In the matter of Namoi Cotton Co-operative Ltd

[2017] NSWSC 1165

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Namoi Cotton Co-operative Ltd [2017] NSWSC 1165
Hearing dates:	16 August 2017
Decision date:	31 August 2017
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	The Court orders pursuant to s 415 of the Co-operatives National Law that the Plaintiff convene a meeting of capital stockholders for the purpose of considering and, if thought fit, agreeing to the proposed creditors’ scheme of arrangement.
Catchwords:	CORPORATIONS — Arrangements and reconstructions — Schemes of arrangement or compromise – Application under s 415 of the Co-operatives National Law for orders convening a meeting of capital stockholders to consider and if thought fit to agree to proposed creditors’ scheme of arrangement – where scheme would convert co-operative to public limited company under the Corporations Act 2001 (Cth) and convert capital stock to shares – where Plaintiff proposes interrelated members’ scheme
Legislation Cited:	- Co-operatives (Adoption of National Law) Act 2012 (NSW) - Co-operatives National Law (NSW), Pts 3.4 Div 1, 4.4, ss 168, 248, 345(1), 347–348, 414(1)(b), 415–416, 428 - Corporations Act 2001 (Cth), s 411
Cases Cited:	- Cleary v Australian Co-operative Foods Ltd (No 2 and No 3) [1999] NSWSC 991; NSWSC 1062; (1999) 32 ACSR 701 - First Pacific Advisors LLC v Boart Longyear Ltd [2017] NSWCA 116 - Re ACM Gold Ltd (1992) 34 FCR 530; 7 ACSR 231 - Re Adelaide Bank Ltd [2007] FCA 1582 - Re Amcom Telecommunications Ltd (No 4) [2015] FCA 720; (2015) 107 ACSR 341 - Re Application of Australian Co-operative Foods Ltd [2001] NSWSC 382; (2001) 186 ALR 21; 38 ACSR 71 - Re Australian Co-operative Foods Ltd [2008] NSWSC 1063 - Re Boart Longyear Ltd [2017] NSWSC 567 - Re Dairy Farmers Milk Co-operative Ltd [2009] NSWSC 627 - Re Namoi Cotton Co-operative Ltd (1998) 26 ACSR 694 - Re Opes Prime Stockbroking Ltd (No 2) [2009] FCA 813; (2009) 179 FCR 20 - Re Westfield Holdings Ltd [2004] NSWSC 458; (2004) 49 ACSR 734 - Sovereign Life Assurance Company v Dodd [1892] 2 QB 573
Category:	Procedural and other rulings
Parties:	Namoi Cotton Co-operative Ltd (Plaintiff)
Representation:	Counsel: D F C Thomas/M T Sherman (Plaintiff)   Solicitors: King & Wood Mallesons (Plaintiff)
File Number(s):	2017/220964

Judgment

1. By Originating Process filed on 20 July 2017, the Plaintiff, Namoi Cotton Co-operative Ltd (“Namoi Cotton”), seeks orders under s 415 of the Co-operatives National Law, being the Appendix to the Co-operatives (Adoption of National Law) Act 2012 (NSW) (“Co-operatives National Law”), that a meeting be convened of the holders of securities of Namoi Cotton known as “Namoi Capital Stock” (“Stockholders”) to consider and vote upon a scheme of arrangement (“Stockholders’ Scheme”) proposed to be made between Namoi Cotton and the Stockholders, and for related orders. I have had the benefit of detailed submissions of Mr Thomas, who appeared for Namoi Cotton in the application, on which I have drawn in this judgment.

The applicable legal principles

2. Mr Thomas pointed out that Pt 4.4 of the Co-operatives National Law governs the approval of members’ and creditors’ schemes of arrangement in respect of co-operatives. He pointed out that, by contrast with s 411 of the Corporations Act 2001 (Cth), Pt 4.4 does not provide for the Court to convene members’ meetings in respect of members’ schemes and instead provides, in s 414(1)(b) of the Co-operatives National Law, for postal ballots. Mr Thomas also pointed out that the function of approving an explanatory statement before it was despatched to members and Stockholders was conferred on the Registrar of Co-operatives under s 428(1) of the Co-operatives National Law.

3. Mr Thomas also pointed out that, under s 416 of the Co-operatives National Law, the Court may not make an order convening a creditors’ scheme meeting, or an order approving a creditors’ or members’ scheme, unless the Court is satisfied that at least 14 days’ notice of the hearing of the application for the order, or a shorter period of notice that the Court or Registrar permits, has been given to the Registrar; and the Registrar has had a reasonable opportunity to examine the terms of, and make submissions to the Court in relation to, the proposed scheme and draft explanatory statement. There is no difficulty with notice in this case, since that notice has been given and the Registrar has reviewed and approved the relevant documents.

4. Mr Thomas draws attention to the fact that two different approaches have been adopted to a first court hearing in respect of a members’ scheme under the Co-operatives National Law. In Re Namoi Cotton Co-operative Ltd (1998) 26 ACSR 694 at 695, Santow J observed that:

“Recognising that the court must still approve the scheme, if passed, the applicant brought the proposed scheme before the court at the convening stage and invited the court, in considering whether to appoint a hearing date for approval, to apply the approach which has long been the practice in this court were this a convening application under the Corporations Law. This is that the court should not allow the matter to advance unless (assuming the necessary approval of members is obtained) the court would be likely to approve the scheme of arrangement on an uncontested basis after its consideration by the members… This approach still leaves open the ability for objectors to appear at the approval hearing and does not pre-empt the court at that stage – or indeed the registrar – in its consideration of whether or not to approve the scheme.” [citations omitted]

5. On the other hand, in Re Australian Co-operative Foods Ltd [2008] NSWSC 1063 at [8], Barrett J observed that he saw no basis for:

“… embarking on any non-statutory course which is tantamount to the giving of an advisory opinion on matters concerning the proposed compromise or arrangement that may become controversial if and when the court is asked to exercise the statutory approval function”.

In Re Dairy Farmers Milk Co-operative Ltd [2009] NSWSC 627 at [3], Austin J took the same approach. In those cases, the Court fixed a hearing date for the approval hearing of members’ schemes without undertaking a preliminary assessment of the proposed schemes. I would have taken the same approach, had only a members’ scheme been involved here, since there seems to be no reason for the Court to express a preliminary view as to a scheme where no function is conferred on it until after the members have exercised their votes, by postal ballot, in respect of that scheme.

6. However, as Mr Thomas fairly recognises, by contrast with Re Australian Co-operative Foods Ltd above and Re Dairy Farmers Milk Co-operative Ltd above, Namoi Cotton propounds a creditors’ scheme and the Court has the statutory function of convening the creditors’ meeting under the Co-operatives National Law. Mr Thomas submits that the Court would be entitled, if it wished, to adopt the principles relevant to a first court hearing brought in connection with a scheme of arrangement under s 411 of the Corporations Act, as summarised by Barrett J in Re Westfield Holdings Ltd [2004] [2004] NSWSC 458; (2004) 49 ACSR 734 at 736 as follows:

“The Court's role on a s 411 application of this kind has been described in a number of cases. According to the formulation adopted by Santow J in Re NRMA Insurance Ltd (2000) 156 FLR 349; 33 ACSR 523, the court must see, on the material placed before it, that the proposal fits within the statutory concept of arrangement or compromise, that there will be available to members all the main facts relevant to the exercise of their judgment, that ASIC has had a reasonable opportunity to examine the proposal and that the scheme is so conceived and presented as to that structure, purpose and effect that there is no apparent reason, so far as can be foreseen, why it should not, in due course, receive the court's approval if the necessary majority of members' votes is achieved.”

7. I consider that the Court should adopt that approach, and would not convene the creditors’ meeting unless it is satisfied of those matters. In particular, if the Court were not satisfied that it could approve the Stockholders’ Scheme at a second court hearing, by reason of any material inadequacy in the information provided to Stockholders, then it is unlikely that it would convene a meeting of Stockholders. Mr Thomas also submits, and I accept, that the Court will not substitute its commercial judgment for that of the relevant class of creditors: Re ACM Gold Ltd (1992) 34 FCR 530; 7 ACSR 231 at 235–6 Re Adelaide Bank Ltd [2007] FCA 1582 at [25].

Affidavit evidence, background and the structure of the schemes

8. Namoi Cotton relies on an affidavit of Mr Balhar Singh Garcha sworn 15 August 2017 in support of the application. Mr Garcha’s affidavit exhibits, relevantly, the rules of Namoi Cotton as a co-operative and an extract maintained by NSW Fair Trading recording its current directors and officers; the 2017 annual report for Namoi Cotton; the Implementation Deed in respect of the schemes dated 7 August 2017; the proposed constitution of Namoi Cotton, following its incorporation as a public company; and the Restructure Booklet in respect of the scheme. Mr Garcha also led evidence of the verification process which had been adopted in respect of the Restructure Booklet, which was in the conventional form.

9. Namoi Cotton also relies on the affidavit dated 7 August 2017 of Mr Stuart Boydell, who is the Chairman and a non-executive director of Namoi Cotton, who indicates his willingness to act as Chairman of the Stockholders’ Scheme meeting; the affidavit also dated 7 August 2017 of Mr Timothy Watson, a non-executive director of Namoi Cotton, who indicates his willingness to act as Chairman of the scheme meeting if Mr Boydell does not do so; and the affidavit dated 14 August 2017 of Mr Richard Norris, a director and authorised representative of Leadenhall Corporate Advisory Pty Ltd (“Leadenhall”), which confirms the independent expert’s report prepared by Leadenhall in respect of the restructuring.

10. Namoi Cotton also relies on the affidavit of Mr Gregory Golding, a partner in the firm of solicitors acting for it, dated 19 July 2017 which exhibits relevant information maintained by the Australian Securities and Investments Commission. A second affidavit dated 15 August 2017 of Mr Golding refers to the extensive dealings between Namoi Cotton, its solicitors, the Co-operatives Registrar, the Australian Securities and Investments Commission and Australian Securities Exchange Limited in respect of the proposed schemes.

11. By way of background, Namoi Cotton is presently a co-operative registered in New South Wales. It was formed as a grower co-operative in 1962 by a small group of cotton growers and over time has grown to process (or “gin”) approximately a third of Australia’s cotton crop. Namoi Cotton undertakes cotton processing at 12 cotton gins in New South Wales and Queensland and also undertakes a cotton marketing business through a joint venture, with a third party, under the name Namoi Cotton Alliance, established in 2013 (Garcha [12]). Namoi Cotton presently has 165,600 unlisted “Grower Shares” and 207 “Grower Members” each own 800 of the Grower Shares. Namoi Cotton also has on issue 109,843,279 Namoi Capital Stock, which are co-operative capital units as provided cod in the Co-operatives National Law and are subject to terms of issue set out in rule 15 of the registered rules of Namoi Cotton (Ex BSG1, Tab 1). The Namoi Capital Stock are quoted on Australian Securities Exchange Limited, following a partial listing of Namoi Cotton in 1998 (Garcha [11]).

12. The basis of the relevant schemes is set out in a booklet describing a restructure (“Restructure”) of Namoi Cotton (Ex BSG1, Tab 6). Namoi Cotton seeks to undertake the Restructure to strengthen its balance sheet, to facilitate growth in the core business of Namoi Cotton and to pursue other opportunities in the agricultural industry (Garcha [16]). That Restructure involves several steps. The first is a variation to the terms of issue of Namoi Capital Stock to include a conversion right to enable the conversion of Namoi Capital Stock into ordinary shares (“Ordinary Shares”) in the capital of a public company limited by shares registered under the Corporations Act), to be known as Namoi Cotton Limited (“Company”). The second is the conversion of Namoi Cotton from a co-operative registered under the Co-operatives National Law to the Company (“Transfer of Incorporation”). The third and fourth steps are the variation of Grower Shares to become Ordinary Shares and the variation of Namoi Capital Stock to become “Residual Capital Stock”, which would be an interest in the capital, but not the share capital, of the Company following the implementation of the Restructure, and would have the rights set out in the proposed constitution of the Company. The fifth step is the conversion of Residual Capital Stock to Ordinary Shares at Stockholders’ election. Where Stockholders did not validly elect to have their Residual Capital Stock converted to Ordinary Shares, they would continue to hold Residual Capital Stock (Garcha [17]).

13. The result of implementation of the Restructure would be that each Grower Member entitled to shares would receive 158,504 Ordinary Shares in place of the 800 Grower Shares presently held by each such Grower Member. Stockholders which elect to convert their holding to Ordinary Shares will hold one Ordinary Share for every Namoi Capital Stock held as at the record date and Stockholders who do not elect to convert their holding to Ordinary Shares (or who are not entitled to do so by virtue of foreign securities laws) will retain their holding of Residual Capital Stock, which will equate to their holding of Namoi Capital Stock immediately before the Restructure (Garcha [18]).

14. Namoi Cotton has entered into an Implementation Deed (by deed poll) which sets out how it proposes to implement the Restructure (Garcha [21]; Ex BSG1, Tab 4), including by two schemes. The first, the Stockholders’ Scheme would be a creditors’ scheme of arrangement between the Stockholders and Namoi Cotton under Pt 4.4 of the Co-operatives National Law. The only matter presently before the Court is whether a meeting of Stockholders should be convened in respect of the Stockholders’ Scheme, although the Court would also have to consider whether to approve that scheme at a second court hearing. The terms of the Stockholders’ Scheme are set out in Annexure F of the Restructure Booklet, and Mr Thomas has helpfully taken me to the detailed steps involved in the implementation of the Stockholders’ Scheme (Stockholders’ Scheme, cl 4.2). Voting on the Stockholders’ Scheme will take place at a meeting of Stockholders (“Stockholders Meeting”), subject to the Court making orders to convene such a meeting.

15. The second scheme is a members’ scheme of arrangement under the Co-operatives National Law between Namoi Cotton and Grower Members (“Members’ Scheme”), where the Court’s involvement, under the Co-operatives National Law, is limited to considering whether to approve that scheme at a second court hearing. The terms of the Members’ Scheme are set out in Annexure B of the Restructure Booklet. Mr Thomas helpfully outlined the steps in that scheme (Members’ Scheme, cl 4.2) which are relevant background to the Court’s decision whether to convene the Stockholders Meeting and also because, as Mr Thomas recognised, Court approval would be sought for the Members’ Scheme at the second court hearing.

16. Mr Thomas also recognises that several approvals will be required by members and Stockholders to implement the Restructure. These include approval of the variation to the rights attaching to Namoi Capital Stock to create the right to convert to Ordinary Shares, by special resolution approved by the holders of at least 75% of the Namoi Capital Stock given at the Stockholders Meeting and by members’ special resolution by postal ballot, with a 75% majority. A special resolution of members by special postal ballot with a 75% majority is also required to approve the Transfer of Incorporation and the Members’ Scheme, and approval by a majority in number of Stockholders present and voting at the Stockholders Meeting whose debts or claims represent at least 75% of the debts or claims of Stockholders present and voting is required for the Stockholders’ Scheme.

17. On implementation of the Restructure, Namoi Cotton also proposes to undertake a capital raising to raise up to $35 million in additional equity, and eligible holders of Ordinary Shares and Residual Capital Stock would be entitled to acquire further Ordinary Shares as part of that capital raising (Garcha [19]).

Matters addressed in submissions

18. As Mr Thomas points out, there is evidence that Namoi Cotton is a co-operative registered in New South Wales and of the details of its capital structure and its registered rules (Ex GRG1; Garcha [15]; Ex BSG1, Tabs 1 and 2), and that Namoi Cotton has committed itself to propounding the Stockholders’ Scheme by the Implementation Deed (Ex BSG1, Tab 4). The proposed text of the Restructure Booklet containing the statutory explanatory statement and other materials including the notice of the Stockholders Meeting has been made available for the Court’s review and was amended in the course of the hearing as noted below (Ex BSG1, Tab 6). There is evidence of verification of factual information in the Restructure Booklet (Garcha [61]–[71]). Consents to act as chairman and alternate chairman of the Stockholders Meeting are established by the affidavits of Messrs Boydell and Watson. The fact that the Registrar has had the 14 days’ notice required under s 416(1)(a) of the Co-operatives National Law is established by Mr Golding’s second affidavit sworn 15 August 2017, [8]–[9], and in any event the Registrar has approved the Restructure Booklet in its original and amended forms.

19. The Restructure Booklet indicates that the directors of Namoi Cotton have unanimously recommended that Grower Members and Stockholders vote in favour of the Restructure, including the Stockholders’ Scheme and the Members’ Scheme (Ex A). The independent expert appointed by the directors of Namoi Cotton to assess the Restructure, Leadenhall, has prepared an independent expert’s report which is included in Annexure A of the Restructure Booklet, and has expressed the view that the Restructure is fair and reasonable and is in the best interests of Grower Members and Stockholders. That report has been verified by Mr Norris’ affidavit.

20. Mr Thomas fairly drew attention to several structural features of the schemes. First, in relation to the treatment of forfeited shares, he pointed out that s 168 of the Co-operatives National Law provides that, if a person’s shares have been forfeited under the inactive membership provisions of the Co-operatives National Law, that person is still to be regarded as the holder of shares in the relevant co-operative for the purposes of entitlements if the co-operative becomes registered as a company within 2 years of forfeiture. Under that provision, a former Grower Member whose Grower Shares were forfeited in that period would be entitled to participate in the Transfer of Incorporation on the basis that they held the Grower Shares that were forfeited, and would be entitled to receive Ordinary Shares in place of the forfeited Grower Shares. In the event, there are no former Grower Members who forfeited their Grower Shares during the relevant 2-year period (Garcha [36]).

21. Mr Thomas also pointed out that the Co-operatives (Adoption of National Law) Act provides that, where a cancellation of membership occurred before 3 March 2014, the period of 2 years to which I referred above is taken to be 5 years and, if a grower’s membership was cancelled between 26 September 2012 and 3 March 2014, he or she would also be entitled to participate in the Transfer of Incorporation and receive Ordinary Shares in place of the forfeited Grower Shares. Mr Thomas noted that the Members’ Scheme reflects that position by providing that members whose Grower Shares were forfeited in that period will be notified of their entitlement to receive Ordinary Shares by virtue of the Transfer of Incorporation in accordance with the requirements of the legislation and will be offered Ordinary Shares on payment of the amount repaid on forfeiture. Mr Thomas also notes that those Ordinary Shares would be issued immediately after the Effective Time (as defined), and that the number of Ordinary Shares that may be issued pursuant to these arrangements is not expected to be material.

18. Mr Thomas also identified an issue as to the treatment of ineligible members under the Members’ Scheme. He points out that an Ineligible Grower Member (as defined) is a holder of Grower Shares whose address is, or who is a resident or citizen of, a place outside Australia or who acts for such a person, unless Namoi Cotton is satisfied their holding of Grower Shares is not precluded from being converted to Ordinary Shares or if the conversion would result in a breach of law or the Company’s constitution. He notes that, under cl 4.3 of the Members’ Scheme, Namoi Cotton will establish a share sale facility for any Ineligible Grower Members and Ineligible Grower Members will automatically participate in that facility (if the Restructure is implemented) without having to make a decision to do so. Under that facility, Ordinary Shares that would have been issued to Ineligible Grower Members will be transferred or issued to a nominee, which will sell or procure the sale of those shares, and the net proceeds of the sale and any income referable to the sold shares (after deduction of brokerage, taxes and charges) will be deposited into a bank account nominated by Namoi Cotton and established for this purpose. Each Ineligible Grower Member will then receive the net proceeds of sale on an averaged basis so that all Ineligible Grower Members receive the same price per security sold, rounded down to the nearest whole cent.

19. Mr Thomas also identified an issue as to the treatment of ineligible stockholders under the Stockholders’ Scheme. An Ineligible Stockholder (as defined) is similarly a holder of Namoi Capital Stock whose address is, or who is a resident or citizen of, a place outside Australia or who acts for such a person unless Namoi Cotton is satisfied their holding of Namoi Capital Stock is not precluded from being converted to Ordinary Shares, or if the conversion would result in a breach of law or the Company’s constitution. Ineligible Stockholders will receive Residual Capital Stock in accordance with the Restructure, but will not have a right to convert that Residual Capital Stock to Ordinary Shares under the proposed constitution (Ex BSG1, Tab 5, Sch 2).

20. Mr Thomas also noted that, under its existing co-operative structure, there are restrictions on the ownership of interests in the issued capital of Namoi Cotton, established by both the Co-operatives National Law and the rules of Namoi Cotton (Garcha [45]). The proposed constitution of the Company will provide that, at least for an initial period following the Restructure, the Company will continue to be subject to a maximum shareholding limit with respect to Ordinary Shares (Garcha [46]). That shareholding limit is established by article 3.2(a) of the proposed constitution which provides that a person and the person’s associates must not, in aggregate, have a relevant interest in more than 20% of the Ordinary Shares on issue in the Company (Garcha [47]). If a person acquires Ordinary Shares in excess of that limit, the right to vote and to receive dividends in respect of the excess Ordinary Shares will be suspended, and the directors of the Company may procure the disposal (by a sale nominee) of the excess Ordinary Shares (Garcha [48]). That limit will operate from when Namoi Cotton is converted from a co-operative to a public company until at least the Company’s annual general meeting in 2021, when that limit will be voted on by Ordinary Shareholders. If that limit is then approved by special resolution, it will again be voted on at the Company’s 2025 annual general meeting and, if then approved by special resolution, at each subsequent annual general meeting of the Company. The shareholding limit will cease to apply if it is not approved at any of these meetings by way of a special resolution, or if the Company’s main undertaking ceases to be a cotton ginning business (Garcha [49]).

21. Mr Thomas drew the Court’s attention to two other legal questions that Namoi Cotton had identified and submits, and I accept, that neither issue warrants the Court declining to convene the Stockholders Meeting. First, Namoi Cotton has treated the holders of Namoi Capital Stock as creditors for the purposes of the creditors’ scheme regime in the Co-operatives National Law. I am satisfied that approach is correct, where Namoi Capital Stock are co-operative capital units under the Co-operatives National Law, and, under s 345(1) of the Co-operatives National Law, the holder of a co-operative capital unit has an interest in the capital of the co-operative but that interest expressly excludes the co-operative’s share capital. Mr Thomas submits, and I accept, that the holding of a co-operative capital unit does not give the holder the status of a member of the co-operative. That result is consistent with s 347 of the Co-operatives National Law which treats the issue of a co-operative capital unit as obtaining financial accommodation and treats a co-operative capital unit as a debenture for the purposes of Part 3.4 Div 1 of the Co-operatives National Law and with s 348 of the Co-operatives National Law which provides that co-operative capital units may be issued to persons “whether or not they are members”. Mr Thomas also refers to Re Namoi Cotton Co-operative Ltd above at 701, where Santow J described co-operative capital units issued by Namoi Cotton as “quasi-debt with limited debenture status”. Mr Thomas also points out that the case law supports the characterisation of a holder of a co-operative capital unit as a creditor of the issuer, such that the creditors scheme provisions of Pt 4.4 of the Co-operatives National Law are applicable: Re Application of Australian Co-operative Foods Ltd [2001] NSWSC 382; (2001) 186 ALR 21; 38 ACSR 71 at [13]; Cleary v Australian Co-operative Foods Ltd (No 2 and No 3) [1999] NSWSC 991; NSWSC 1062; (1999) 32 ACSR 701.

22. Second, Mr Thomas pointed out that approximately 60% of the Stockholders are Grower Members of Namoi Cotton and the scheme consideration to be given to members is calculated differently from that given to Stockholders. I will address the calculation of that consideration further below. Mr Thomas recognised that, if the Stockholders’ Scheme were brought under s 411 of the Corporations Act, a question might arise as to whether it were necessary for two classes of creditors to be identified, namely, Stockholders which are members and Stockholders which are not members. Mr Thomas submits that it is unlikely that two classes of Stockholders would be required even under a creditors’ scheme under s 411 of the Corporations Act, where all Stockholders are treated equally in their capacity as holders of Namoi Capital Stock and the rights attaching to the Stock will be the same, irrespective of whether the Stockholder is also a member of Namoi Cotton. Mr Thomas submits, and I accept, that separate class meetings are required by a “difference in rights, not interests”: Sovereign Life Assurance Company v Dodd [1892] 2 QB 573 at 583; Re Opes Prime Stockbroking Ltd (No 2) [2009] FCA 813; (2009) 179 FCR 20 at [64]; Re Amcom Telecommunications Ltd (No 4) [2015] FCA 720; (2015) 107 ACSR 341 at [78]; Re Boart Longyear Ltd [2017] NSWSC 567, aff’d First Pacific Advisors LLC v Boart Longyear Ltd [2017] NSWCA 116. In any event, Mr Thomas points out that the Co-operatives National Law does not provide for separate classes in relation either to creditors voting at meetings or to members voting by postal ballot: Re Application of Australian Co-operative Foods Limited above at [68]. It seems to me sufficient that Namoi Cotton intends to tag the votes of both groups of holders. Mr Thomas rightly accepts that the Court would be entitled, at the second court hearing, to take into account the fact that a majority of Stockholders are also members when determining whether to approve the schemes.

An amendment to the Restructure Booklet

27. By a certificate dated 16 August 2017 issued under ss 248 and 428 of the Co-operatives National Law, a delegate of the Registrar of Co-operatives approved the Restructure Booklet to be issued by Namoi Cotton in respect of the schemes (Ex P1; Ex P4) in a form that incorporated an additional confirmation from the directors in respect of Namoi Cotton’s financial position. That was sufficient to permit the issue of the Restructure Booklet in respect of the schemes without further order of the Court.

28. However, an additional issue arose in the course of submissions, namely that Leadenhall’s independent expert’s report indicates that there is a significant uplift in the value of interests held by Grower Members as a result of implementation of the schemes, and no substantial uplift in the value of Namoi Capital Stock, such that the additional value realised by the schemes is largely allocated to Grower Members rather than Stockholders. The amounts involved were by no means trivial, where each Grower Member holds 800 shares, and Leadenhall’s report had expressed the view that implementation of the schemes would increase the value of each Grower Share from a range of $7.00 to $7.50 prior to implementation of the Restructure to a range of $150 to $179 following the implementation of the Restructure, whereas, in Leadenhall’s view, the value of Namoi Capital Stock would increase from a range of $0.73 to $0.87 to a range of $0.76 to $0.91. It appears that that allocation reflects a judgment made by the directors of Namoi Cotton that such an allocation is appropriate, where Grower Members are surrendering or at least diluting their control of Namoi Cotton if the schemes are implemented.

29. It seemed to me that the initial version of the Restructure Booklet did not sufficiently disclose those matters, so as to allow Stockholders to identify and consider and address any question whether they impacted on their decision whether to vote in favour of the Stockholders’ Scheme. I formed the tentative view that, had the Restructure Booklet been despatched in its original form, there was a substantial risk that the Court could not have approved the Stockholders’ Scheme at a second court hearing and, in those circumstances it would likely not have been appropriate to convene the Stockholders Meeting. That matter was appropriately addressed by Namoi Cotton by inserting an additional disclosure in the Restructure Booklet, which recognises that Stockholders are being asked, by the schemes, to confer significant value on Grower Members, in recognition of the rights that Grower Members were being asked to relinquish, and in particular their control of Namoi Cotton; highlights Leadenhall’s views as to the substantial increase in the value of each Grower Share following implementation of the Restructure, and the lower uplift in value for holders of Namoi Capital Stock; and indicates the directors’ view that the advantages of the Restructure from the perspective of Stockholders outweigh the disadvantages associated with conferring additional value on Grower Members. It seems to me that that disclosure is sufficient to allow Stockholders to identify, and consider, that question and removes the obstacle which would otherwise have existed to convening the Stockholders Meeting. The Registrar of Co-operatives approved the Restructure Booklet in that amended form and, on that basis, I considered that I could properly convene the Stockholders Meeting.

Orders

30. Accordingly, on the basis of the amended Restructure Booklet, containing the additional disclosure to which I have referred above, I made orders in the form initialled by me and placed in the file, including an order under s 415 of the Co-operatives National Law convening the Stockholders Meeting for the purpose of considering and, if thought fit, agreeing (with or without modification) to the Stockholders’ Scheme and ancillary orders.

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Decision last updated: 01 September 2017