of change, is that all of the changes, I think bar

one, which is a change to an unlimited liability

company - the eleventh change, which is not

recognized by section 167 but is a potential change

if it can be changed by other means, is from a no

liability company to an unlimited liability

company. Now, that change will not work any

disadvantage to anybody other than the members, but

certainly will not work any disadvantage to the

creditors and work to their positive advantage.

That, in our respectful submission, is the only

change which will not cause potential harm to

members or creditors.

All of the other changes that we have

identified are changes where there is potential

harm without protection given by the legislature

itself, and in the South Australian Supreme Court

in Insight Mining, 44 SASR 495, which is the third case in the folder of cases that we have handed to

the Court, Mr Justice Johnston, who came to the

same conclusion that we urge upon this Court,

analysed the non-permissible changes, especially

from pages 504 and following, and demonstrated the

potential areas of harm to either creditors or
members.	I do not want to read to the Court the

passages but we say that that is, even if there

were no more, sufficient justification for treating

section 167 as containing all of the permissible

changes and none others.

DAWSON J:  How do you fit the method of doing it by hand,

that is by creating a no liability company, issuing

shares to the members of the limited liability company, and then cancelling the shares in the

limited liability company?

MR FINKELSTEIN: That arrangement has been done in the past,

usually through a scheme which involved the

transfer of the assets of what became a subsidiary

Marlborough(2) 11 MR FINKELSTEIN, QC 17/3/93

company to the new no liability company parent. As

far as we can see the court has never been pressed

with an argument that such an arrangement should

not be sanctioned - as a matter of discretion,

leaving aside the question of power; here we are

dealing with the question of power. We would say

that a court, properly instructed, would not

sanction a scheme which would permit people to do

indirectly what is not contemplated or allowed to

be done directly. I cannot say that anybody has

ever argued the point, and my suspicion, having
regard to what we have been able to discover about

the issue, is that the point has never been argued

on a discretionary basis.

DAWSON J: But in any event, it does not involve a change of

status?

MR FINKELSTEIN:  No, it does not. But it involves a means

of subverting what is otherwise, we say, the clear

intent of the legislation, and we would say that

that is a good reason for a court to refuse to

approve a scheme, but it does not involve a change

of status. But the question is: "Is it a smart

way round the Act or is it not?", and that is why

we say a court properly instructed would exercise

its discretion against approving such a scheme, if

it seemed to be a device - now, I am not saying

that that has to be so in all cases. There may be,

if that sort of an arrangement is incidental to

something else - it is hard to see what it might be

- but if it is an incidental by-product maybe the

argument that I am suggesting will not run. But if

it is not, if that is the principle purpose for the

scheme then we would say it should never be

sanctioned by the court; it is just wrong to do

that.

I know that that was an argument that was used by the Full Court to justify the conclusion to

which it came, that if you can do it in the way

that Your Honour contemplates then that is a good

reason to show that it should be done under

section 411, but it really does not address the

right question, and we would say that the

assumption behind that analysis is incorrect. It

assumes that a court would allow it and, on our

submission, at least we would urge a court not to

allow it because it contravenes the policy of the

Act.

Can I turn now to the next question which is

whether or not, directly, section 411, the scheme

of arrangement provision, can be used to do

something which section 167 does not by its express

terms permit. There are three reasons why, in our

submission, section 411 cannot be availed of - I

Marlborough(2) 12 MR FINKELSTEIN, QC 17/3/93

will take the Court in a moment to the cases, but I

will just tell the Court the three points. The

first, section 411 is a machinery section designed

to allow the court to approve - that is the

language of the Australian legislation, "sanction"

has always been the language of the English

legislation - either a compromise or an arrangement

which the members or creditors or both, on the one
hand, and the company on the other hand, could have

put into effect by themselves by agreement. What

section 411 does is it obviates - either individual

agreement in each case with every member or every

creditor, or one agreement with all of them - the

need for unanimity.

The second reason is that whatever the court

may or may not be able to sanction or approve under

section 411, it cannot sanction a scheme which is

ultra vires the company, by which we mean that the

court cannot under section 411 say to a company and

its members or its creditors that we will sanction

something which the company cannot do and, as I

have sought to identify earlier, the company cannot

change its memorandum in a way which alters that

part of the memorandum which defines status. The

company cannot do it because there ·is no power in

the company to do it, that is the members cannot,

therefore it being beyond the power of the company

to do because of the entrenching provisions in the

law in relation to memorandum of association, we

say that the court cannot say, "Well, the company

cannot do it by itself through its members, but the

court can allow it under section 411".

The third reason why we say it cannot be done

is because the scheme - and the Court should know

that the scheme that was propounded did no more

than two things: it adopted new articles of

association and new memoranda. It had to adopt new

memoranda to bring about the change in status.

Whilst the appeal book does not have the new set of

memoranda and new set of articles, the scheme

itself is summarized in the appeal book and at

page 28 the objects of the scheme are set out, and

those objects are:

(a) to change the name ..... to Marlborough Gold

Mines N .L.;

(b) to adopt a Memorandum ..... which conforms

to the requirements of the Law in relation to

no liability companies;

(c) to effect a change of status of MGM from a

company limited by shares to a no liability

company.

Marlborough(2) 13 MR FINKELSTEIN, QC 17/3/93

(d) to adopt Articles of Association

appropriate to a no liability company. So that the scheme is the adoption of memoranda,

which we say the company cannot adopt because it

brings about a change which is impermissible; and

articles, well, you can change articles there is no

difficulty about that. That is how the object of

the scheme is described and, principally, it has to

be to adopt the memorandum of association, because

it is that which brings about the change.	But that
is not really what the scheme was all about.	What

the object of the scheme as there described at 28

was was a vehicle to enable the company to do what

it really wanted to do, and what it really wanted

to do is described in the judgments of the Full

Court, and I will take Your Honours to one passage,

page 36, in the judgment of Mr Justice Nicholson.

At line 14 on 36:

The primary object of the scheme proposed by

the directors is to bring about the conversion
of the status of the company from one limited

by shares to a no liability company in order

that it will have the power to raise capital

by issuing shares at a discount and at prices

related to the market price from time to time

of the company's shares.

So this was not just a change to change the

direction of the company generally - the scheme was

propounded, and the applicant company in

propounding the scheme was perfectly frank about

what the company desired to achieve - it was to

raise capital by issuing shares at a discount.

Now, the Corporations Law, as the Acts before

it, sets out how a company can issue shares at a

discount.	The relevant provisions are found in
section 190, and that is at page 4,852.	What

Marlborough wanted was to rely on subsection (1)

which says: 

A no liability company may issue shares at a

discount.

And what that means is, it can issue shares at a

discount with absolutely no restriction or

constraint. Of course Marlborough could, without

conversion, issue shares at a discount, but not as

easily as a no liability company because there is

mechanism for issuing shares at a discount for

every company other than a no liability company in

subsection (2). One thing that has got to happen

is you have to go to court and get the court's

approval for issuing shares at a discount,

subsection (2)(a)(ii). The resolution to issue

Marlborough(2) 14 MR FINKELSTEIN, QC 17/3/93

shares at a discount must be confirmed by the

court, so if you become a no liability company you

do not have to go to court and ask or justify the

issue of shares at a discount.

Subparagraph 2(b) "the resolution" where the

company resolves to issue shares at a discount must

specify "the maximum rate of discount", whether it

is going to be 20 per cent or 50 per cent or

whatever, you specify the amount and you are stuck

no doubt with that amount. Then, under

subparagraph (c) the shares have to be issued

within.one month. So that if circumstances change and you have not issued the shares within a month,

another resolution and back to court again for

approval.

More importantly, also, is the protection

given to existing members in subparagraph (d), that

the shares must be offered first to existing

members pro rata. Now, that is vital to a company

when, it being a no liability company, it can give

dividends to shareholders whether the shares have

been issued at a discount or not, it does not make

any difference how much is paid up on shares, so

that to protect an ordinary holder of shares when

shares are issued at a discount - by an ordinary

holder of shares I mean a holder of shares in a

company that is not a no liability company - they

are offered to him pro rata, he suffers no

disadvantage at all. A no liability company is not

subject to that restraint, it can issue shares to

anybody it likes, subject to any other constraints

in its articles but not a constraint by the

statute, and a person who has fully paid his shares

then ranks equally with a person who has partly

paid his shares, because they have been issued at a

discount - rank equally for dividends. Now, that

is something which is avoided if you are a no

liability company.

Now, if the avowed object is not the mere

conversion to a no liability company, but a

conversion to be used as a vehicle of the machinery

to make it more easy to issue shares at a discount,
then a scheme should not be sanctioned or approved

by the court because of, I was going to say well
established principles, but because of the
principle that the Law has an express provision
dealing with how shares are to be issued at a

discount, and section 411 should not be used to

circumvent that express provision.

Now, can I come back to the first point that

section 411 is a machinery section and not a
section by which the court can undertake, or bring

about fundamental changes which the members or

Marlborough(2) 15 MR FINKELSTEIN, QC 17/3/93

creditors themselves cannot. The first case to

which we want to refer on this point is Guardian

Assurance Company, (1917) 1 Ch 431, it is the

seventh case in our folder of cases.

In the judgment of Mr Justice Younger at 441,

dealing with the English forerunner of section 411,

half-way down the page, the second sentence into

the first full paragraph:

Its purpose -

That is, the purpose of the section -

is strictly limited: it does not confer

powers; its only effect at any time is to
supply, by recourse to procedure thereby
prescribed, the absence of that individual

agreement by every member of the class to be bound by the scheme which would otherwise be

necessary to give it validity. The section

accordingly has no application to an

arrangement which is ultra vires the company,

nor to an arrangement of a kind which can only

be effected in a prescribed w~y, eg, a

reduction of capital, or a reconstruction

under s 192.

The last point there helps support, or is

authority for, our third proposition that if there

is an express provision in the Act dealing with how

a particular thing is to be achieved, then you go

to the express provision, you do not go to

section 411.

TOOHEY J: Did anything in the judgment on appeal where the

decision of Justice Younger was reversed cast doubt

on that proposition?

MR FINKELSTEIN:  No. What was dealt with by the Court of

Appeal was Mr Justice Younger's narrow construction

of the word "arrangement" because the legislation

says the court can sanction a compromise or

arrangement. Mr Justice Younger said that

"arrangement" is qualified by "compromise". So

there has got to be some element of giving up a

claim or compromising a claim and thought that the proposal here that was being put forward could not
be properly classified as an arrangement in the

proper meaning of the word.

The Court of Appeal said no on that point and

said that the word "arrangement" stands alone and
is of very wide import. Therefore it overruled the

decision based on the construction of the word

"arrangement" and did not qualify or call into

doubt what was said on page 441 that I have just

Marlborough(2) 16 MR FINKELSTEIN, QC 17/3/93

referred the Court to. That is not the only case,

however, which says that section 411 or its earlier

equivalents are machinery provisions.

Mr Justice Simonds said much the same thing In Re

Oceanic Steam Navigation Company Ltd, (1939) 1 Ch

41, which is the last case in our folder of cases.

If I can refer the Court to the last seven

lines on page 47, referring to the section, His

Lordship says:

It contemplates a compromise or arrangement

between a company and its creditors or any

class of them or its members or any class of

them, and provides machinery whereby such a

compromise or arrangement may be made binding

on dissentient persons by an order of the

Court. I find nothing here which would indicate that the company can effect an arrangement which would be otherwise ultra

vires if the Court will give its sanction

under s 153.

MASON CJ: There is a more specific statement on 48, where

there is express approval of what

Mr Justice Younger had said in Guardian Assurance.

MR FINKELSTEIN:  Yes. And also at the foot of that page

there is support for one of our earlier

propositions about power to alter memoranda. If

you look at the last seven lines, after reference

to Anglo-Continental, what Mr Justice Simonds says

in the sentence which begins:

It is indeed a cardinal principle that a

company's corporate powers are defined and

limited by its memorandum of association, and

that its memorandum can only be altered in the

manner prescribed by the Act itself. It would

be strange if by a side wind under s 153,

without observing the particular prescription

of the Act with regard to alterations, new

powers could be conferred on a company, and

the contention is more forcible when it is

remembered that the new power proposed by this

scheme to be conferred on the company -

namely, to sell or dispose of the whole or any

part of the undertaking - is a power for the
creation of which by alteration of the
memorandum ..... the Act of 1929 makes express

provision.

But more importantly, we are dealing with a

case where there is no power to bring about the

alteration. What His Lordship here was dealing

with was an alteration which the Act itself tells

you how you bring about a change to the powers of a

Marlborough(2) 17 MR FINKELSTEIN, QC 17/3/93

company as set out in the constitution. We are

dealing not with that case but with a case where no

power exists anywhere to bring about such change.

In one of the cases we handed up in the

manilla folder - it was not in our original bundle
of cases - there is a decision of the South

Australian Full Court, In Re A. and C.

Constructions Pty Ltd, (1970) SASR 565, and if I could just refer the Court to a short passage at

568 in the judgment of the then Chief Justice

Mr Justice Bray. It is a paragraph which is about half-way down the page:

An order of the court under s 181(2) is

necessary so that a dissentient, non-voting or

absentee minority of creditors or members may

be bound by the scheme. Otherwise everything

could be done contractually.

The last case on this point to which we

actually want to draw attention to a particular

passage is Re Norfolk Island and Byron Bay Whaling

Co Ltd, (1970) 1 NSWR 221, and it is the fifth case

in our bundle, the first blue tab. The facts are

interesting - I do not know that they are highly
instructive - but a company which had not been

trading -

MASON CJ:	What is the reference to it, Mr Finkelstein?
MR FINKELSTEIN:	I am sorry: (1970) 1 NSWR 221, at 223, the

judgment of Mr Justice Street.

MASON CJ:  The reference in your outline was to the Weekly

Notes.

MR FINKELSTEIN:  I am sorry. We did get it right

eventually, Your Honour.

MASON CJ: Yes.
MR FINKELSTEIN:	The company wanted to have a scheme which

would bind creditors but it did not know if there

were any creditors. It did not want to take the

chance of continuing to trade without binding

creditors. So the company had a couple of

subsidiaries which were creditors, if they brought

those creditors into the scheme and then said, "We

are going to seek approval for the scheme which

will bind all creditors, including the two or three

subsidiaries." Mr Justice Street said, "You can't

do that", but in the course of saying why, he dealt

with what a scheme is all about.	The passage
starts at about line 20 on 223:

Marlborough(2) 18 MR FINKELSTEIN, QC 17/3/93

The section is intended to provide machinery
(i) for overcoming the impossibility or

impracticability of obtaining the individual

consent of every member of the class intended

to be bound thereby, and (ii) for preventing,

in appropriate circumstances, a minority of

class members frustrating a beneficial scheme.

It is a procedural section intended to

overcome a procedural difficulty.

There there is a reference to what

Mr Justice Younger said in - there is in fact a

reference to Anglo-Continental Supply, a decision

of Mr Justice Astbury who said much the same thing
as Mr Justice Younger had said in Guardian

Assurance, saying that the section does not confer powers, it is machinery.

In saying that the section does not confer

power, and it is only machinery to enable that to
be done which the company and its members or the company and its creditors could do in any event,

and that it cannot bring about a change to

memorandum, I have to point out to the Court that there are a series of decisions in England, and I

think Scotland as well, which suggest that a scheme

of arrangement can bring about a change to a

memorandum even though the provisions dealing with how you bring about a change to memorandum are not

followed.

I do not have them in the bundle, and I must

say that when you go to the cases they are very

confusing in terms of, if I might say so
respectfully, legal analysis. There was a change

in position. There were judgments at first

instance in England which suggested that you could

not bring about a change to memorandum by a scheme.

It is likely that those views - I say likely because even this is not clear - but it is pretty

likely that those views became views not accepted.

The relevant cases, and they are in the list

In Re Palace Hotel
of cases that we have filed, are read in this order - In Re Palace Hotel Limited,

(1912) 2 Ch 438, General Motor Cab Company, (1913)

1 Ch 377, Doecham Gloves Ltd, (1913) 1 Ch 226, Re

Schweppes Ltd, 1914 1 Ch 322, and Re J.A. Nordberg

Ltd, (1915) 2 Ch 439. They were cases where each

involved a scheme of arrangement where what was

proposed was an alteration to the rights attaching

to shares or classes of shares. In some of the
cases it is possible, although the discussion of
the facts does not make it absolutely clear, that

the machinery necessary to alter class rights

Marlborough(2) 19 MR FINKELSTEIN, QC 17/3/93

attaching to shares in the English Companies Acts

was followed.

In some cases the court thought that the change of class rights did not bring about an

alteration to the memorandum. That may be right or

may be wrong, but you do not have set out fully

what is set out in the memorandum, so that it is

hard to follow. Some cases suggest that it does

not matter if it does bring about a change to the memorandum, it is nevertheless permissible by the

scheme sections.

The points that we want to make about it are

two. In the first case each of the cases concerned

class rights attaching to shares, cancelling

dividends that were unpaid, reducing the rate at

which preference shareholders to be paid, say from

five per cent to four and a half per cent, and
that sort of thing.

The point about them is that if it is correct

to say that you can change the memorandum, no case
suggests that you can change the memorandum in
circumstances where the members cannot do it

themselves. That is, the changes which are dealt

with in these cases, if they be changes to the

memorandum, are changes which the members can bring

about. Not one case has suggested or even hinted

at the possibility of bringing about a change under

a scheme provision of a type which the members

themselves do not have power to bring about.

The reason why we say that such a proposition could never be suggested is that it contravenes a

fundamental principle of company law - that is,

that the constitution of the company is immutable

unless the statute says that you can change it.	We
would, if pressed, say that it is wrong to think

that under a scheme provision you can bring about a

change to articles.	When an argument was put in
one of the cases to which I have referred, the

court replied that it is 50 years too late to make

that argument because people have been doing it for

a very long time.

That may be a good answer or it may not be a

good answer, but it seems to us on principle to be

wrong and various judges at first instance in

England have thought that. We would think that it

fits our analysis - that is to say that it is

wrong - fits fairly and squarely into what

Mr Justice Simonds thought was impermissible in Re

Oceanic Steam Navigation, when he said you cannot by side wind - a scheme of arrangement provisions -

bring about a change to the memorandum of

association of a company when the statute tells you

Marlborough(2) 20 MR FINKELSTEIN, QC 17/3/93

how you do that or, more importantly in our case,

when the statute does not permit it.

But at all events, we do not have to go so far

as to say that when you find statements in these

cases to say that you can bring about a change to
the memorandum, that they are wrong, because none
of them stand for the proposition that you can

bring about an impermissible change to the

memorandum by impermissible, one which is not

recognized in some provision of the Companies Law

dealing with alteration of memoranda.

I want to refer the Court to two cases on the

different machinery point, the third of our points

against section 411 being available in this case.

That is, you have got section 190 about how a

company goes about issuing shares at a discount and

if you want to issue shares at a discount you go to

that section, you do not go to the scheme of

arrangement section. The principal case is

International Harvester of Australia, (1953) VLR

669, and it is the second-last case in our bundle

of cases.

It is a decision of the Full Court of the

Supreme Court of Victoria and what was sought to be

done in this case, because of ambiguity in one of
the objects provisions of the company, the company
wanted to introduce a new, or substitute, objects

provision. One of the questions raised was: how

ambiguous was the first in any event? But can I

take the Court to page 672 in the judgment of the

then Acting Chief Justice Mr Justice Lowe. About

half-way down the page there is a reference to Re

Anglo-Continental Supply and then there is a

reference to the meaning of the word "arrangement"

immediately before Guardian Assurance.

I want to refer the Court to the passage that

immediately follows that dealing with the word

"arrangement", saying that it is not restricted in
the meaning by the word "compromise".	The Court

will recall that that is the point on which the

Court of Appeal in Guardian Assurance overturned

the decision of Mr Justice Younger, the meaning of

the word "arrangement". Then Mr Justice Lowe goes

on:

The word has been given a liberal meaning and,

generally speaking, unless the arrangement is

ultra vires the company or seeks to deal with

a matter for which a special procedure is laid

down or to evade a restriction imposed by the

Act ..... almost any arrangement otherwise egal

lwhich touches or concerns the rights and

Marlborough(2) 21 MR FINKELSTEIN, QC 17/3/93

obligations of the company or its members or

creditors may be come to under sec 153.

It is the "or seeks to deal with a matter for which

a special procedure is laid down" that has

relevance to the present submission that we are

seeking to make.

BRENNAN J:  I notice that one of the authorities cited in

support of that proposition is General Motor Cab Co

to which you drew our attention as being one of the

opposing authorities.

MR FINKELSTEIN:  Your Honour, the cases that I referred the

Court to are not all opposing authorities. They
debate the question and some judges in those cases

take the view for which we contend and other judges

take the opposing view. So what I tried to do -

this was a debate in the 1910s and 1920s in England

and it seems to have been lost forever, everybody

accepting that some change can be brought about to

the memorandum. It is picked up, in any event, in

this case by - - -

BRENNAN J:  Did Palmer have anything to say about this

debate?

MR FINKELSTEIN:  The generally accepted position is that you

can at least bring about a change to that part of

the memoranda which deals with share rights, and

that is the position which is stated here in

International Harvester, if I can just pick up the

passage. I cannot find the passage, I will pick it

up in a moment.

BRENNAN J:  Do not let me delay you, but I was just

interested to know what the authorities had to say

about the debate if it was not finally settled by a

judgment.

MR FINKELSTEIN:

finally settled, in a sense, because it was a Court I do not want to say that it has not been

of Appeal that suggested that you could alter

memoranda. The difficulty with the Court of Appeal

decision was that it decided in the particular case

that there was by the scheme no change to the

memoranda but then went on to say, "Look, the point

was argued, so we'll express views on it, although

it is unnecessary." So that you have got a view

expressed by a Court of Appeal in England to say

that you can do it, but clearly by way of dicta

because the case went on the express point that

there was no change to the memorandum.

That is the Schweppes case, and then you have

got after that a single judge following the dicta

of the Court of Appeal. I will find the passage I

Marlborough(2) 22 MR FINKELSTEIN, QC 17/3/93

am looking for in a moment. I was going to refer

the Court to page 673, two-thirds of the way down

the page, the third-last paragraph of the judgment

of Mr Justice Lowe:

What this petition then asks the Court to do

is to sanction under sec 153 an alteration of

this object - something which lies outside the	scope of that section.
It lies outside the scope of section 153

because it lies inside the scope of some other

section, that is the section that tells you how you

alter objects provisions in memoranda.

Mr Justice Martin expressed similar views at

page 675.

DAWSON J:	Mr Justice Smith.
MASON CJ:	His judgment commenced on the previous page.
MR FINKELSTEIN:	The error is at the top of the page.

Your Honour is right, it is Mr Justice Smith, but

the top of the page attributes it to thirds of the way down the page in ·the paragraph

which begins:

The authorities make it clear, I think,

that sec 153 is to be construed liberally, and

that it is wide enough to include schemes -

This is the passage that I was looking for earlier.

it is wide enough to include schemes altering

other provisions in a memorandum relating to

the share capital of a company; and it may be

that it extends so far as to cover schemes altering other provisions in a memorandum.

So what the earlier cases do, it seems, is

no means clear how much further than that you can	show that you can change share capital. It is by
go and the point that we make, in any event, is
that the legal analysis of that position is not
articulated clearly and we would say unsound, but
we do not have to go that far. But then I come to
the point that I want to refer to in
Mr Justice Smith's judgment:

But however widely the language of section 153

may be construed, it cannot, of course,

operate to enable a company to escape from

compliance with those provisions of the Act

which, either expressly or by implication, lay

down a special and exclusive procedure for

Marlborough(2) 23 MR FINKELSTEIN, QC 17/3/93

effecting certain kinds of alterations to the

memorandum.

There are other decisions to a like effect. I

will give the Court the citations but I will not

read passages from them. There is the case that is

referred to in International Harvester, Cooper,
Cooper & Johnson Ltd, (1902) WN 199, a short judgment of Mr Justice Byrne and Re Anglo-

Continental Supply Company Limited, (1922) 2 Ch

723. That is in our folder of cases as the sixth

case and the relevant passage in the judgment of Mr

Justice Astbury is at 734 to 735. The final case

on the point is another New South Wales decision,

Re Tillers Pty Ltd, (1970) 3 NSWR 202, a decision

of Mr Justice Street.

So that the last of our points is having

regard to what we say are the avowed objects of the

scheme as described in the judgments of the Full

Court, the Court does not have power to approve the

scheme. It is interesting that International

Harvester when dealing with this point speaks of it

in terms of power rather than discretion and we

would say that that is correct because it means

that section 411, or its earlier equivalents, was

not capable of being utilized to overcome or avoid

specific provisions with specific machinery in the

Act.

It is not only the issue of shares at a

discount which is relevant on this point. It might

be a bit of a bootstraps argument, but in a sense

section 167 itself is a machinery provision because

it tells you how and in what circumstances you can

change status. It tells you what you have to do

and what steps you have to go through to change

status, so that that is another section, the

machinery of which and the procedures of which are

sought to be overcome by use of section 411. They are the reasons why we submit that
section 411 cannot be used.	I want to deal with

one last point and that is the notice of

contentions.

MASON CJ:  You do not need to deal with that. You can deal

with that in reply.

MR FINKELSTEIN:  I will do that, thank you. They are our

submissions, if the Court pleases, unless there is
any issue that the Court would be assisted by me

saying something else on.

BRENNAN J:  I would be interested to know, not now but at

some time, any passages that might appear in, say,

Palmer and Buckley that deal with these problems.

Marlborough(2) 24 MR FINKELSTEIN, QC 17/3/93

MR FINKELSTEIN:  We will provide the Court with a copy of

all of the leading textbook writers, both English

and Australian, on the point.	May it please the
Court.

MASON CJ: Yes, thank you Mr Finkelstein. Mr Emmett.

MR EMMETT:  If I could hand up to Your Honours the outline,

which I am afraid is attached to bundles of papers.

MASON CJ: Yes, Mr Emmett?

MR EMMETT:	You~ Honours, we start with the proposition that there has never been advanced, perhaps until
today - - -
MASON CJ:	Do you have an outline of arguments?
MR EMMETT:	It is attached to the front of the bundle I have

just handed up. I am sorry, Your Honours, I

thought that is what Your Honours were looking at.

MASON CJ: Yes, we have it. You can proceed; I will follow

the outline.

MR EMMETT:  Your Honours, we start with the proposition that

there has never been advanced any policy reason why

the type of conversion under consideration should

not be permitted. The Full Court below noted that

no policy reason was advanced by the Commission as

to why this type of conversion ought not to be

permitted as a matter of principle.

There has been suggested today that there is

some disadvantage. The only disadvantage, though,

that could arise in relation to a conversion from a

no liability company to a limited company is where

there were partly paid shares. The members in a no

liability company have a privilege that they are

not bound to contribute to the extent of the amount

unpaid on their shares. So much appears from those

provisions of the Law which deal with no liability

companies.

My learned friend took Your Honours briefly to Part 4.3 which is on page 10,002 of the CCH reprint

of the Law. At 385 in effect is the pivotal privilege conferred upon the members of a no

liability company:

The acceptance of a share in a no liability

company ..... does not constitute a contract on

the part of the person accepting it to pay any

calls in respect of the share or any

contribution to the debts and liabilities of

the company and such a person is not liable to

Marlborough(2) 25 17/3/93

be sued for any calls or contributions but is

not entitled to a dividend -

et cetera. That suggests that there are in effect three categories of companies so far as the rights

of shareholders are concerned. There are unlimited

companies where there is no limit at all on the

liability of a member, all members are required to

contribute to all of the liabilities of the company

without limit. There are limited companies and

there are three subcategories of limited company -

I should say all of these terms are defined in

section 9 of the Law - the limited company is one

where the liability is limited by shares or where

the liability is limited by guarantee or where the

liability is limited by a combination of shares and

guarantee.

The third category of company so far as this

aspect is concerned is a no liability company. It

is important to remember that a no liability

company is an invention of the Australian

legislatures - I think the Victorian legislature

first invented it - and it is not an animal known

to the United Kingdom Law. So that much that might

be said in English cases one has to bear with some

qualification having regard to that circumstance. Getting back to our first point, the only

circumstance where conversion from a no liability

company to a limited liability company could cause

prejudice would be where there are partly paid

shares. Where you convert a limited company to a

no liability company, the only disadvantage from

such a conversion would be for creditors if there

were partly paid shares. If there were no partly

paid shares, then the conversion would have no

effect on the creditors. From then on they would

know that they are dealing with a no liability

company and that the shareholders would then have

the privilege which is conferred by section 385.

GAUDRON J: But do you not need a provision with respect to

debts already incurred to bring that about?

MR EMMETT:  I am just about to come to that. The reason why

you could not convert a limited company to a no

liability company, if there are partly paid shares,

is because that would constitute a reduction in

capital. The Act already provides protection for

the creditors where what is involved is a reduction
of capital. Section 195 deals expressly with the

circumstance, which is at page 4,902 in the CCH

reprint. Section 195 provides that:

Subject to confirmation by the Court, a

company may, if so authorised by its

Marlborough(2) 26 17/3/93

articles ..... reduce its share capital in any

way and in particular ..... may .....

(a) extinguish or reduce the liability on any

of its shares in respect of share capital not

paid up -

So that if you have a limited company which was

converting to a no liability company and there were

partly paid shares, the effect of the conversion,

because of the operation of section 385, would be

to reduce the capital by extinguishing unpaid

liability. If that sort of conversion were

involved, it would be necessary to comply with

section 195, and the court has to grant its

sanction and all of the protection for creditors

which is contemplated by a reduction of capital
would be applicable.

That, of course, is not this case. All of the shares in the respondent are fully paid, and there

are findings to that effect which we have referred

to in our outline. So that the only circumstance

where there might be prejudice to anybody by a

conversion of a limited company to a no liability

company is where there is uncalled and unpaid

capital. That circumstance would be protected by

the express provision in the Law contained in

section 195.

Given, if that is so, that there is no policy

reason why one could not convert, one also
considers that the same commercial result can be

achieved by the method to which my learned friend

referred in passing and which is set out in several

places in the appeal book, and we will give

Your Honours a reference to that. The scheme has

been approved on a number of occasions and under

section 411 the Commission must be notified of the

scheme and must be given an opportunity to appear

and make submissions in relation to it. There is

no hint that the Commission has ever, prior to

today, suggested that such a scheme is undesirable

or should not be approved by the court.

I will hand up to Your Honours, without taking

Your Honours through them, examples of the schemes

that are referred to in the Full Court's judgment.

In short they involve the formation of a no

liability company and then a scheme whereby the

shares in the existing limited company are

extinguished, new shares are allotted to the new no

liability company and shares in the new no

liability company are then allotted to all of the

shareholders in the existing limited company in

exactly the same proportions. Not only have such

schemes been sanctioned on a number of occasions by

Marlborough(2) 27 17/3/93

courts, but they appear to have recognition in the

Income Tax Assessment Act.

MASON CJ: But they are not instances of conversion of one

company into another company.

MR EMMETT:  No, they are not, Your Honour. They are simply

an indication that the same result can be

achieved -

MASON CJ:	By other means.
MR EMMETT:	- --- from the commercial point of view really

by way of emphasizing that there is no policy
reason why this should not occur. That is the only

point in referring to them.

BRENNAN J:  You say the shares are extinguished in these

arrangements?

MR EMMETT: Shares are extinguished under these schemes,

yes. Shares in the existing limited company are
extinguished and in place of those shares under the
scheme, the new no liability company issues exactly
the same number of shares to the existing

shareholders.

BRENNAN J:  I imagine that there would be a sale of the

assets of the old company to the new, would there?

MR EMMETT:  No, you end up with a double-decker structure.

The old company ends up as a wholly owned

subsidiary of the new company. All the shares in
the old company are extinguished. The new company
gets new shares in the old company and then all of

the old shareholders in the old company get shares

in the new company. I was not going to take

Your Honours through them in detail, but we will

make available to Your Honours a copy of the

schemes that are referred to in the Full Court's

judgment and also a copy of section 160ZZPD of the

Income Tax Assessment Act which seems to recognize

explicitly that such a scheme is permissible.

I take Your Honour the Chief Justice's point

that it does not involve any conversion; it is

simply by way of emphasizing that as a matter of

policy there is no reason why the proposed

conversion should not be permitted.

MASON CJ: Just as a matter of interest - it is not a

question that has any relevance to the present
case - why are the shares in the old company

extinguished under these schemes rather than

transferred to the new company?

Marlborough(2) 28 17/3/93

MR EMMETT:  One possibility might be to avoid the incidence of stamp duty.

MASON CJ: Yes, that is what occurred to me.

MR EMMETT:  Assuming that is the case, again that is the

scheme that seems to be recognized by

section 160ZZPD of the Income Tax Assessment Act,

that being a provision, as Your Honours will

recognize from the number, in the capital gains tax

provisions. The effect of that section is that

there is deemed in effect not to be a realization

so long as that precise relationship is maintained

and the shareholders in the new company end up with

precisely the same number of shares in the new

company as they had in the old company and the old

company being wholly owned by the new company. So

there is deemed not to be a disposition which

otherwise there would have been.

BRENNAN J: What it does effect in either case is a change

in the rights of the members inter se.

MR EMMETT:  And changes in the rights between the member and

the company, both companies, because in effect

there are two schemes, one for each company, and

they are approved at the same time. The scheme is

in exactly the same terms but it is approved in

relation to both companies because both companies

are affected by it. But so far as the first scheme

is concerned, there is in effect a third party,

namely the other company which is a party to its

scheme.

BRENNAN J:  So that the rights of a dissenting member under

the statutory contract are extinguished or changed.

MR EMMETT:  The rights of all members are affected by it,

whether they dissent or otherwise.

MASON CJ: But that is the very purpose of a members' scheme

of arrangement?

MR EMMETT: Query, though, whether, even if this sort of

scheme were done with unanimous agreement of the

shareholders, it could not be done without the

approval of the court because it involves an

extinguishment of shares and then the allotment of

new shares in a way which could not be done just by

agreement. One might by a series of different

transactions end up with much the same result, but

what is actually done by the scheme is not

something that could be done simply by agreement

between the parties. So that the scheme does

something more than simply grant compulsory consent

to those who would otherwise not give their consent

to the arrangement. I will say something about

Marlborough(2) 29 17/3/93

that sort of aspect later on when we want to say

something about the takeover provisions.

The same notion arises in The Bank of Adelaide case, for example, which gave rise, I think, to a

subsection in 411 which involved a similar

arrangement, that is an extinguishment of shares in

the Bank of Adelaide that were not owned by the ANZ

Bank and then the allotment of new shares in the

ANZ Bank to the holders of the shares in the Bank

of Adelaide that were extinguished.

That question really arises in relation to the

second way in which my learned friend puts the

case. I am addressing first the question of

whether or not section 411 does anything other than

merely confer the consent that would otherwise be
missing. In other words, for the moment I am
meeting my learned friend on his own ground and
saying even if it is the fact that section 411 does

not confer power, there is a mechanism recognized

by the law whereby this conversion could take

place.

By way of preliminary to making that point, I

simply say first of all there is no policy reason

why it should not occur. I now want to embark on

the positive proposition as to why it can occur.

Basic to our submission is a recognition of a

fundamental distinction in the Law between the way

in which limited companies are defined and no

liability companies are defined.

I indicated to Your Honours that tripartite

distinction between unlimited, limited and no

liability. Could I ask Your Honours to look at

section 9 of the Law. First of all, on page 2,162

in my reprint are the definitions of "company
limited by guarantee" and "company limited by

shares". The definition:

means a company formed on the principle of

having the liability of its members limited by
the memorandum to the respective amounts that

the members undertake to contribute ..... if it

is wound up;

"company limited by shares" means a company

formed on the principle of having the
liability of its members limited by the

memorandum to the amount (if any) unpaid on

the shares respectively held by them -

Then if Your Honours look at the definition of
"limited company" which appears at page 2,274, it

means:

Marlborough(2) 30 17/3/93

a company limited by shares, a company limited

by guarantee or a company limited both by

shares and by guarantee, but does not include

a no liability company -

So that the class of limited company is exclusive of no liability companies but includes both

companies limited by guarantee and companies

limited by shares and companies that are limited by

both. "Unlimited company" is defined at 2,393:

means a company formed on the principle of

having no limit placed on the liability of its

members -

Then when one goes to "no liability company" at

2,303:

means a company that does not have under its

constitution a contractual right to recover

calls made on its shares from a shareholder

who defaults in payment of those calls -

"constitution" is defined at page 2,181 as being -

in relation to a body corporate -

which is a company -

the memorandum and articles of the company.

So that the thing that makes a company a no

liability company is not what is contained in its

memorandum, as is the case with a limited company,

but what is not contained anywhere, either in its

memorandum or in its articles of association.

Our proposition is this, that the company in question, the respondent, being a limited company

had provisions in its articles whereby calls could

be made and it was therefore not a no liability
company.	By deleting those provisions from the

articles of association, the company became by

definition a no liability company, because the only

criterion for determining whether you are a no

liability company or not is whether or not there is

such a provision in your constitution. The company

can simply, by altering its articles of

association, so long as there is no provision in

its memorandum, become a no liability company.

There is the requirement of section 117 which

is at page 4,053 which says that:

The memorandum of a company shall ..... state:

Marlborough(2) 31 17/3/93

(f) if the company is a no liability company -

that the acceptance of shares in the company
does not constitute a contract to pay calls in
respect of the shares or to make any

contribution towards the company's debts and

liabilities.

The respondent does not contain such a provision, and one might assume that if you presented an

application for registration in respect of a

company whose memorandum did not contain such a

provision, the Commission would refuse to register

it. However, where you have a company which is not

a no liability company and by definition it becomes

a no liability company, then it must be accepted
that it has power to comply with the Law, namely it
has by definition become a no liability company by

deleting the requirement from its articles; it must

therefore be taken to have power to comply with

section 117 and amend its memorandum by inserting

into the memorandum the provision which is required

by section 117(1)(f).

The only thing that says that it could not do

that is section 171 which is at page 4,553. That

simply says:

The memorandum of a company may be altered to

the extent ..... provided by this Law but not

otherwise.

What we say is, section 117(l)(f) specifies the

extent to which a no liability company may alter

its memorandum. It can alter it to comply with the

Law, because section 117 says it has to have that requirement in its memorandum.

If each of those propositions is sound, we

have this consequence, that a company can convert

to a no liability company by taking these steps.

First of all it alters its articles of association

to delete the provisions which require shareholders
to meet calls.	It of course cannot do that if

there are partly paid shares, because that would

amount to a reduction of capital. If it does have

partly paid shares, it must go to the court and get
the court's sanction under section 195. That is

not this case.

Having deleted that provision from the

articles and on the assumption there is no

provision in the memorandum that says that the

shareholders are required to contribute an amount

on winding up, there may be a provision which says

the amount which they are required to contribute is

limited but nothing that imposes a contract on them

or a contractual obligation on them to contribute.

Marlborough(2) 32 17/3/93

The next step then is having become by

definition a no liability company, the company is

then authorized by section 171 to alter its

memorandum in order to comply with section 117.

Once it has done that, it is a no liability
company. As I say, if those propositions are

correct, then the scheme - and the scheme is in the

appeal book - does no more than that and its effect

is no more than to require any dissentient

shareholder to give agreement to something which he

could have given agreement to expressly.

The evidence is that there are 1800, I think

it was, shareholders, 900 of whom lived in

Queensland. As a practical matter it would be very

difficult to get unanimous consent of all

shareholders. Therefore, it is a classical

circumstance where a scheme would be approved, and

the scheme does no more than facilitate the

carrying out of the various steps that are

contemplated by it.

Perhaps I should take Your Honours back to the

scheme. The order approving the scheme is at

page 25 and the scheme then follows_ at pages 26 and

following of the appeal book. The first two

clauses are interpretation and recitals, then the

operative provisions of the scheme are clause 3:

The objects of the Scheme are:

(a) to change the name -

that is something which can be done by special

resolution -

(b) to adopt a Memorandum of Association -

that can be done by special resolution in order to

comply with section 117 -

(c) to effect a change of status -

well, that is the consequence of doing all of this;

and -

(d) to adopt Articles of Association

appropriate to a no liability company.

That is to delete from the articles those

provisions which preclude this company from

satisfying the definition of no liability company.

The scheme in effect does those. On the effective

date the name is to be changed, the new memorandum

is to be substituted and new articles are to be

substituted. 3.3 really just recites the

Marlborough(2) 33 17/3/93

consequence of that. It by definition becomes a no

liability company once .those things have occurred.

There is no reason why one should read

section 167 as being an exhaustive code of the way

in which changes in status might occur. Certainly

there are reasons why some conversions should not

be permitted as of right. The thing that can be

said about section 167 is that it permits these

conversions to occur as of right without any court

intervention or sanction.

One reason why one would not find in 167 some

conversions is because they could be detrimental to

members who took up their shares on a particular

basis, they could be detrimental to creditors who

became creditors on the basis that they were

dealing with the company of a particular status.

What the legislature must be taken to have said is:

these are the limited categories of conversion

which will be permitted without resort to the

courts.

Conversion from limited company to no

liability company should not be permitted as of

right because of the possibility that there might

be partly paid shares. That is not a reason,
however, for saying that it should not be permitted
at all. Such a conversion will only be permitted
if the company complies with section 195. There is
nothing in the language of 167 that says these are

the only conversions of status which are permitted

under the Law. What it purports to do is to say

these sorts of companies may convert or may

change - "convert" is the word - may convert into

another class of company.

One would have thought, as one finds in section 171, only four sections later, that it was

meant to be exhaustive. The preamble to 167 would

say, "The following conversions and none others are

permitted". Section 171 says: 

The memorandum of a company may be altered to

the extent, and in the manner, provided by

this Law but not otherwise.

So that the draftsman of this Law was mindful of the distinction.

BRENNAN J: Could not some of the changes of status under

section 167 be detrimental to members of the

company?

MR EMMETT:  Yes, but for whatever reason the legislature has

thought fit to permit those. Indeed, the

conversion from unlimited to limited,

Marlborough(2) 17/3/93

paragraph (a), would certainly be detrimental to

creditors because, on the one hand, they have a

company whose shareholders have no limit on their

liability and they are next dealing with a company

the liability of whose members is limited. But

that is a means of conversion which historically

has been permitted since the 19th century.

BRENNAN J: But if that be so, what you say is that 167 is

not to be construed as an exhaustive code of conversions of status but for a reason which

escapes analysis. In other words, there is no

point of distinction between the present case and

those which are governed by 167.

MR EMMETT:  We think not, but my learned friend was asked

that question and he could not offer an example. He said most of them involve no detriment but he

qualified it by saying "most" and clearly

paragraph (a) does involve a detriment to the

shareholders. But one cannot say that section 167

was - or the conversions were something which were

imposed on company law; it is something that has

grown over the years. Initially, you could convert

from unlimited to limited and that has gradually

been extended and, indeed, in the United Kingdom,

as appears from the most recent editions of Palmer,

one still cannot convert from a company limited by

guarantee into a company limited by shares or vice

versa. That is, one cannot convert within that

class of companies that are limited companies.

Now, there is no policy reason, it seems, for

that limitation. The Australian legislatures have

seen fit to include and permit such conversions.

But what is clear is that from time to time the legislature has said these sorts of conversions can be effected as of right, subject of course to

compliance with the requirements of the law as to

special resolutions and the like; subsection (7),

for example, provides that the protection of

memorandum, are applicable to a conversion. section 172, which deals with changes in the We do not suggest that one would not have to

comply with the requirements of sections 171 and

172, so far as they require special resolutions to

alter the memorandum. So long as one can find such

a power to alter the memorandum, and we find in

117(l)(f), then the members are protected. The

members can, under section 172, have recourse to

the court. Subsection (8) is the power whereby the
court can cancel an alteration of the memorandum.

So that the court always has the overriding supervision of any change to the memorandum and

even a conversion under 167 has that protection by

1-f'irlborough( 2) 35 17/3/93

reason of section 167(7) which provides that

section 172(6) to (10) are, with modifications,

applicable to the resolution effecting the

conversion.

MASON CJ:	Mr Emmett, your case for convertibility really rests on the definition of "no liability company"
and the ease with which a special resolution can
thereafter be passed extinguishing any liability to
pay unpaid calls and on the part of the company to recover. It seems, in a sense, a capacity to
convert that is almost sub silentio concealed in
the definition of "no liability company". But was this capacity to convert in this way from a limited
company to a no liability company part of the
pre-existing legislation in the days when no
liability companies were introduced into companies
legislation in Australia, or is this something new that has arisen as a result of this particular
definition in the Corporations Law?
MR EMMETT:	I must say that while we have looked at many

historical matters, I am not sure that I have

looked at the definition of "no liability company"

from that specific point of view, so at the moment

I cannot respond to that question, Your Honour. I

will have it looked at. If it is new, then we

would say it was something that was done

consciously by the legislature.

MASON CJ: Advisedly, yes, and in that respect, I suppose,

it marks this provision out as almost unique,

having regard to some of the things that have been

done, as it were, without contemplation of

consequences.

MR EMMETT:  Yes. Your Honour. If we might respond to that on notice,

I am not sure that the historical

materials we have got here at the moment deal with

the definition provisions to the same extent as the

other provisions.

To respond to what Your Honour

the Chief Justice said, it is correct that our

submission founds on that definition. As we

understood it, some point was made below, although

my learned friend does not appear to have referred

much to the proposition, that section 167(8) is in

some way significant because it confirms that where

you have a conversion under 167 there is no change

in the personality of the company.

That is a new provision in the Australian legislation. It does not appear in the United

Kingdom legislation dealing with change of status

and the comments in successive editions of Palmer

are all to the effect that the consequence of a

Marlborough(2) 36 17/3/93

change of status does not affect the legal

personality of the company. So that when

subsection (8) and its predecessors were included

in the Australian legislation they did no more than

declare the position as it had always been stated

by Palmer.

If I could just give Your Honours a reference

to the 21st edition of Palmer, for example. The

observation is made at page 46 of the 21st edition.

I will just read the paragraph, we have not given

Your Honours the reference to it:

These provisions admit the conclusion

that on re-registration -

and my learned friend adverted to the fact that the

language in the United Kingdom legislation is

"re-registration" rather than "conversion" -

a company does not lose its former legal

personality and does not acquire a new one but

that, on the contrary, its former legal

personality is continued. No transfer of

property from the old to the new company is

required -

so that, without a provision such as 167(8) there

is no change in legal personality and 167(8) must

be taken to be no more than declaratory.

MASON CJ:  Mr Emmett, could I ask you one question about a

reduction of capital. Certainly on a reduction of capital the court would confirm the extinguishment of liability under the articles to pay unpaid calls

in respect of an amount of capital that the company

proposed to reduce. But assuming a company is to

continue its character as a limited company, would

it be consistent with the provisions and the policy

behind the Corporations Law to permit a company to

pass a special resolution that, as it were,

extinguished the liability of shareholders to pay

calls on capital generally, dissociated from a

specific reduction of capital?

MR EMMETT: Well, yes, it would, because it would affect

creditors so that the principles of maintaining

capital and the notion that a shareholder who takes shares which are partly paid must always contribute

to the extent of the shares that are unpaid ought

not, without the court's intervention, be released

from that obligation.	Am I misunderstanding Your
Honour's question?

MASON CJ:  No.

Marlborough(2) 37 17/3/93

MR EMMETT:  So that it would be contrary to the policy to

say, "You can't be let off the obligation which

contractually you have undertaken". And that is

precisely what section 195 is concerned with. It

says that in certain circumstances it may be

appropriate because the creditors are not in any

way prejudiced. The only reason why you should not

let a shareholder off the hook in those

circumstances is because of possible prejudice to

the creditors, and that is why section 195 and its

predecessors in 123 and 64 - whatever it was - of

the previous law have always said that you can
reduce- capital, but only with the court's sanction,

the function of the court being to make sure -

assuming that the reduction of capital is not a

selective reduction of capital so that all

shareholders are treated equally - that the

creditors are not prejudiced by having a potential

asset taken away from them.

MASON CJ: Yes.

MR EMMETT:  Your Honour, if we are right in the submissions

I have made so far that, in our submission, would

be an end of the matter.

I now want to address the second way in which

the matter is put: that is, assuming that

section 411 is needed by the respondent in this

sort of case to do something which could not be

done by consensus between the members and the

company, does section 411 extend, in effect, to

create a power to vary rights beyond what could be

done by mere agreement between the parties.

My learned friend has already referred to the

International Harvester decision and we would, with

respect, adopt what is said by

Acting Chief Justice Lowe in the passage to which

my learned friend took Your Honours. It might be

convenient to look at his book rather than the
other materials.	It is the second orange tab in my

learned friend's bundle and the passage, which has

been cited with approval on a number of occasions,

is at page 672, about three-quarters of the way

down the page, halfway through the long paragraph,

just after the reference to Gore-Browne:

The word has been given a liberal meaning and,

generally speaking, unless the arrangement is

ultra vires ..... or seeks to deal with a matter

for which a special procedure is laid down or

to evade a restriction imposed by the Act,

almost any arrangement otherwise legal which

touches or concerns the rights and obligations

of the company or its members or creditors may

be come to under sec 153 -

Marlborough(2) 38 17/3/93

which is the predecessor of 411.

Now, as my learned friend indicated, there is

a long line of authorities which seem to suggest -

we would go further than that and say which

indicate quite clearly that an alteration to

memorandum has always been regarded as permissible under a scheme. It is probably not much served by

my taking Your Honours to the cases.	My learned
friend has referred to them.	What we have done in

our outline is give Your Honours a reference to the

pages in the judgment of the Full Court where those

cases are analysed and, in our submission, it is

clear from a consideration of them that the courts

have always recognized a scheme which alters the

memorandum, not only with respect to objects but
with respect to other matters.

One can go further than that, though, in that there are also instances of schemes which do more

than merely regulate or vary the rights as between

classes of members, on the one hand, and the

company, on the other.	One example of that is The
Bank of Adelaide case.	In the bundles that we have

handed up to Your Honours, The Bank. of Adelaide

case is the second case, 22 SASR 481.

The essence of the scheme there under

consideration is set out at page 483 in the

judgment of the trial judge, Mr Justice Zelling.

Your Honours may recall that The Bank of Adelaide

and Australian New Zealand Banking Group Limited

were involved in, in effect, a merger, and

paragraphs 1 to 4 in effect set out what the scheme

was:

1.      The share capital of the Bank -

that is, The Bank of Adelaide

shall be reduced from $50,000,000 -

to $18 million -

by cancelling and extinguishing the Scheme

Shares.

The Scheme Shares, I think, can be summarized as

being the shares held by shareholders other than

ANZ Bank.

2. Forthwith upon the said reduction of

capital taking effect the capital of the Bank

shall be increased to its former amount of

$50,000,000 ..... by the creation of 31,504,687

new ordinary shares of $1 each.

Marlborough(2) 39 17/3/93

So you cancel 31 million shares and then you create

31 million new shares.

3.       On the Effective Date the Bank shall in

consideration of ANZ agreeing to allot the
shares provided for in clause 4 hereof apply

the whole of the credit arising on the

cancellation of the Scheme Shares in paying up

in full the $31,504,687 -

new shares -

which shall be allotted credited as fully paid

to ANZ or its nominees.

Then, under 4:

In consideration of the cancelling and extinguishing of the Scheme Shares ..... and of the consent of the members of the Bank thereto

and in further consideration of the

allotment ..... the Bank will procure that ANZ

will and ANZ shall (subject to the provisions

of sub-clause (b) of this clause ..... issue and

allot shares in ANZ credited as fully paid up

to and amongst the persons who at the close of business on the Terminal Date were the holders of the Scheme Shares on the basis of fifteen

$1 fully paid shares in ANZ for each

forty-four $1 ordinary shares in the Bank.

So that the shareholders in Bank of Adelaide ended

up being shareholders in ANZ Bank, by having their

shares cancelled and new shares allotted. In our

submission, that is not something which could be

done by mere agreement between the shareholders and

the banks. The same result might have been

achieved by going through the course of reductions

of capital and then money having been received from

Bank of Adelaide by the shareholders.	The
shareholders would have then had to pay money to	the ANZ Bank to obtain an allotment of shares in
the ANZ Bank. The ANZ Bank would then have used
the money that it received from old Bank of
Adelaide shareholders to pay money back to the
Bank of Adelaide in order to acquire the new shares.

So whereas it may be that you can achieve the

same result by a different course, the procedure that was adopted in the scheme was not something

that could have been done by mere agreement between

the parties.

BRENNAN J:  I do not quite understand what is meant by some

of the terms that are used in this instrument. For

example, what is meant by:

Marlborough(2) 40 17/3/93

the credit arising on the cancellation of the

Scheme Shares -

credit in favour of whom?

MR EMMETT:  It is just a credit in the balance sheet. As a

matter of accounting, the balance sheet of a

company shows - - -

BRENNAN J: Well, forget the accounting; as a matter of

legal principle, what is it? I mean, this is an amount which is going to then be appropriated to

paying up in full new shares.

MR EMMETT: Well, if it had been a reduction of capital -

that is why I went through that procedure a moment

ago - the extinguishment of shares of the

shareholders would have given rise to an

entitlement on their part to receive something from

the bank. So that credit really belongs to the

shareholders.

BRENNAN J: That is right.

MR EMMETT:  But instead of applying it in payment up of -

instead of returning it to them it was then applied
in payment up of the new shares which were to be

issued to a third party, namely the ANZ Bank.

BRENNAN J:  So by cancelling your shareholders' entitlement,

the company acquires money which it then uses to
discharge your new shareholders' liability on the

shares.

MR EMMETT:  Yes, and the consideration for that is that the

new shareholder agrees to allot shares in its

capital to the old shareholders, credited as fully

paid, notwithstanding that it does not receive a

single cent from those shareholders.

BRENNAN J: Well, it sounds very much as though you make

scrambled eggs and then you see who wants to have a

mouthful of it.

MR EMMETT:  The point we make, Your Honour, is that that

sort of arrangement - what appears in the scheme

could not be done by mere agreement.

BRENNAN J:	I quite agree.
MR EMMETT:	Indeed, but it was done and it is an indication,

and we say a perfectly regular indication, of the

sorts of things that can be done by scheme that

indicate that section 411 and its predecessors are

not limited simply to imposing a consent on a

dissentient who would otherwise not agree and where

Marlborough(2) 41 17/3/93

you need 100 per cent of agreement in order for the

arrangement to proceed.

The other "commercial" conversions from

limited company to no liability company followed

this very sort of structure. They are schemes

which have been approved by the court, to the
knowledge of the Commission; the Commission has

never, it seems, appeared to indicate that there is a reason of policy why a court ought not to approve

such a scheme; certainly never suggested there is

no power to grant approval for such a scheme.

DAWSON J: And you are not putting your case on the basis

that there was no power and you can get power under

section 411; you are saying there was power and

these other schemes are schemes where there was

power under the Act, maybe under other provisions,
but nevertheless you can do what you could do

otherwise under the Act by means of a scheme of

arrangement.

MR EMMETT:  Our first proposition is that we could have done

without a scheme of arrangement what was done.

DAWSON J: Yes, that is fundamental to what you are putting.

MR EMMETT:  I have finished with that proposition. What I

am saying is, if we are wrong about that, then we

attack my learned friend's second proposition, that

section 411 is not itself a source of power. In

other words we say, it is indeed a source of power.

We do not need that if we are right in our first

proposition, because if our first proposition is

correct, all that the order under 411 does is to

facilitate what otherwise could have been done by

unanimous arrangement.

What I am now addressing assumes that

Your Honours have rejected that argument and what I

am saying is, even if we are wrong about that	argument, a long history of the employment of	section 411 and its predecessors indicates that it
is in fact a source of power whereby the court can
sanction something which the participants could not
themselves have done without the court intervention, even if it had been done with unanimity.

DAWSON J:  So you are saying it can constitute the sole

source of power, because obviously a reduction of

capital, you can do that in other ways.

MR EMMETT:  Yes. what is done in The Bank of Adelaide case, it was
not done in the way that would have been done if And what I am saying is, when you look at

the parties were doing it by agreement. In other

Marlborough(2) 42 17/3/93

words, you would have started with a reduction of

capital.

DAWSON J: Precisely, but you could have done it in another

way.

MR EMMETT:  You could have achieved the same result in a

different way. I am sorry, yes, I accept that,

that the final result that was achieved in The Bank

of Adelaide scheme may have been achievable with

unanimity if it had been done in a different way,

but not in the way it was done.

DAWSON J: But the case that is put against you is that

there was no other way of doing this other than, if

you are right, under section 411.

MR EMMETT:	Yes, but be that as it may, section 411 is a means of doing things - not a means of achieving a
result but a means of doing things - that cannot otherwise be achieved; changing the memorandum, changing the rights attached to the shares, is
something which cannot be done. If it is correct
that you cannot change a memorandum except in the
way specified, then the old cases, _the line of
cases that begins with Re Palace Hotel and continues with Schweppes and the like, leads to the
conclusion that you can do something by a scheme that you could not do by unanimous agreement
because even by unanimous agreement you cannot
change the memorandum, if my learned friend's basic proposition is correct.

DAWSON J: Yes, I follow.

MR EMMETT:  But to respond to what Your Honour says, we

accept that the final result of what happened in

The Bank of Adelaide case could have been achieved

by going through a lot of other steps and going

through a lot of other transactions, yes.

DAWSON J: And although there are other means of achieving

the same end, there is no way of changing the

status of the company under the Act other than, if

you are right, under section 411.

MR EMMETT:  Yes, that is so.

DAWSON J: Yes.

MR EMMETT: Well, there are only two decisions, so far as we

are aware, in which the courts have - so far as the very question that Your Honours are now considering

- come to an adverse conclusion, or a conclusion

adverse to that for which we contend. They are the

judgment of Mr Justice Johnston in South Australia

Marlborough(2) 43 17/3/93

and the Full Federal Court, which is taken to

justify the grant of leave in this particular case.

When one considers the reasoning of

Mr Justice Johnston in the South Australian case,

it is clear that what he endeavoured to do was what

my learned friend has taken Your Honours to say,
why, as a matter of reason, these sorts of

transactions or conversions are bad as a matter of

policy. Now, I endeavoured to deal with that in

opening by saying the only reason, as a matter of

policy, why conversion from limited to no liability

might be bad is because of the reduction of capital

element, and I have dealt with that aspect.

So far as the Full Federal Court is concerned,

a number of things should be borne in mind - and we

made these points in relation to the leave

application. The question of a scheme simply was

not in issue in that case. Again, it might be

convenient for Your Honours to look at my learned

friend's bundle where Windsor v National Mutual

Life Association of Australasia Limited is dealt

with, in 34 FCR 580. It is the first case in the

bundle. Mr Justice Ryan simply agreed with the

joint judgment of the Chief Justice and

Mr Justice Beaumont.

Your Honours, the National Mutual case

involved a conversion of a company from a company

limited by guarantee to a company limited by

shares, which is one of the conversions expressly

permitted by section 167. And all of the

prerequisites of section 167 had been complied with

and National Mutual had converted into a company

limited by shares from being a company limited by

guarantee.

Mr Windsor was a dissatisfied member and he

did not like that decision, so he gave a notice to

the company requisitioning a meeting, and the

resolution was, in effect, to declare that all that
had gone before was a nullity.	And the company

then sought a declaration that because such a

resolution was itself a nullity, it was not bound

to include the resolution in the notice of meeting

which it would convene pursuant to the requisition.

So the only question was whether or not

Mr Windsor's proposed resolution was ..... At

page 588, the joint judgment deals with the

question under the heading:

Was National Mutual entitled to omit Pt B -

that is, part B of Mr Windsor's requisition -

Marlborough(2) 44 17/3/93

from the notice of the requisitioned meeting?

The initial matter that arises here is

whether it is possible for a company limited

both by shares and by guarantee to convert to

a company limited by guarantee.

Then, going to the end of that paragraph:

There is no express power ins 69 -

which was the predecessor of section 167 -

for a company limited both by shares and by
guarantee to convert to a company limited by

guarantee. In the absence of any express

power, we can see no basis for implying such a

power ins 69.

On its face, s 69 gives an indication of

an exhaustive code in the field of the changes
of status of this kind ..... The elimination of

the share capital involved in the process of

any such conversion would bypass the

provisions of the Code designed to protect

creditors ..... It is unlikely that such a

result could have been intended. In our

opinion, s 69 does not provide any right in a
company limited both by shares and by
guarantee to convert to a company limited by
guarantee only.

Now, we would not quarrel with that, and the argument that we have advanced in relation to

conversion from limited company to no liability

company founded upon the definition of "no

liability company" simply would not apply here

because of the differences in definition.	Then
going to the bottom of the page:

In our opinion, the scheme of arrangement

provisions were not available here and in any

event it is plain that any proposal for a

scheme of arrangement was outside the object

of the meeting.

In other words, Mr Windsor was not even proposing a

scheme of arrangement. What he was saying was: "I

want to pass a resolution declaring that the

earlier resolution was void", and the court in

effect construe that not as a rescinding resolution

but as a resolution the effect or substance of

which was to convert back and therefore embarked on

a consideration of whether or not, if the

resolution were framed as a resolution to convert
back, there would be power to do it. But anything

that it says about a scheme really is clearly

Marlborough(2) 45 17/3/93

obiter because Mr Windsor was not proposing a

scheme.

The other thing to bear in mind, which may

have some bearing, is that Mr Windsor appeared in

person and the court might be taken, therefore, to

have embarked on these observations without
necessarily having considered argument put against

what was said.

That brings us, Your Honours, to the notice of

contention. There are perhaps two levels at which
the matters that are raised by the notice of

contention arise. The first is that we want to

make a substantive submission that Your Honours

ought not to entertain the submissions from the Commission, having regard to the history of the

litigation. Even if that is not a ground for

rejecting or dismissing the appeal, it is a very

material question to the question of costs.	It is
a matter that was raised on the hearing of the

whether any special order for costs was appropriate

leave application and the Court, on that occasion,

having regard to the nature of the _issues.

MASON CJ:  Mr Emmett, how long will the balance of your

argument take?

MR EMMETT: Perhaps 15 minutes, Your Honour.

MASON CJ:  I think we will adjourn until 2.15.

AT 12.53 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.18 PM:

MASON CJ: Yes, Mr Emmett.
MR EMMETT:	Your Honours, during the adjournment we have

made available copies of schemes dealing with the

alternative "conversion". May I suggest, if

Your Honours are disposed to look at the material, it is only necessary to look at the Treviri and the

Sipa schemes and to ignore the other two schemes.

Those two work in tandem and they are one set, the

others are another set and therefore really are
otiose.

I also mentioned section 160ZZPB. Could I

hand up some copies of that section. I will not

Marlborough(2) 46 17/3/93

take Your Honours to it but it might be convenient
to have them. Section 160ZZPD says that

section 160ZZPB applies to companies in the same

way as it applies to unit trusts. What we have

done therefore is to mark on section 160ZZPB the

alterations which are deemed to be made for the

purposes of section 160ZZPD and then at the back of

that bundle is section 160ZZPD.	I will not say
anything more about that.

The third matter of logistics is to respond to

Your Honour The Chief Justice's inquiry about the

history of the definition. We have not completed

our research as we have not been able to get access

in the library here to all the relevant statutes.

I can say though that we think the position is

this, and this is by reference to New South Wales

legislation which we think probably is mirrored in

Western Australia.

In the 1936 New South Wales Act, "no liability

company" is defined as a company incorporated on

the no liability system in accordance with the

provisions of Part IV. In 1961 when uniform

legislation was enacted, the definition was

changed, as a matter of substance, because it then

said:

"No-liability company" means a company in

which the acceptance of a share does not

constitute a contract to pay calls.

So, at that point in 1961, there appears to

have been a change in the concept. Previously, a

no liability company was one that was incorporated

as such. From 1961 onwards, a no liability company

is one which simply satisfies the particular

definition.

In 1981 the Code defined it in terms very

similar to the Law, only at that stage there was no

definition of constitution. So the definition was,

and articles a contractual right to recover calls",	"a company that does not have under its memorandum
which is effectively the same as the Law, only
substitute "constitution" for "memorandum and
articles". We would get some assistance from the
change that took place, in effect, when the uniform
legislation was incorporated in 1961.

If I can now come to the notice of contention,

Your Honours. Attached to our outline is a

chronology, or handed up with the outline was a

chronology. Do Your Honours have that? The first

step in the chronology was 23 March 1992.

Marlborough(2) 47 17/3/93

Sorry, before I start on this, I should

indicate that we seek leave to read, at least in

relation to the costs question, two affidavits

which I understand have been filed and which should

be with Your Honours. There are one or two factual matters that are taken out of those which appear in the chronology.

The first step is that the National Mutual

decision was handed down by the Full Federal Court

in March 1992. On 4 May 1992 the ASC issued a

policy statement which appears in the appeal book

at page 3. The critical part is item 5:

The ASC has obtained, together with a number

of interested parties, an opinion from Senior

Counsel on the issue.

That is, the issue of whether or not you can

convert from the limited company to a no liability

company by means of a scheme.

Senior Counsel was of the opinion that it is possible under the Law for a limited company

to convert its status to a no liability

company. This opinion was been adopted by the

ASC.

So the ASC, no doubt in perfectly good faith, and we do not suggest anything otherwise, but those

responsible for the policy statement announced to

the world that it was the opinion of the

Commission, as a matter of law, that what they are

now contending for before Your Honours is wrong.

On 20 May, ASC wrote to the company, that is

the respondent, saying that it would not make

submissions in opposition to the respondent's

application to convene a meeting. On 25 May, the

application to convene a meeting came before

Commissioner Ng in the Supreme Court of Western
Australia.	The Commission appeared and indicated

that it did not object to the company's

application.

It was not until 23 June that the ASC told the

company that it was reconsidering its position, but

that is all it did on 23 June.

MASON CJ: It did not say why?

MR EMMETT:  Yes, it referred - the document is an exhibit to

Mr Walls' affidavit. It refers to the problem.

MASON CJ: It referred to Windsor v National Mutual Life

Association of Australasia Ltd.

Marlborough(2) 48 17/3/93

MASON CJ: Yes, it refers to that case and says, "We are

reconsidering our position". What is significant

is it did not say, "We have now changed our mind".

This was, of course, though, only two days before

the date appointed for the meeting.

On 25 June the meeting was passed and the finding made by the trial judge and then confirmed

by the Full Court was that the members approved the

scheme in consequence of the ASC not having opposed

it. The company did in fact comply with all of the

prerequisites of the policy statement, except for

one which the court said was immaterial.

It was not until 13 July that the policy

statement was actually withdrawn and it was not
until 23 July that the ASC actually told the

company that it would now oppose the approval of

the scheme. Nevertheless, the company, having incurred the expense of convening the meeting,

having had it passed, decided it would proceed with

the application.

The hearing of the application for approval took place on 11 August when the ASC, for the first

time, opposed approval. On 20 October,

Commissioner Ng made orders that the scheme be

approved. There was then an expedited appeal and

the Full Court approved the matter.

We put the matter on the notice of contention

in several alternative ways. First of all we say

that, when one considers the procedure for approval

of a scheme there is tantamount to an estoppel, an

issue estoppel, between the parties. This was a

matter that was argued before Commissioner Ng and

certainly was not decided in favour of the present

respondent.

But what we say is this, Your Honours, that

there is a two stage step in approval under
section 411.	The first step is that the Court

convenes a meeting of members, creditors, whatever

it is. Now, if there is no jurisdiction to convene

a meeting, then the meeting should never have been

convened. The Commission, however, was a party to

that proceeding.

DAWSON J: It intervened and thereby was a party.

MR EMMETT:  It intervened, by then it had intervened and

appeared. And by the operation of section 1330 of

the Code, once the Commission intervenes, it is a

party for all purposes. Our primary submission is

that once a decision has been made to convene a

meeting, it is no longer open to the Commission to

say there was no jurisdiction to do that, that is a

Marlborough(2) 49 17/3/93

matter that should have been raised at the hearing

of the application. So there is, in effect, an

issue estoppel in the strict sense, because an

issue that was necessary to be determined on the

hearing of the application to convene the meeting

was determined against the Commission.

TOOHEY J: 

Mr Emmett, the grounds in the notice of

contention are twofold, but is ground 1.1 a ground
that stands on its own, separate from and

independent of 1.2, or is it merely a step towards
1.2?

MR EMMETT: Well, I think that they are effectively separate

and independent grounds, Your Honour, yes.

TOOHEY J: What do you say about 1.1, I mean on the

assumption that it does not directly involve

questions of waiver or estoppal because they are

caught up in ground 1.2?

MR EMMETT:  I am sorry. I misunderstood, I think, what

Your Honour is putting to me. In that sense, they

are cumulative. It is just one grant, but there

are several alternatives, in effect, in what is

said in point 1.2. Point 1.1, I suppose, is really

just the prefatory averments that lead to the

conclusion in 1.2. I take Your Honour's point.

MASON CJ: But can the appellant be estopped, having regard

to its statutory responsibilities in this area,
from, as it were, taking a stand which results in
the court being informed and instructed in relation
to a matter where the Commission submits that the

court has no power to take the step which your

client claims should be taken?

MR EMMETT:  Because of section 1330, in our submission, yes,

Your Honour. There must a point at which the

Commission is bound by a determination of a court.

Let it be assumed that Your Honours dismiss this
appeal.	Can the Commission continue to say, "We

think that the High Court is wrong, we are not
bound by any issue estoppal, we will continue to

run, as against this company, the question that

this - or contend against this company - that this

scheme is ineffective". The mere fact that it has

a public function in administering the Act does not

mean that it is not bound by ordinary principles,

in our submission, of issue estoppal.

DAWSON J:  Can you have an issue estoppal as to

jurisdiction?

MR EMMETT: In our submission, yes. Until such time as the

order is set aside, the order of a superior court

Marlborough(2) 50 17/3/93

is effective according to its terms.	It would be
different -

GAUDRON J: There is no doubt though that the order calling

the meeting takes effect. It is only what happens

thereafter.

MR EMMETT:  Indeed.

GAUDRON J: There is no issue estoppel about the subsequent

order.

MR EMMETT:  No, but an essential step in the reasoning that

led to the convening of the meeting was a
determination that you could make an order, the

general principle being that the court would only

convene a meeting if, according to general

principles, it is a scheme which it would normally

consider approving. In other words, the court does

not convene a meeting to approve a scheme which it

would never approve.

BRENNAN J:  What is the issue which the estoppel relates to?

MR EMMETT:	The question of whether or not the court can approve a scheme of this sort.	Not whether it has,
but whether it can.

BRENNAN J:	So the issue is that the court had jurisdiction to approve this scheme?
MR EMMETT:	Yes, because if it did not, it could not have convened the meeting in the first place.

TOOHEY J: But the estoppel that is pleaded in 1.2 is where

I have trouble with the notice of contention,

Mr Emmett. It seems to be a Verwayen-type

estoppel.

MR EMMETT:  That is the alternative way in which we put the

matter.

TOOHEY J:	Where is the way in which it is put as issue estoppel?
MR EMMETT:	It is probably not in the notice of contention

in expressed terms. We probably need leave to file

the notice of contention in the first place.

Having regard to the speed with which the appeal

has been brought on, I think all of the time

periods have rather been telescoped. If it is not

fairly raised by the notice of contention, and I

understand what Your Honours are saying is it

probably is not fairly raised, we would seek leave

to amend it to make it clear that we do raise it.

Marlborough(2) 51 17/3/93

TOOHEY J:  So that if it appeared abundantly clear, after

the notice of meeting had been called, that there

was in fact no power to make the order sought, you

say that nevertheless the court ought to have made it because the Commission was debarred in some way

from raising the question of power?

MR EMMETT:  No, we do not say that. We say that the

Commission is barred from raising the matter. A

creditor or another shareholder could have come

along and said, "You are not bound", because nobody

else was a party to that application but the

Commission, and it is a strict issue estoppel, it

is an issue determined in proceedings between these

two parties.

It does not mean that the Court was bound to

make the order, although there is a principle that

I will take Your Honours to in a moment suggested

by Mr Justice Street in the Norfolk Island and

Byron Bay case that, as a matter of practice a court, once it has convened a meeting, will

normally not refuse to grant its approval, lest the

court appear to be inconsistent and therefore bring

the administration of justice in to dispute.

But I do not think we can put that quite as high as the estoppel point, which is the primary

point. But it is just that short point, that so

far as the Commission is concerned, it had its day

in court, it did not have to come, but it chose to

come and intervene, and having come and intervened

and not obje~ted, it has had its day in court and

can no longer contend to the contrary.

GAUDRON J: But do not the cases distinguish, Mr Emmett,

between estoppels which arise in relation to

conditions which must be satisfied before the exercise of jurisdiction and the existence of

jurisdiction in this area?

MR EMMETT:  Be that as it may, there was an issue as to

whether or not the court could convene this
meeting. If the court did not have jurisdiction,

because the - - -

GAUDRON J: Yes, that is what I was suggesting, that the

estoppel process in this area proceed on the basis

that a distinction is to be made between conditions

attaching to the exercise of jurisdiction, and the

existence of jurisdiction, and that there is no

estoppel where what is in issue is the existence of

jurisdiction.

MR EMMETT:  If there were an appeal from the earlier

decision, that may be so.

Marlborough(2) 52 17/3/93

GAUDRON J:  I thought it absolutely -

DAWSON J: It really is. Unless there is jurisdiction to

decide an issue, then there cannot be any issue

estoppel.

MR EMMETT: Well, except that, that is a question itself

which is an issue in those proceedings, whether

there is jurisdiction.

DAWSON J:  No, it is not an issue, it is something more

fundamental than that.

MR EMMETT:	It is nevertheless an issue in the proceedings as to whether the court - it was an issue in the
proceedings.
DAWSON J:	If it is an issue, it is not an issue that gives

rise to an issue estoppel.

MR EMMETT: Perhaps that is the debate. In our submission

it is, and that is the first proposition.

DAWSON J: Because otherwise you would go round in circles.

MR EMMETT:  Oh, no. Commission We would say simply that, so far as the

is concerned, the Commission is estopped

henceforth	from contending to the contrary, and it
should not	have been allowed - - -

DAWSON J: Because the issue is determined by a court which

had no jurisdiction to determine the issue.

MR EMMETT:  No, a court always has jurisdiction to determine

its own - a superior court has jurisdiction to

determine its own jurisdiction. It would be

different from an inferior court, but the Supreme

Court of Western Australia is the superior court of

record and therefore has jurisdiction to determine

its own jurisdiction.

DAWSON J: Up to a point. But anyway, that is another

argument.

MR EMMETT:  Yes. That is our submission, Your Honour, that

the issue as to whether or not it had jurisdiction

was an issue in the first place. It may well be a
condition precedent to the making of the order that

the court had jurisdiction, but that question has

to be assumed to have been resolved in favour of

the company.

The second way in which we put the estoppel

matter is that which is perhaps more fairly raised
by the notice of contention. That is, that it is a

Verwayen-type estoppel or waiver; that, when one

considers the circumstances that I have just

Marlborough(2) 53 17/3/93

outlined in the chronology, it would be

unconscionable now for the Commission - we do not
use that term, obviously, in any pejorative sense

it would be unconscionable for the Commission

now to say, "Having positively advised you that you

can do this, and you having acted in reliance on

that, as is found by Commissioner Ng and the Full

Court, we now come along and say that you cannot

now rely on the advice that we gave to you, and we

now say that what you have done was a total

nullity".

That conduct, in our submission, is

unconscientious, in the Verwayen sense, such that

the Court not ought to entertain, and would not

entertain, submissions in this case. That is not

to say that the Commission may not, in an

appropriate case, make these submissions, but

because of the way in which the company has been

induced to act, it is inappropriate that the Cour

should entertain an appeal in which the Commission

is now advancing a proposition totally inconsistent

with its announced stance and in reliance upon
which the plaintiff acted.

MASON CJ: 

Mr Emmett, you have not put this argument on the

footing that, if it were accepted by the Court, it
might lead to revocation of the grant of special
leave. That is another way in which the argument
could be used.

MR EMMETT:  I was hoping to lead up to that. We did raise

all of these matters on the leave application, I

think fairly and squarely, and said it was a base

upon which leave ought to be refused. We finish up

by saying, if we are wrong in our formal submission

about an estoppel, either a strict issue estoppel

or a Verwayen estoppel that actually operates on

the merits, then having regard to the
circumstances, in our submission, it would be an

appropriate place for Your Honours to revoke leave

and the parties would then take their appropriate

As a final submission we say, even if

course.

Your Honours do not do any of those things, it is

clear that the Commission is using this as a test

case in order to clarify the Law in circumstances

where it is only a test case because the Commission

led this plaintiff up the garden path, so to speak,
and it is therefore a clear case where, whatever

the outcome of the appeal, the Commission will be

ordered to pay the respondent's costs of the

appeal.

Marlborough(2) 54 17/3/93

MASON CJ: It is putting it a bit high, is it not, to say

that the Commission led your client up the garden path; you were walking up the garden path anyhow.

MR EMMETT:  The evidence of the affidavits indicates that we

were not. There were two paths we could go up.

One was the Sipa type scheme, which is more

inconvenient because it involved two companies; the

other was this type of scheme. Having regard to the advice which the Commission proffered to the

world at large, we decided the Commission ought go

up one path rather than the other, unaware that at

the end of it we were going to have our legs

chopped off, so to speak.

DAWSON J:	How can you have an issue estoppel in an appeal?
MR EMMETT:	The appeal is from the order. This is not an appeal from the order convening the meeting.
DAWSON J:	No.
MR EMMETT:	It is an appeal from the order confirming the

scheme.

DAWSON J: Yes.

MR EMMETT:  What we say is, they are two separate steps in

the procedure.

DAWSON J: In the same proceedings.?

MR EMMETT:	Certainly they are in the same proceeding.
DAWSON J:	And if there was no jurisdiction to make the order, why can you not take that point on appeal?
There is no issue estoppel.
MR EMMETT:	Because we say that question had already been determined on the hearing on 25 May.
DAWSON J: But on an appeal it is open, surely, to the

appellant to say it was determined wrongly.

MR EMMETT:  In our submission, no. The proper course would

have been to appeal from the order made on 25 May.

Certainly there would have been no issue estoppel then. But that is not what the Commission did. It let that order stand and the meeting was convened

and that order has now worked itself out. That is

why we say it is an issue estoppel. We certainly

could not contend there was an issue estoppel by

reason of the determination of Commissioner Ng on

20 October because that is an appeal from that

order.

Marlborough(2) 55 17/3/93

What we say is that there is an issue

estoppel at that point and this was a submission

that was actually made to Commissioner Ng as

appears from his judgment. He should have said,

"Well, I am not going to entertain these arguments

on the merits from the Commission because that

question has already been resolved against you by

reason of you having appeared and become a party

and not opposed it in May".

GAUDRON J: Mr Emmett, the cases I was referring to are Troy

v Wrigglesworth and Parisienne Basket Shoes where

reference is made to a distinction between

exceptions to jurisdiction and conditions attaching

to jurisdiction, the former not usually attracting

any sort of estoppel.

MR EMMETT:  I cannot say I am on top of what is said in

either of those cases at the moment, but the

distinction, we would say, is that - or the

principle, we would say, is that the court, being a

superior court, had jurisdiction to determine its

own jurisdiction and that that is a question which

must, of necessity, have been decided in favour of

the company by reason of the order .that was made.

GAUDRON J: If there is no such thing as - no issue estoppel

in the circumstances.

MR EMMETT:  Then we fall back on the Verwayen argument - - -

GAUDRON J: Yes, but it really does undermine the Verwayen

argument, except - - -

MR EMMETT:  With respect, no, Your Honour.

GAUDRON J: If you cannot get an estoppal about jurisdiction

or about power, as it were, why should you get a

Verwayen-type estoppal? Where is the

unconscientiousness if the former cannot come into

existence?

MR EMMETT:	The mere fact that there is no legal issue estoppel does not mean it is not unconscientious.
There was no issue estoppel in Verwayen. But the
Commonwealth had led Mr Verwayen - - -

GAUDRON J: But if there is something about jurisdiction

such that you cannot get an estoppel with respect

to it, either an issue estoppal or an estoppal by

way of conduct of the proceedings which might

operate, for example, with respect to reopening or
the like, then if you just simply cannot get an

estoppel of any kind about jurisdiction, then the

basis for an argument as to unconscientiousness

does seem to fall away.

Marlborough(2)	56	17/3/93
MR EMMETT:	With respect, no, Your Honour.	The principle

stated by Mr Justice Deane in Verwayen - - -

GAUDRON J: But Verwayen was not a jurisdiction case.

MR EMMETT:  I accept that, but what I am trying to say is

Mr Justice Deane suggests that, and I think the

majority agree, that you can have a representation about a question of law.

GAUDRON J: Yes.

MR EMMETT:  And jurisdiction is a question of law. When you

couple that with the fact -

GAUDRON J: Yes, but it is more in a context of rights and

liabilities than jurisdiction.

MR EMMETT:  The point is, though, that the question of law

is one which could have been decided by the

supreme court and was, in fact, decided against the

Commission. The Commission did not have to

intervene, it did not have to be a party, and the

orders would have been made and would have been

effective, according to their terms, as an order of

a superior court.

It is just as unconscionable to say, "The

court has jurisdiction, go and incur expense in
having orders made", as it is to say, "We will not

take the Limitation Act point on".

GAUDRON J: That assumes that there is no distinction

between limitation issues and the rights and

liabilities of parties inter se, and jurisdictional

issues.

MR EMMETT:  No, with respect, even if there is a

distinction, it can still be unconscionable, as it

has been. But, it may well be Your Honours say

that somehow Verwayen-type estoppels do not apply

to jurisdiction. If that is what Your Honour is

putting to me, I can understand that argument might

apply, but it does not go to the question of

whether it is unconscionable or not. It does not

cut away the Verwayen-type argument.

If it is put against us that a Verwayen-type

estoppel never runs against a question of

jurisdiction, then so be it, but our submission

would be that there is no reason in principle why

it should not, bearing in mind that the Commission

is here, not because it is affected by the order at

all, it is here simply as amicus curiae to give

assistance to the Court and to clarify for the rest

of the citizenry of Australia what the Corporations

Law means.

Marlborough(2) 57 17/3/93

BRENNAN J:  The hypothesis is that the Commission's argument

is right on the merits but it cannot put that

argument because it is estopped?

MR EMMETT:  Yes, that is the hypothesis.

BRENNAN J: Well, now, if everything goes according to your

plan and the relevant resolution is passed and so

forth, what is the effect on the status of the

company? You would say, I take it, that the

company has become a no liability company?

MR EMMETT:  Yes·.

BRENNAN J: But that declaration of status does not bind

either its members or the corporation, it only

binds the Commission.

MR EMMETT:  It binds the Commission and the Commission is

bound to issue a certificate. It cannot say, "I am

not going to issue a certificate because you are

not a no liability company". We say, "You are

bound by a determination of the superior court that

we are. Please issue a certificate". That

certificate is then conclusive as against everybody

else.

BRENNAN J: Well, as I understood your argument, the issue

was whether or not the supreme court had

jurisdiction to approve the calling of a meeting.

MR EMMETT: That is the issue estoppel point.

BRENNAN J: That is the issue estoppel point. Now, what is

it that stops the Commission from doing its

statutory duty?

MR EMMETT:	I am not sure that I am following Your Honour's
BRENNAN J:	By refusing to issue a certificate that it is a

no liability company if, in truth, it is not a no

liability company.

MR EMMETT:	Because if it says, "The only reason why you have not become a no liability company is because
the court did not have jurisdiction to do what it did", we say, "You cannot contend that against us.
There is an issue estoppel binding us".

BRENNAN J: Well, it would not be because the court did not

have jurisdiction to do what it did. It would be

because the Act did not provide for the transition

of status by this procedure.

MR EMMETT:	But let it be assumed that Your Honours dismiss the appeal.	The same argument would still apply.
Marlborough(2)	58	17/3/93

The Commission would say, "Well, we do not think

the High Court got it right. We are not going to

issue a certificate". And if that argument is

right, we would not be able to say, "But look,

there is an issue estoppel between us".

BRENNAN J: Well, then you would come along for mandamus,

would you not?

MR EMMETT: Well, we may, but even in the mandamus, the

Commission would say, "We are not bound to issue it

because the High Court got it wrong last time.	We
want to relitigate that question over and over
again". That is the consequence of denying the estoppel in the first place. If the Commission
says that it is not bound by a determination

because it has its own view about what the Law is -

which, of course, has changed 180 degrees since

this time last year - then it can lead to that

situation where we are never in a position to get

into a no liability company. All of this, of course, could be overcome by revoking the leave.

finality on the question, as against the

Unless there is anything else Your Honours have of me, I do not wish to say anything further.

MASON CJ: Yes, thank you, Mr Emmett. Mr Finkelstein.

MR FINKELSTEIN:  May it please the Court, I will deal with

the notice of contention point first, if I might,

and there are two issues that I want to address on

the substantive ground.

MASON CJ: Yes.

MR FINKELSTEIN:  A substantial part of the argument, I

think, proceeds on a misconception which is that as

a matter of fact, the Commission had intervened in

the proceeding at the time the application was an

application to convene meetings. Whilst I do not	have any paper to establish the fact, our
instructions are quite clear that when the
Commission appeared at that stage of the
proceeding, it was not as an intervener, it had not
issued any notice of intervention under 1330 of the
Corporations Law; that occurred after
Commissioner Ng had ordered the meetings to take
place.

Now, if it becomes necessary to do so, we will

get whatever document that was brought into

existence to establish that fact, and I think we

should do that.

MASON CJ: Yes, I think you ought to do that.

Marlborough(2) 59 MR FINKELSTEIN, QC 17/3/93

MR FINKELSTEIN: It is just that, not anticipating that

there was going to be a problem, we did not have
the document here. I cannot even tell the Court

what date it was that there was formal

intervention, but on our instructions it is clear

that it is well after the time of considering the

application and ordering the meetings to be held.

And if that is right, then there is no, if it was

otherwise possible, issue estoppel between the

Commission and the applicant company.

TOOHEY J: Well, on what footing, Mr Finkelstein, did the

Commission appear on 25 May?

MR FINKELSTEIN:  Under section 411 of the Law, when an

application for meetings is made to the court, the

Commission is required to be given notice of that

application, and it is not only under that section,

but there are many sections in the Law and often under the rules of the appropriate State courts,

and now Federal Court, which require the Commission

to be given notice of various applications, so that

the Commission can come to the court representing, administration of the Corporations Law, and advise
the court whether or not something that is sought

to be done should be done or not, and at the same
time the Commission is given power in section 1330

of the Law, to intervene directly, and if it does,

that section provides that it becomes a party for

all purposes.

1330 is at page 32,202. Subsection (1) gives the right to intervene. Subsection (2) provides

that upon intervention it is:

deemed to be a party to the proceeding

and ..... has all the rights, duties and

liabilities of such a party.

And, section 411(2) deals with the obligation of an

applicant under section 411 to give notice to the

Commission of the making of an application.

The Court shall not make an order pursuant to

an application under subsection (1) or (lA) -

that is for the meetings -

unless:

(a) 14 days notice of the hearing of the

application, or such lesser period -

as the court allows -

has been given to the Commission - - -

Marlborough(2) 60 MR FINKELSTEIN, QC 17/3/93

GAUDRON J:  In what capacity does the Commission then

appear; as a witness?

MR FINKELSTEIN:  No, probably something like amicus curiae,

certainly not as a party until intervention, but as

amicus to assist the court in the proper

administration of this aspect of the Law. That is,

whatever the aspect is that notice was required to

be given to it. The Commission was heard not to

oppose those applications but not as an intervener;

just as a party who had been given notice.

On the question of the fairness of the conduct

of the Commission or whether it should be looked at

as unconscionable conduct, relevantly speaking,

what the Court should understand is that the

Commission, as one of the conditions of non-

opposition, required an applicant for a meeting of

this sort to advise the court of the conflict of

authority that had existed between the various

State courts, and if you look at the policy

statement at page 4 of the appeal book, it is a

requirement or condition (d) that sets that out.

It says:

the ASC will not make submissions in

opposition -

if, amongst other things -

(d) the applicant company raises with the
Court the conflict of authority between Re

Insight Mining Ltd and Re Bamboo Mines Ltd -

So that what the Commission was saying to an

applicant company, all applicant companies for
these types of applications, is: "We take the view
that we will not oppose, but you, the applicant,

should go to the court and tell the court of the

conflict of authority", and presumably, therefore,

try and get the court to resolve that conflict "in

you, the applicant's, favour". Otherwise, if you

do not get it resolved in your favour, then the

application might fail because the court hearing

the matter will presumably, once the conflict of

authority is pointed out to it, make a decision on

which side of the line that court will fall. So

that, what the Commission was not saying was, "We

agreed with one line or another, we won't oppose,

and we will let the court itself make up its mind

what the appropriate line of authority is."

The other point that is worth noting - it may be a forensic point rather than the legal point; I
am not sure - the affidavit material which has been
tendered in support of the notice of contention,

presumably pointedly, does not say that the

Marlborough(2) 61 MR FINKELSTEIN, QC 17/3/93

applicant was not aware of the National Mutual

case. It having been handed down on 23 March, all

of these events, the relevant events in the

chronology occurring in May, from about 18 or 20

May on, the applicant knowing that what the

Commission was concerned about was the conflict of

authority between two first instance judges of

State courts, it is interesting to note that no

reference is made in the affidavit material at all that the applicant company or its advisers did not
know, as seems evident in hindsight the Commission

did not know, about the decision in National

Mutual.

So far as disentitling conduct is concerned,

that is conduct which might disentitle an appeal or

disentitle the Commission to costs, it is also

important to bear in mind that the Commission

advised the applicant that it was reconsidering the

position in view of National Mutual, that is, in

view of the fact that a Full Court had now looked

at the question and resolved the issue a particular

way, before the meetings were held and before the

company went back to the court for confirmation of

the scheme.

So that, if there is disentitling conduct, or

conduct which is unconscionable, it only exists

between publication of the notice, that is, advice

to the company that the Commission is not going to

oppose, and 23 June when the Commission says,

"We're going to look at it again in light of what

the Full Court of the Federal Court has now said",

or at worst, on 23 July, but still before the

parties go back to court, when the Commission

advises the company that is going to oppose the

application.

And, with respect, it would be carrying things

to an extraordinary length to say that the

Commission is guilty of unconscionable conduct in

circumstances when an appellate court has resolved

the conflict of authority at single judge level,

and the Commission says, "Now that an appellate

court has looked at the question, we will adopt" -

perhaps that is the wrong word, "bound by", not

necessarily in a formal sense, but certainly in

proper conduct sense - "bound by what the Full

Court has now said, and we will urge all other courts, especially judges at first instance, to

follow the line of a Full Court", which has now

resolved the conflict which the applicant company

was told, in any event, to inform the court.

So that, we would say on the basis that the

Commission was not a party because it had not

intervened, no issue estoppel can ever arise, and

Marlborough(2) 62 MR FINKELSTEIN, QC 17/3/93

in the circumstances of this case, there is no

disentitling conduct disentitling the Commission to

either appeal or for costs if it comes to that

stage, because the conduct was confined to a very

short period. At the worst, the company might say

it should get the costs of the first application to

the Commissioner because, on one view, the issue
could have been resolved at that time, but in

hindsight, of course, not, because the Commissioner

ultimately rejected the National Mutual case as a

correct authority, so the position did not really

change, but you had two hearings at first instance

potentially, rather than one.

There is another issue, of course, and that is

whether or not it is permissible for the respondent

to raise the point now. If it is a good point, it

could have been, and we say should have been,

raised in the Full Court in Western Australia, and

if for no other reason than the fact that it was

not raised before the Full Court in Western

Australia, it should not be raised now. We rely on

University of Wollongong v Metwally (No 2), (1985)

59 ALJR 481 at 483 which says that it is only in

exceptional circumstances that a point, including a

point of law, can be raised on an appeal if it has not been raised below, and this Court in Coulton v

Holcombe, 162 CLR 1, at page 8 applied that

principle to appellate courts, including appeals to

the High Court.

MASON CJ: But was it applied as against a respondent to the

appeal - - - ~

MR FINKELSTEIN:	No.
MASON CJ:	- - - in circumstances where there is no

possibility of evidence existing that might be

relevant to the issue?

MR FINKELSTEIN:  No, it was not applied in that way, but the

point of principle is the same because, if the

Commission was disentitled from appealing, then it

would have not been entitled to appeal from the

Commissioner's second order to the Full Court, and

that would have been a good ground to oppose the

appeal to the Full Court, and not taken there. So,

in point of principle it will not matter because if

it is a good point and succeeded, it would have

been, and should have been, dealt with by the

Full Court.

There are two points that I want to deal with

on the substantive ground. The first is whether it

is correct to say that the company can change its status merely by altering its articles. That is,

that you do not need a scheme, and do not need

Marlborough(2) 63 MR FINKELSTEIN, QC 17/3/93

section 167; you can just do it by changing to the

articles of association having regard to the

definition of "no liability company" appearing in

section 9. That is:

a company that does not have under its

constitution a contractual right to recover

calls made on its shares -

Our point is that merely changing the articles of a

company does not bring about a change in its

constitution. And, more importantly, it does not

bring about a change in its status.

A company comes into existence by virtue of sections 120, 122 and 123 of the Law upon

registration of requisite documents and the issue
of a certificate under section 122. Section 123

provides that:

from the day specified in a certificate under

section 121 -

the company is incorporated. So, having a

memorandum and having articles do not establish the

existence of the company; you need further
administrative steps. That is, it is the act of

the Crown through the Commission, or in the old

days, Registrar of Companies, in issuing a

certificate that brings to life a corporation.

When it brings it to life, under

section 121(3), it brings to life a particular type

of company, and subparagraphs (a) to (e) describe

the particular company that is brought into life. as I said earlier in our submissions, to have its status defined in the memorandum. If you look at 117(l)(c), this is at page 4054 of the Act, in the

case of the company limited by shares, the

memorandum must provide that the liability of the

members is limited. That is to be contrasted with

the case of a no liability company in

subparagraph (f). There, the memorandum must say:

that the acceptance of shares in the company

does not constitute a contract to pay calls in

respect of the shares or to make any

contribution towards the company's debts and

liabilities -

Now, when a change is brought about under

section 167, that is when a change in status is

brought about under section 167, the same thing

follows. That is, a certificate is issued and it

is on the issue of the certificate that the change

Marlborough(2) 64 MR FINKELSTEIN, QC 17/3/93

in status is brought about. That is provided for

in subsection (2).

Resolutions have been carried, they have been

filed with the Commission. The relevant documents

that you file when they are appropriate are

described in subsection (3)(a):

a printed copy of the special resolution of

the company:

(i)     resolving to change the status .....

(ii) making such alterations to the memorandum

of the company as are necessary -

and so on. It is not the passing of the

resolution, though, that brings about the change of

status under 167. It is, as the last words of

subsection (2) say:

on the issue of such a certificate, the
company is a company having the status

specified in the certificate.

Exactly the same procedure as the incorporation of

a new company; it is on the issue of the

certificate from the date specified on the
certificate that a company comes into existence.

Now, what you do not have for non-permitted

change, as we have described it, is a section such as subsection (2). What you will have, though, if

you just pass a resolution amending articles in a
way that deletes the contractual right to recover

calls, what you will not have by that, and what is

necessary to be achieved to produce a company with a new status, is the deletion, if you are changing

from a limited company, of the words in the

memorandum that are in by reason of section

117(l)(c) and the addition of the words that are

required by subparagraph (f).

In the absence of an alteration to the

constitution to the memorandum of the company, its

original status remains. Changing the articles

does not bring about the change in status.

Changing the memorandum brings about the change in

status, and there is not proper machinery to

describe how and when precisely the new status

comes into operation, as you have under 167, when

you have the issue of the certificate. Does it

happen when the resolution is carried by the

members and nobody knows about it, or does it

happen when it is lodged for registration in the

Commission's offices, where nobody still might know

anything about it? Does it happen when the

Marlborough(2) 65 MR FINKELSTEIN, QC 17/3/93

Commission receives it and places it on the company's file or register? None of these issues

are dealt with, and they need not be dealt with

because of our principal point that this sort of

change is not contemplated.

I want to deal with another separate point as

well, and that is part of the policy argument for

there being no non-permissible change under

section 167. I think Your Honour

Mr Justice Brennan raised with our learned friend

the effect of a change under subsection (a), that

is from an unlimited company which may convert to a

limited company, and how that may cause potential

disadvantage to at least creditors.

The Court should recall that it is in the

circumstances of a change under section 167(l)(a)

that there are special provisions in the winding up

sections of the code to protect against what would

otherwise be potentially serious disadvantage to

creditors of a company, because they would have

people who were, to use a colloquial expression,

on the hook for an unlimited amount, losing that

liability, so that the winding up sections bring

back into the fold those people who might otherwise

escape the net. So that it is in that way that the

Law, whilst allowing a change which could

potentially cause disadvantage to creditors,

equalizes or brings the position back to neutral by

compensating for it, making people who would

otherwise lose liability continue to have that

liability.

There is another real difficulty with a change

that is not permitted by section 167. The Court

will see that in subsection (3)(d), when a limited

company converts to an unlimited company, because -

well, I should do it step by step.	Under
167(l)(e):

a limited company may convert to an unlimited

company.

That is to say you increase potentially

substantially the liability of the members because

there is then no limit to their liability. That

would wreak havoc on members who all of a sudden

find themselves in a position where they thought

they were liable for a dollar and are liable for an

infinite amount of money. Subsection (d), however,

protects members in that circumstance by saying

that each member will only be bound for unlimited

liability if they assent to it - each member. If

somebody under subparagraph (ii) is going to assent

on a member's behalf, there has to be certification

Marlborough(2) 66 MR FINKELSTEIN, QC 17/3/93

that the person assenting on the member's behalf is
duly authorized.

If you can have non-permissible changes, and by that I still mean changes outside section 167, a

potential non-permissible change - again, I go back

to our list - number 11, a no liability company to

an unlimited liability company, not dealt with at

all by section 167 1). If you could have that

alteration without the protection in subparagraph

(d), that is that members are not going to be made

liable in an unlimited way without their assent,

just by scheme of arrangement by appropriate

numbers to get a 75 per cent majority, all members
of the new body are going to be liable for all of
the debts, costs and expenses of the corporation.

That consequence by itself is, in our respectful submission, sufficient to show that it is a type of

conversion of status which was never contemplated
because the protection of the members is not there.

Protection which was clearly thought necessary for

changes to unlimited liability clearly will not be

there if you allow any changes outside section 167.

The last point I want to deal with is our

submission that section 411 is machinery, and no

more than machinery. Our learned friends produced

a series of sample cases where section 411 and its

predecessor does more than parties could do by

consent, which is our principal thesis; that you

can only do by section 411 what the parties can

otherwise do by consent, that is, it brings in

dissentient minorities and so on.

The class of case referred to by our learned

friends is an exception, but is an exception
recognized by the legislature itself, because, 411

does not stand alone. 413 - and 413 is not new, it

has got its counterpart going back at least to the

Uniform Companies Acts of 1961, and in the

Uniform Companies Act it was section 183.

or arrangement, namely a reconstruction, and if the	Section 413 deals with a certain type of compromise
compromise or arrangement is a reconstruction, then the court is given certain powers to further the reconstruction, including transferring the undertaking of a company, allotting new shares, continuing proceedings against a new company, dissolving an old company and so on.

In a special class of case, and the cases

produced to the Court are examples of this, you are

dealing with what might be a much more complicated

arrangement or compromise where the Parliament has

given express power to the court to do what the

parties could not do. But that is because you are

not dealing with an arrangement or compromise

Marlborough(2) 67 MR FINKELSTEIN, QC 17/3/93

simpliciter, but dealing with what the Parliament

calls a reconstruction, and in the case of a

reconstruction, the court is given by the

Parliament express powers which do not govern and

cannot be utilized in the case of an arrangement or
compromise. Therefore, the fact of the existence

of those powers in the case of a reconstruction,

cannot take away from our basic proposition that if

what you have got is not a reconstruction, but an

arrangement or compromise simpliciter, it is a

machinery provision.

One thing that I did not do, and I should, is

tell the Court briefly about the history of the

arrangement provisions in the Law, because it helps

emphasize that whilst they are wide, they are not

as wide as covering the type of case for which our

learned friends contend. In the bundle of statutes

that we have provided to the Court, the last tab,

blue, shows the history of schemes of arrangement

legislation, and I will just take the Court through

it very quickly and then I will conclude my

submissions.

It starts at page 129. The first Act was

Joint Stock Companies Arrangement Act (1870) by

subsection 2, it allowed a compromise or

arrangement, in the case of a company being wound

up either voluntarily or by court order. That was

the first time that a scheme of arrangement was

permitted, and it was limited to companies being

wound up, and therefore expressly only between a
company and its creditors.

The next change was in 1900 and if the Court goes to page 131, you will see section 24 of the

Companies Act, 1900, and that then allowed for a

compromise or arrangement not only between the
company and its creditors, but for the first time,

company and its members as well. Bear in mind, though, we are still dealing with a company in

liquidation, so it is really to, in effect, fix up

the company and hopefully bring it out of

liquidation.

The next change is at page 134 and this in the

the Companies Act, 1907, by section 38, the scheme

of arrangement provisions were now, for the first

time, made to apply to companies not in the course

of being wound up. So, it is from 1907 on that
schemes of arrangements and compromises apply to

companies generally.

It is really from then on that the power has

got slightly more refined, but the substance of it

never changed, and the beginnings show, that is, it

Marlborough(2) 68 MR FINKELSTEIN, QC 17/3/93

is a scheme of arrangement only applicable to a

company in the stages of being wound up that - - -

BRENNAN J:  Can you direct us to where schemes of

arrangements were first made applicable to

reconstructions and amalgamations?

MR FINKELSTEIN:  The answer is I could but not with the

documents that are here and we will do that, but

Your Honours do not have enough of the relevant

statutes, because sometimes we only picked up the

amalgamations and reconstructions as well.

scheme of arrangement parts. We will provide the

that the history of section 411 itself shows in its

beginnings it was intended to have limited use and

it was not intended to rewrite the means by which

companies are incorporated and the means by which

the status of companies changes.

MASON CJ: Mr Finkelstein, and this applies to Mr Emmett

too, if he is going to put anything in, any

additional material must be filed with the Court

within seven days because this matter has some

urgency.

MR FINKELSTEIN:  Yes it does, Your Honour, we will do that.

May it please the Court.

MASON CJ: Yes thank you, Mr Finkelstein. Yes, Mr Emmett.

MR EMMETT:  I was just going to say, if I might have

Your Honours' indulgence to make three brief points. In relation to that last matter, the following material in my friend's bundle refers to section 153, which is followed by section 154 of

the 1929 English Act, which is when, in response to

Your Honour Mr Justice Brennan's inquiry, the

concept of amalgamations appears to be have been

added in. With respect, that provision, which is

the forerunner of section 413, operates against the

appellant's contentions, because it suggests that

an arrangement, without anything further, could

include that sort of reconstruction and the court

is given additional powers with that sort of an
arrangement to do things which might otherwise not

have been able to have been achieved by the scheme.

BRENNAN J: That is because it involves a second company,

does it not?

MR EMMETT:	Well that may be, yes, but there is nothing in section 413 which extends the notion of an
arrangement. It assumes that a reconstruction or

Marlborough(2) 69 17/3/93

an amalgamation is otherwise within an arrangement

so far as the first company is concerned.

BRENNAN J: That is so so far as the first company is

concerned, but one can understand why 411 would

need to apply to 413 - - -

MR EMMETT:	Yes.
BRENNAN J:	- - - because the jurisdiction you put otherwise

is, as it were, confined by the four corners of the
applicant company in any situation, whereas in

reconstruction you need to involve the newcomer.

MR EMMETT:  But the point about the Bank of Adelaide scheme

is that it was not done under the equivalent of

section 413. It was only done as a scheme.

BRENNAN J: Yes, I appreciate that.

MR EMMETT:  Yes. Your Honours, was in response to what my learned The other point that I wish to make,

friend said in reply, I suppose by way of

rejoinder. Can I just refer Your Honours to

sections 171(8) and 171(12), which do constitute

the mechanics whereby a new certificate is issued.

A resolution amending the memorandum does not

become effective until it is registered by the

Commission, and then under subsection (12):

The Commission shall, where appropriate -

is required to issue new certificates. So that the

machinery is all there for a conversion outside

section 167. May it please, Your Honours.

MASON CJ:  Thank you, Mr Emmett. The Court will consider

its decision in this matter.

AT 3.25 PM THE MATTER WAS ADJOURNED SINE DIE

Marlborough(2) 70 17/3/93