Re CannPal Animal Therapeutics Ltd [No 2]

[2021] WASC 83

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   RE CANNPAL ANIMINAL THERAPEUTICS LTD; EX PARTE CANNPAL ANIMAL THERAPEUTICS LTD [No 2] [2021] WASC 83

CORAM:   HILL J

HEARD:   10 MARCH 2021

DELIVERED          :   10 MARCH 2021

PUBLISHED           :   26 MARCH 2021

FILE NO/S:   COR 3 of 2021

EX PARTE

CANNPAL ANIMAL THERAPEUTICS LTD

Plaintiff

Catchwords:

Corporations law - Scheme of arrangement - Application for orders approving scheme under s 411(b) of the Corporations Act 2001 (Cth) - Low shareholder turnout at scheme meeting - Orders made approving scheme

Legislation:

Corporations Act 2001 (Cth), s 411

Result:

Orders made approving scheme

Category:    B

Representation:

Counsel:

Plaintiff	:	A J Papamatheos
Interested Party	:	W C J Zappia

Solicitors:

Plaintiff	:	Steinepreis Paganin
Interested Party	:	Minter Ellison

Case(s) referred to in decision(s):

City Pacific Ltd v Bacon (No 2) [2009] FCA 772; (2009) 178 FCR 81

Cordiant Communications (Australia) Pty Ltd v The Communications Group Holdings Pty Ltd [2005] NSWSC 1005; (2005) 55 ACSR 185

Ex parte CannPal Animal Therapeutics Ltd [2021] WASC 37

Re Auzex Resources Ltd [No 2] [2012] QSC 101

Re Avoca Resources Ltd [2011] FCA 208

Re Cortona Resources Ltd [No 2] [2013] FCA 302

Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358

Re Decimal Software Limited [No 2] [2018] FCA 2040

Re Foundation Healthcare Ltd [No 2] [2002] FCA 973; (2002) 43 ACSR 680

Re Great Artesian Oil and Gas Ltd [No 2] [2008] FCA 1169

Re International Goldfields Ltd [2004] WASC 112

Re Pensana Metals Ltd; Ex parte Pensana Metals Limited [2020] WASC 17

Re Rebel Sport Ltd [No 2] [2007] FCA 458

Re Saracen Mineral Holdings Ltd; ex parte Saracen Mineral Holdings Ltd [No 2] [2021] WASC 32

Re Seven Network Ltd [No 3] [2010] FCA 400; (2010) 267 ALR 583

Re Straits Resources Ltd [No 2] [2011] FCA 47

Re TriAusMin Limited [No 2] [2014] FCA 833

Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [No 2] [2018] WASC 357

Re Zenith Energy; Ex parte Zenith Energy Ltd [No 3] [2020] WASC 289

HILL J:

1. The plaintiff, CannPal Animal Therapeutics Limited (CannPal), applies for orders approving a proposed scheme of arrangement (Scheme).  The background to the matter is set out in the judgment I delivered following the first court hearing.[1]  At the first court hearing on 1 February 2021, I made orders for the Scheme meeting to be convened (Orders).

   [1] Ex parte CannPal Animal Therapeutics Ltd [2021] WASC 37.

Scheme Meeting

1. The Scheme meeting was convened and held on 8 March 2021.  At the meeting, the resolution was passed by the requisite statutory majorities.

2. 118 shareholders were present at the Scheme meeting in person and by proxy, comprising approximately 6.63% of shareholders by number and 55.46% of the issued share capital of the plaintiff.[2]  94.92% of shareholders who voted at the meeting were in favour of the resolution.[3]  99.91% of votes cast on the resolution were cast in favour of the resolution.[4]

   [2] Affidavit of Geoff Starr filed 8 March 2021 [16] – [18]; Affidavit of Baden Maxwell Bowen filed 8 March 2021 [10] – [12].

   [3] Affidavit of Geoff Starr filed 8 March 2021 [16] – [18]; Affidavit of Baden Maxwell Bowen filed 8 March 2021 [10] – [12].

   [4] Affidavit of Geoff Starr filed 8 March 2021 [16] – [18]; Affidavit of Baden Maxwell Bowen filed 8 March 2021 [10] – [12].

Approval of Scheme

1. This matter came back before me for the second court hearing on 10 March 2021.

2. In addition to the affidavits that were relied upon at the first hearing, CannPal relied on the following additional affidavits:

   (a)a third affidavit of Kate Patricia Blechynden filed 4 March 2021, confirming the 1 February 2021 Orders were lodged with ASIC and that the final Scheme booklet was lodged and registered with ASIC on 3 February 2021;

   (b)an affidavit of Elaine Tuddenham filed 4 March 2021, a mail senior operator at Computershare Communication Services Pty Limited (Computershare), the share registry for the plaintiff, regarding the collation and packaging of Scheme packages to CannPal shareholders who had elected to receive electronic notifications from CannPal but for whom electronic delivery of the CannPal letter and Proxy Form was unsuccessful;

   (c)an affidavit of Lalit Singla filed 4 March 2021, a lodgement clerk at Computershare, in relation to the collation and dispatch of 1,067 Scheme packages to those CannPal shareholders who had not elected to receive electronic notifications from CannPal;

   (d)an affidavit of Michele Dewet filed 4 March 2021, a laser operator at Computershare, relating to the collation and packaging of Scheme packages to CannPal shareholders who had elected to receive electronic notifications from CannPal but for whom electronic delivery of the CannPal letter and Proxy Form was unsuccessful;

   (e)an affidavit of Oliver James Bampfield filed 4 March 2021, the managing director of Lumi Technologies Pty Ltd (Lumi), who provided the online platform for the Scheme meeting, regarding the conduct of the meeting on the online platform;

   (f)an affidavit of Lisa Nicole Ahwan filed 4 March 2021, a relationship manager of Computershare, relating to the physical and electronic dispatch of the Scheme meeting documents for CannPal's shareholders;

   (g)an affidavit of Ravi Kiran Tedewala filed 4 March 2021, a senior laser operator at Computershare, detailing the printing of the letter to shareholders and proxy forms for those CannPal shareholders who had not elected to receive electronic notifications and for the new CannPal shareholders;

   (h)an affidavit of Geoff Starr filed 8 March 2021, the chairman and a non-executive director of CannPal.  Mr Starr's affidavit gave an overview of the Scheme meeting and the results of the poll in respect of the Scheme resolution;

   (i)an affidavit of Richard Victor Powell filed 8 March 2021, an account director at Computershare, detailing the registration procedure for attendees at the Scheme meeting, the voting procedure, and the preparation of the poll report which set out the voting results in the format required by s 251AA(2) of the Corporations Act 2001 (WA);

   (j)an affidavit of Layton Patrick Mills filed 8 March 2021, CannPal's managing director, confirming that no proxy forms in respect of the Scheme meeting were received at CannPal's office by hand or post between 4 February 2021 and 6 March 2021;

   (k)an affidavit of Baden Maxwell Bowen filed 8 March 2021, the company secretary of CannPal, regarding the ASX announcements and newspaper notices of the Scheme meeting.  Mr Bowen also deposed to the voter turnout at the Scheme meeting and at the annual general meetings of CannPal in 2018, 2019 and 2020;

   (l)a fourth affidavit of Kate Patricia Blechynden filed 8 March 2021, detailing the amendments that were made to the final Scheme booklet after the court's orders on 1 February 2021, the provision of the Scheme booklet to CannPal directors and auditors, and the lodgement of documents for the second court hearing with ASIC;

   (m)an affidavit of Emilia Varga filed 9 March 2021, a client support officer at Computershare, in relation to the physical and electronic dispatch of documents for the Scheme meeting;

   (n)a second affidavit of Baden Maxwell Bowen filed 9 March 2021, correcting a small error in his first affidavit regarding the number of CannPal shareholders that voted in favour of the Scheme resolution; and

   (o)a fifth affidavit of Kate Patricia Blechynden filed 10 March 2021, annexing the joint certificates and warranty certificates executed by CannPal and AusCann Group Holdings Ltd (AusCann).  She also deposed that Steinepreis Paganin had not received any notice of appearance or person intending to appear at the court hearing, and to provision of all court documents to ASIC.

3. These additional affidavits address the matters that CannPal was required to establish at the second court hearing.

Legal Principles in respect of the Scheme Approval

1. The approval of the proposed Scheme pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) (Act), or the second court hearing, is the third stage of approval for a scheme of arrangement. The second stage is the approval of the Scheme by the requisite statutory majorities, which occurred at the Scheme meeting.

2. At the second court hearing, the court has two tasks:[5]

   (a)to ensure that all statutory and procedural requirements have been satisfied.  This includes confirming that:[6]

   (i)the meeting was convened and held in accordance with the court's earlier orders,

   (ii)the resolutions were passed with the requisite statutory majorities; and

   (iii)the plaintiff otherwise complied with the court's earlier orders;

   (b)to determine, in the exercise of the court's discretion, whether to approve the proposed arrangement.

   [5] Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [No 2] [2018] WASC 357 [12].

   [6] Re International Goldfields Ltd [2004] WASC 112 [7].

3. The court has a discretion to approve a scheme under s 411(4)(b) of the Act and is not bound to approve a scheme just because the court previously made orders for the convening of a meeting or because the statutory majorities have been achieved.[7]  That said, the court will usually approach the task on the basis that shareholders are better judges of what is in their commercial interests than the court.[8]

   [7] Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [No 2] [13]; Re Seven Network Ltd [No 3] [2010] FCA 400; (2010) 267 ALR 583 [31].

   [8] Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [No 2] [13]; Re Seven Network Ltd [No 3] [32] - [33].

4. The factors that inform the court's discretion whether or not to approve a scheme are:[9]

   (a)whether the members have voted in good faith and not for an improper purpose;

   (b)whether the proposal is fair and reasonable so that an intelligent and honest person who was a member of the relevant class, properly informed and acting alone, might approve it;

   (c)whether the plaintiff has brought to the attention of the court all matters that could be considered relevant to the exercise of the court's discretion;

   (d)whether there has been full and frank disclosure of all information material to the members' decision;

   (e)whether minority shareholders would be oppressed by the scheme;

   (f)whether the court is satisfied that the scheme has not been proposed to avoid ch 6 of the Act;

   (g)whether ASIC has an objection to the scheme; and

   (h)whether the scheme offends public policy.

   [9] Re Seven Network Ltd [No 3] [35] - [40], [50], [52].

Disposition

Compliance with statutory and procedural requirements

1. I am and was satisfied, on the basis of the additional affidavits that were filed by CannPal, that:

   (a)a copy of the Orders was lodged with ASIC on 1 February 2021;[10]

   (b)a copy of the Scheme booklet that was approved for distribution by the court, subject to minor amendments that could be made in accordance with order 2 of the Orders, was lodged with ASIC and registered on 2 February 2021;[11]

   (c)the Scheme booklet was dispatched to shareholders in accordance with the Orders;[12]

   (d)the Scheme meeting was convened and held on 8 March 2021 in accordance with the Orders;[13]

   (e)the Scheme was approved by the requisite statutory majorities;[14]

   (f)notice of the second court hearing was given by way of advertisement in The West Australian and The Australian newspapers on 19 February 2021 and 22 February 2021 respectively;[15]

   (g)ASIC informed CannPal on 10 March 2021, pursuant to s 411(17)(b) of the Act, that it has no objection to the proposed Scheme.[16]

   [10] Third affidavit of Kate Patricia Blechynden filed 4 March 2021 [3] – [4], 'KPB-1'.

   [11] Third affidavit of Kate Patricia Blechynden filed 4 March 2021 [5] – [6], 'KPB-1'.

   [12] Affidavit of Lisa Nicole Ahwan filed 4 March 2021 [12] – [13], [15] – [23]; Affidavit of Lalit Singla filed 4 March 2021 [10] – [16]; Affidavit of Michele Dewet filed 4 March 2021 [6] – [8], [10] – [12]; Affidavit of Elaine Tuddenham filed 4 March 2021; Affidavit of Ravi Kiran Tedewala filed 5 March 2021 [6] – [12]; Affidavit of Emilia Varga filed 9 March 2021 [10] – [18]. 

   [13] Second affidavit of Geoff Starr filed 8 March 2021 [4] – [20], 'GS-3'.

   [14] Second affidavit of Geoff Starr filed 8 March 2021 [16] – [18], 'GS-2'.

   [15] First affidavit of Baden Maxwell Bowen filed 8 March 2021 [6], 'BMB-4'.

   [16] Fifth affidavit of Kate Patricia Blechynden filed 10 March 2021 [9], 'KPB-3'.

2. Counsel for the plaintiff drew my attention to three matters in relation to the Scheme meeting.

3. First, counsel drew my attention to the platform used by CannPal for conducting the Scheme meeting.  Shareholders could attend the Scheme meeting in person or virtually.  The online component of the meeting was hosted through the 'Lumi Online AGM System'.  Mr Bampfield, the managing director of Lumi, gave evidence regarding the operation of the Lumi Online AGM System and how the system allowed shareholders to attend the Scheme meeting virtually and vote.[17]

   [17] Affidavit of Oliver James Bampfield filed 4 March 2021.

4. Counsel informed me that no CannPal shareholders used the Lumi Online AGM System to vote at the Scheme meeting.  One observer entered the system but did not utilise the voting function.  I accept, on the evidence before me, that this does not, of itself, indicate there was any issue with the Lumi Online AGM System that prevented shareholders from attending or voting at the Scheme meeting or that this was the reason for the low shareholder turnout at the Scheme meeting.  I accept that most shareholders who attended and voted at the Scheme meeting attended in person or by proxy.

5. The second matter counsel drew to my attention to was the delayed provision of the Scheme booklet to CannPal's auditors.  Section 249K(1) of the Act requires that a company must give its auditor notice of a general meeting in the same way that a member of the company is entitled to receive notice.  As CannPal is an Australian public company listed on the ASX, s 249HA(1) of the Act requires at least 28 days' notice of a meeting to be given to the company's auditors.

6. A copy of the Scheme booklet, which included the Notice of Scheme meeting, was dispatched to CannPal's auditors on 7 March 2021.  This was not within the 28 day period required by the Act. 

7. Counsel for CannPal submitted that, to the extent the dispatch of the Scheme booklet and notice of meeting to the auditors was not done at least 28 days before the Scheme meeting, this was a procedural irregularity. That is, it was a defect, irregularity or deficiency in notice or time.[18]

   [18] Corporations Act2001 (Cth) s 1322(1)(b)(ii); Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [No 2] [28].

8. Section 1322(2) of the Act provides that:

   A proceeding under this Act is not invalidated because of any procedural irregularity unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court and by order declares the proceeding to be invalid.

9. I accept that a scheme meeting is a 'proceeding' under the Act for the purposes of this section.[19] 

   [19] City Pacific Ltd v Bacon (No 2) [2009] FCA 772; (2009) 178 FCR 81 [51]. See also, Re Wesfarmers Ltd; Ex Parte Wesfarmers Ltd [No 2] [28].

10. To determine whether late dispatch of the Scheme booklet to the auditors was a procedural irregularity for the purposes of the Act, it is necessary to consider first, what is 'the thing to be done', and second, whether the irregularity changes 'the thing to be done' or merely departs from the manner in which 'the thing is to be done'.[20]

    [20] Cordiant Communications (Australia) Pty Ltd v The Communications Group Holdings Pty Ltd [2005] NSWSC 1005; (2005) 55 ACSR 185 [103].

11. In this case, the 'thing to be done' is the dispatch of the Scheme booklet which contained the Notice of Scheme meeting to the auditors.  I am satisfied that this irregularity did not change the thing to be done but simply departed from the manner in which this was required to occur.  For this reason, I accept that the late dispatch of the Scheme booklet was a procedural irregularity.

12. Turning then to the question as to whether there has been or may be any substantial injustice caused by the procedural irregularity.  For the following reasons, I am satisfied that there was no substantial injustice.

13. First, an auditor traditionally does not play any role in a Scheme meeting.  The directors and independent expert provide shareholders with their recommendations and their views on the proposed transaction.

14. Second, auditors commonly do not attend scheme meetings, even in circumstances where common form orders for convening scheme meetings enliven the requirement to notify the auditor under s 249K of the Act.

15. Third, the minutes of the Scheme meeting and the poll report demonstrate that, save for CannPal's directors who are shareholders, only one shareholder attended the Scheme meeting in person.  No queries were raised which required any answer, assistance or response from the auditor.[21]

    [21] Submissions, [35(c)].

16. Fourth, the auditors were aware of the Scheme meeting.  The auditors did not raise any concern as to the late service of the material.

17. On the evidence before me, I am satisfied that the late dispatch of the Scheme booklet to the auditors was a procedural irregularity and that no substantial injustice was caused by this irregularity.  

18. The third matter that counsel drew my attention to was the voter turnout at the Scheme meeting.  51,645,984 of the 93,125,000 CannPal shares on issue voted at the Scheme meeting, being approximately 55.46% of the CannPal shares on issue.[22]  However, only 118 of 1,780 eligible CannPal shareholders voted, representing approximately 6.63% of shareholders by number.[23] 

    [22] First affidavit of Baden Maxwell Bowen filed 8 March 2021 [10] – [12]; Second affidavit of Geoff Starr filed 8 March 2021 [16] – [18].  

    [23]First affidavit of Baden Maxwell Bowen filed 8 March 2021 [10] – [12].

19. As was stated by Farrell J in Re TriAusMin Limited [No 2]:[24]

    It is inappropriate to assume (in the absence of complaint) that shareholders who did not vote either did not have notice of the meeting or were silent in protest of the scheme; apathy should not be presumed to be antagonism.

    Nonetheless it does call for consideration to ensure that the vote [was] not unrepresentative, since the court retains the discretion to withhold its approval in that case.  It is relevant to consider whether members have been deterred from attending or voting at the meeting. (footnotes omitted)

    [24] ReTriAusMin Limited [No 2] [2014] FCA 833 [10] - [11].

20. I respectfully agree with her Honour's view.

21. In any event, relatively low shareholder turnout does not prevent the court from making orders approving a scheme of arrangement.[25] 

    [25] See for example Re Foundation Healthcare Ltd [No 2] [2002] FCA 973; (2002) 43 ACSR 680 [22] (44.23% of shareholders voting); Re Rebel Sport Ltd [No 2] [2007] FCA 458 [6] (24.99% of shareholders holding 83.59% of shares) Re Avoca Resources Ltd [2011] FCA 208 [25] (11.49% of shareholders holding 72.38% of shares); Re Great Artesian Oil and Gas Ltd [No 2] [2008] FCA 1169 [3] (24.6% of shareholders voting); Re Straits Resources Ltd [No 2] [2011] FCA 47 [12] (10.8% of shareholders holding 74% of shares); Re Cortona Resources Ltd [No 2] [2013] FCA 302 [12] (17.5% of shareholders holding 45.2% of shares); Re Auzex Resources Ltd [No 2] [2012] QSC 101 [18] (9.75% of shareholders representing 42.3% of votes); Re TriAusMin Limited [No 2] [9] (10.94% of shareholders holding 52.9% of shares); Re Decimal Software Limited [No 2] [2018] FCA 2040 [15] - [16] (5.21% of shareholders holding 52.85% of shares); Re Pensana Metals Ltd; Ex parte Pensana Metals Limited [2020] WASC 17 [12] (6.41% of shareholders holding 37.08% of shares); Re Zenith Energy; Ex parte Zenith Energy Ltd [No 3] [2020] WASC 289 [18] (39% of shareholders holding 89.25% of shares); Re Saracen Mineral Holdings Ltd; ex parte Saracen Mineral Holdings Ltd [No 2] [2021] WASC 32 [47] (9.50% of shareholders holding 75.46% of shares).

1. I was and am satisfied that there was a sufficient turnout at the Scheme meeting. I do not consider that the low voter turnout by number of shareholders, in itself, suggests there had been an error in the dispatch of the Scheme booklet, nor that this should prevent the court from making orders under s 411(4)(b). In this respect, I have had regard to the following matters:

   (a)there are significant numbers of shareholders with small parcels of Shares.  As at the 2020 Annual Report, 735 of the then 1,795 shareholders held less than $500 worth of shares.[26]  It is a reasonable inference that for many of these shareholders, the Scheme will be of relatively minor commercial interest;

   (b)the number of shareholders who voted at the Scheme meeting, being approximately 6.63% of all eligible shareholders,[27] significantly exceeded the number of shareholders who voted at the three preceding general meetings of CannPal;[28]

   (c)the shareholders who voted at the Scheme meeting overwhelmingly voted in favour of the Scheme;

   (d)over 55% of shareholders by number of shares voted at the meeting;

   (f)there was no evidence which suggested irregularity in the dispatch of the Scheme Booklet; and

   (g)there was no evidence of any issue which would have deterred shareholders from voting at or attending the Scheme meeting. 

   [26] First affidavit of Matthew Adam Ireland filed 14 January 2021, 'MAI-7', p 416.

   [27] First affidavit of Baden Maxwell Bowen filed 8 March 2021 [13].

   [28] Being approximately 5.76% at the 2018 annual general meeting; 5.86% at the annual general meeting in 2019 and 4.25% at the 2020 annual general meeting.  See First affidavit of Baden Maxwell Bowen filed 8 March 2021 [10] – [12].  

2. Accordingly, I was and am satisfied that all statutory pre‑conditions have been met.  I now turn to consider the discretionary considerations.

Good faith and proper purpose

1. There is no evidence that the shareholders voted for an improper purpose.  I am satisfied on the evidence that has been filed by CannPal that the members voted in good faith and for a proper purpose as:

   (a)the purpose of the proposed Scheme is to effect the acquisition by AusCann of all CannPal shares on issue, a transaction of a kind ordinarily approved by the court.  It does not involve any novel treatment of rights;

   (b)the independent expert opined that in the absence of an alternate proposal (and none has emerged), the Scheme is in the best interests of shareholders; and

   (c)neither ASIC nor any shareholder appeared at the second court hearing to object to approval of the proposed Scheme.

Fairness and reasonableness

1. At the first hearing, based on the evidence before the court, I was satisfied that the proposed acquisition of CannPal was of such a nature that there was no apparent reason that it should not receive approval if the requisite voting majorities were achieved at the Scheme meeting. 

2. Nothing has occurred since the date of the first hearing to change this view.  The shareholders who voted at the meeting overwhelmingly supported the proposed Scheme.  No shareholder appeared to oppose the orders sought at the second court hearing.  I was and am satisfied that the proposed Scheme is fair and reasonable and is a Scheme that sensible business people might consider to be of benefit to shareholders. 

All relevant matters brought to the court's attention

1. At the first court hearing, counsel for CannPal drew my attention to a number of matters.  These are summarised in CannPal Animal Therapeutics Ltd at [39] ‑ [77].

2. There were two further matters that counsel drew my attention to at the second court hearing. 

3. First, evidence was put before the court to demonstrate that the conditions precedent to the Scheme (apart from the court's approval at the second court hearing) had been satisfied or waived.[29] 

   [29] Fifth affidavit of Kate Patricia Blechynden filed 10 March 2021, 'KPB-1'.

4. Second, CannPal sought an exemption from s 411(11) of the Act. In my view, there is no utility in requiring the court's orders approving the Scheme to be annexed to CannPal's constitution as the orders do not affect any change to the constitution. I considered it was and is appropriate in the circumstances of this case to make the orders sought under s 411(12) of the Act.

Oppression of minorities

1. There was no evidence that any minority has been oppressed.

Satisfaction of s 411(17) and ASIC's view

1. ASIC has provided a written statement to the effect that it does not object to the Scheme pursuant to s 411(17)(b) of the Act.[30] As a result, the requirements of s 411(17) have been satisfied. In any event, having regard to the nature of the proposed transaction, it cannot be said that the Scheme was proposed to avoid the operation of ch 6 of the Act.

Public Policy

[30] Fifth affidavit of Kate Patricia Blechynden filed 10 March 2021 [9], 'KPB-3'.

1. Counsel for the plaintiff submitted that the proposed Scheme does not offend any aspect of public policy.  Counsel drew to my attention the nature of the business of both CannPal and AusCann which involve the development of cannabinoid products.  CannPal submitted that the nature of this business does not amount to impropriety under the Act that would offend public policy.

2. The question as to what could be taken into account by the court in considering whether the Scheme offends public policy was considered by the Full Court of the Federal Court in Re CSR Ltd.[31]  As Keane CJ and Jacobson J stated:[32]

   The only considerations of 'public policy' or 'commercial morality' which are relevant for the purpose of s 411(1) of the Act are those which find a basis in the terms of the Act or its underlying purpose.

   [31] Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358.

   [32] Re CSR Ltd [35].

3. They went on to state:[33]

   The 'public policy' or 'commercial morality' which informs s 265B and its analogues is concerned with the interests of shareholders and creditors.  This was explained by Professor Ford: 'So long as the reduction will not prejudice creditors or shareholders the court is not concerned with any ulterior purpose for which the reduction is being made …' (Ford, Company Law (1974) p 159).

   [33] Re CSR Ltd [54].

4. In the same case, Finkelstein J expressed the view that:[34]

   There is a real problem with 'commercial morality' being applied to discretionary decision-making.  It suggests the existence of a fixed set of standards by which the community assesses conduct to be legitimate or acceptable.  Putting to one side the obvious difficulty which confronts a judge in attempting to discover what are the relevant community standards, the fact is that many so-called standards, when they exist, are not fixed.  They are constantly changing. …

   In my view, notions of commercial morality should be jettisoned from the matters to be considered in approving a scheme.  It is dangerous to bring to decision-making an ill-defined and largely subjective set of criteria purporting to represent the views of the community when, in reality, no one can be sure of that.

   [34] Re CSR Ltd [84], [86].

5. I respectfully agree with these views. 

6. It is my view that in considering whether the Scheme offends any aspect of public policy, it is not the role of the court to have regard to the nature of the business carried on by the proponents of the scheme where the business is a lawful business within Australia.  I consider this to be a matter for the legislature and not the courts.

7. Given the nature of the proposed Scheme and on the evidence before me, it is my view that it could not be sensibly suggested that the Scheme offends public policy.

Conclusion and orders

1. At the hearing before me, I was satisfied that the substantive and procedural requirements under s 411(1) of the Act had been satisfied and that I should approve the proposed Scheme.

2. For these reasons, at the conclusion of the hearing on 10 March 2021, I made orders in terms of Annexure 'A' to this judgment in respect of the Scheme. 

ANNEXURE A

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

HW

Research Associate to the Honourable Justice Hill

26 MARCH 2021