Goaley, in the matter of Manchester Unity Australia Limited (No 2)

[2008] FCA 2013

FEDERAL COURT OF AUSTRALIA

Goaley, in the matter of Manchester Unity Australia Limited (No 2)

[2008] FCA 2013

ROBERT JOHN GOALEY, IN THE MATTER OF MANCHESTER UNITY AUSTRALIA LIMITED

NSD 1641 of 2008

EMMETT J
19 DECEMBER 2008
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 1641 of 2008

IN THE MATTER OF MANCHESTER UNITY AUSTRALIA LIMITED,
ACN 087 648 711

ROBERT JOHN GOALEY Plaintiff
JUDGE:	EMMETT J
DATE OF ORDER:	19 DECEMBER 2008
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1.Pursuant to s 411(4) of the Corporations Act 2001 (Cth) (the Act), the scheme of arrangement between Manchester Unity Australia Limited (Manchester Unity) and its members, being the scheme which forms attachment 2 to the Explanatory Memorandum (which is Exhibit EM-1), a copy of which is annexed hereto and marked “A” (the Scheme), be approved.

2.Pursuant to s 411(12) of the Act, Manchester Unity be exempted from compliance with s 411(11) of the Act in respect of the Scheme.

3.These orders be entered forthwith.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 1641 of 2008

IN THE MATTER OF MANCHESTER UNITY AUSTRALIA LIMITED,
ACN 087 648 711

ROBERT JOHN GOALEY Plaintiff
JUDGE:	EMMETT J
DATE:	19 DECEMBER 2008
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. On 20 October 2008, the Court ordered that Manchester Unity Australia Limited (Manchester Unity) convene a meeting of its members for the purposes of considering and, if thought fit, agreeing to a scheme of arrangement to be made between Manchester Unity and its members.  A meeting was to be held on 15 September 2008.  The meeting was duly convened and has been held and the plaintiff, Mr Robert Goaley, and Manchester Unity have applied to the Court for approval of the scheme. 

2. I am satisfied from the evidence that the scheme meeting was convened substantially in accordance with the orders made on 20 October.  I shall refer briefly to some irregularities which do not affect the effectiveness of the meeting.  The scheme meeting was attended by 63,484 of a total of 90,371 eligible members of Manchester Unity.  62,858 votes were cast in favour of the resolution agreeing to the scheme of arrangement representing 99.01% of the votes cast.

3. In my reasons for ordering the meeting, which I gave on 17 October 2008 (see Manchester Unity Australia Limited, in the matter of; application by Goaley [2008] FCA 1845), I referred to the need for a meeting of the members of Manchester Unity to amend its Constitution. Clause 14.4 of the Constitution provides that an application under s 411 of the Corporations Act 2001 (Cth) may only be made by Manchester Unity following the passing of a special resolution authorising the directors to make such an application. Such a special resolution must be passed in accordance with the special regime contained in clause 14.4.

4. Because at the time when I made the earlier orders no such resolution had been passed.  The application to convene the scheme meeting was made by Mr Goaley.  At the meeting of members of Manchester Unity held prior to the scheme meeting, which was attended by 68,042 voting members of a total of 87,487 members, 67,407 votes were cast in favour of the resolution representing 99.07% of the votes cast by voting members.  The scheme is conditional upon such a resolution being passed.

5. Having regard to the provisions of the Constitution to which I have referred, steps were taken by Manchester Unity to encourage prospective participating members to attend the extraordinary general meeting as well as to vote at the scheme. For example, further communications were sent to members and radio promotions were undertaken in order to persuade members to attend and vote at the meetings. Arrangements were also put in place to enable advice to be given to members who sought further information about the scheme. The text of the communications and radio announcements are in evidence and I am satisfied that there is nothing misleading in what was said in those communications.

6. The evidence satisfies me that the explanatory memorandum and notice of meetings were sent to eligible members in accordance with the orders, subject to minor irregularities as follows: 

   1.170 members were not included in the register of members that was sent to the mailing house that arranged for despatch of the documents.  Those members’ names were omitted because of a processing error.  The error was that a member who had suspended a policy for greater than two years was not included in the register.  Those members were sent an information kit on 7 November 2008. 

   2.A further 59 members were omitted from the register of members that was sent to the mailing house because of a separate processing error.  That error was that members who were in the process of being substituted onto a particular type of policy because of the death of the policy owner were not included.  On 25 November 2008 information kits were sent to those 59 members.

   3.In addition, there were 129 voting members who held policies for persons under the age of 16 years who were not sent the proxy form for the scheme meeting in the initial mail-out of the explanatory memorandum.  Revised information kits including a proxy form both for the constitutional change meeting and the scheme meeting were despatched on 11 December 2008. 

7. While those members in those three categories did not receive the material in accordance with the order, the numbers are such that I am satisfied that the irregularity would not cause any injustice. 

8. Manchester Unity has received a number of letters from members raising issues in relation to the scheme.  The letters run to some 50 in number.  Approximately 80% of those constitute complaints about the allocation rules.  I am satisfied from the evidence to which I have referred in my earlier reasons that the allocation rules are fair and reasonable.

9. One issue that was raised that may have some significance in relation to allocation rules is addressed by the actuary, Mr Warwick Gard.  The allocation rules are based on Manchester Unity’s usual process for dealing with changes to a policy’s coverage; for example, where the cover is changed from single to family or family to single.  Where there is no change in the policy owner the same policy is maintained and the particulars recorded against the policy are simply changed.  However, it appears that, in the course of requests for review by policyholders, there have been instances where that procedure has not been followed and a new policy has been created.  In those circumstances, the policyholder would not be given credit for the time during which the previous policy had been held.

10. It seems that the practice was not widespread although approximately 17 review requests have revealed instances where that has occurred.  It is not practicable for Manchester Unity to identify through examination of the membership database instances where that practice occurred.  It is possible therefore that some participating scheme members will not receive their full entitlement, if those members do not submit review requests.  Notwithstanding that difficulty, there does not appear to be any practical answer.  I do not consider that the difficulty should interfere with the application presently before me.

11. The explanatory memorandum was registered with the Australian Securities and Investments Commission (the Commission) on 20 October 2008. The explanatory memorandum that was despatched to members for their consideration contained typing changes from the exhibit that was before the Court on 17 October 2008. None of the changes is significant. The scheme contemplates the establishment of a trust account into which the transaction consideration will be paid. That account has been established. On 18 December 2008 the Commission wrote to Manchester Unity’s solicitors confirming, under s 411(17)(b) of the Corporations Act,  that the Commission has no objection to the scheme of arrangement.

12. In my earlier reasons I referred to a possible complication arising from the operation of capital gains tax legislation which was adverted to by PricewaterhouseCoopers in the report that they prepared for inclusion in the explanatory memorandum.  On 24 October 2008 the Assistant Treasurer of the Commonwealth issued a media release in which he announced that, with effect from 1 July 2008, the government would provide relief from capital gains tax for policyholders of friendly societies, including joint health and life insurers, which are demutualised to become for profit entities.  Following that announcement PricewaterhouseCoopers provided a further report to the directors of Manchester Unity in which they concluded that, on the basis set out in their report of 20 November 2008, no taxable gain would be expected to arise to any participating scheme member in respect of the proposal.  However, PricewaterhouseCoopers reiterated that the way in which the new rules operate will not be certain until they become law.

13. The scheme is subject to a number of conditions.  I have certificates before me from both Manchester Unity and The Hospitals Contribution Fund of Australia Limited (HCF) that the relevant conditions have been satisfied or waived.  Specifically, a delegate of the Treasurer of the Commonwealth has made a decision under the Insurance Acquisitions and Takeovers Act 1991 (Cth) that the Commonwealth Government has no objection to the proposed alteration to the Constitution, which will be a trigger proposal within the meaning of that Act, so long as Manchester Unity complies with the condition specified, being the approval of the members and of the Court. The same delegate of the Treasurer has, pursuant to s 14(1) of the Financial Sector (Shareholdings) Act 1998 (Cth), approved HCF’s holding a stake of 100% in Manchester Unity.

14. Finally, on 12 December 2008, the Private Health Insurance Administration Council resolved to approve Manchester Unity’s application to convert to for profit status under s 126-42 of the Private Health Insurance Act 2007 (Cth).  However, in the letter of 16 December 2008 from the Chief Executive Officer of the Council, two matters were raised to which the Court’s attention has been drawn. 

15. The Council noted the proposal that the Chief Executive Officer of Manchester Unity receive a redundancy payment equivalent to 24 months’ salary when his employment is terminated at the conclusion of the acquisition process.  The Council was disquieted to note the change to the package of the Chief Executive Officer had occurred in the weeks immediately preceding Manchester Unity’s decision to test the market for potential buyers.  In the Council’s view the juxtaposition of the two events is unlikely to have been coincidental.  Nevertheless, the Council concluded that the changes that had been made to the Chief Executive Officer’s contract were likely to constitute a binding contract that would be enforceable against Manchester Unity.  Accordingly, the Council concluded that the payment if made to him would not be as a result of the implementation of the scheme of arrangement.  It concluded therefore that s 126-42(5)(b) had no application.  That section prevents payment of financial benefits as a result of a conversion scheme to persons who are not policyholders of the fund conducted by the relevant insurer.

16. The second matter raised by the Council concerned the proposal that the directors of Manchester Unity should receive upon retirement payments equivalent to the average of the preceding three years’ income up to the maximum payment permissible under s 200G of the Corporations Act. The Council was troubled about that proposal in light of the requirement under Part 2D.2 of the Corporations Act that office holders receiving retirement benefits should disclose those benefits to the company and should seek approval of the members at a general meeting before the payment is made.  This requirement was not satisfied because the directors’ retirement plan was not able to be put before the 2007 annual general meeting and the 2008 annual general meeting has now been postponed.

17. The concern of the Council was that the payments and the value they represent will not have been reviewed by current members of the fund.  Rather, the payments are to be approved, if at all, by HCF, assuming the scheme becomes effective.  In those circumstances, the Council directed that a letter be written to the Chairman of HCF indicating that there are aspects of the proposed payments that give rise to concern in the Council.  Both matters are disclosed in the explanatory memorandum.  I do not consider that either matter should stand in the way of the Court’s approval of the scheme.

18. The scheme contemplates the execution of a deed poll by HCF whereby HCF undertakes to pay the scheme consideration.  As I have said, the account contemplated for that payment has been established and the deed poll has been executed.  My attention has been drawn to the fact that the draft deed poll and the explanatory memorandum omitted several lines of text.  The deed poll, as executed, contains the relevant lines of text.  The omission from the explanatory memorandum should not interfere with the grant of approval.

19. In all of the circumstances, there having been no appearance by anyone other than the plaintiff and HCF when the matter was called today and no member having indicated a desire to be heard, I consider it appropriate that the scheme be approved.

20. It would be inconvenient for the particulars of the scheme to be attached to Manchester Unity’s constitution and accordingly it is appropriate that Manchester Unity be exempted from compliance with s 411(11) of the Corporations Act.

I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

Associate:

Dated:        30 January 2009

Counsel for the Plaintiff:	Mr T Bathurst QC
Solicitor for the Plaintiff:	Chang, Pistilli & Simmons
Counsel for The Hospitals Contribution Fund of Australia Limited:	Mr I M Jackman SC
Date of Hearing:	19 December 2008
Date of Judgment:	19 December 2008