Re Capel Finance Ltd - [2005] NSWSC 286

Reported Decision:
52 ACSR 601
(2005) 23 ACLC 527

New South Wales

Supreme Court

CITATION:
Capel Finance Ltd [2005] NSWSC 286

HEARING DATE(S): 04/04/05

JUDGMENT DATE :

4 April 2005

JURISDICTION:
Equity Division
Corporations List

JUDGMENT OF:
Barrett J

DECISION:
Order for the convening of meeting of members refused

CATCHWORDS:
CORPORATIONS - arrangements and reconstructions - scheme of arrangement coupled with reduction of capital - holders of cancelled shares entitled to cash or new shares designated redeemable preference shares - adequacy of information to be given to shareholders as to availability of cash and capacity of company to redeem new shares - CORPORATIONS - corporate finance - redeemable preference shares - concept of "preference share" - need for preference or priority over other shares - inability of company to redeem except out of profits or proceeds of new issue

LEGISLATION CITED:
Corporations Act 2001 (Cth) ss.254A, 254K 256C, 411(1), 411(4)

CASES CITED:
Birch v Cropper; Re Bridgewater Navigation Co Ltd (1889) LR 14 App Cas 525
Re Powell-Cotton's Resettlement [1957] 1 All ER 404

PARTIES:
Capel Finance Limited - Plaintiff

FILE NUMBER(S):
SC 2203/05

COUNSEL:
Mr M.B. Oakes SC - Plaintiff

SOLICITORS:
Cowley Hearne Lawyers Pty Limited - Plaintiff

LOWER COURT JURISDICTION:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

BARRETT J

MONDAY 4 APRIL 2005

2203/05 - APPLICATION OF CAPEL FINANCE LIMITED

JUDGMENT

1 The plaintiff seeks an order under s.411(1) of the Corporations Act 2001 (Cth) for the convening of a meeting of those of its shareholders designated “scheme shareholders” for the purpose of considering and, if thought fit, agreeing to a proposed arrangement between the company and those shareholders.

2 The company was formerly on the official list of the Australian Stock Exchange but was delisted in September 2003. It is not at present conducting any business and has no current plans to undertake any new business activity. A share buy back was undertaken during 2002 to give shareholders an opportunity to realise their investments. Few chose to do so. The arrangement now proposed is a new opportunity for shareholdings to be liquidated.

3 The essence of the proposed arrangement is cancellation of all existing shares other than those held by two nominated members on a specified future date called the “record date”. There are currently on issue 21,873,887 shares and the two members in question currently appear to hold about 7 million shares. The number of shares those two shareholders will hold on the specified future date is, of course, potentially subject to change. At all events, the shares other than the excluded shares of the two named shareholders are referred to as the "scheme shares" and the holders of those shares are the "scheme shareholders".

4 It is recognised that the cancellation of the scheme shares involves a reduction of capital governed by Division 1 of Part 2J.1 and that it is a “selective reduction”. In order to comply with the provisions of that division, two special resolutions are proposed for…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Re Capel Finance Ltd

Details

AGLC: Re Capel Finance Ltd [2005] NSWSC 286
Case: [2005] NSWSC 286
Decision Date: 4 April 2005

CaseChat Overview and Summary

In this case, the dispute arose between Capel Finance Ltd and its shareholders, with the proceedings taking place in the Supreme Court of New South Wales. The central issue was the legality of a proposed scheme of arrangement and capital reduction. This scheme involved the cancellation of shareholders' existing shares, offering them the option to receive either cash or new shares designated as redeemable preference shares. The shareholders contested the sufficiency of the information provided to them regarding the availability of cash and the company's ability to redeem the new shares.

The court was required to address several key legal issues. Firstly, it had to determine the adequacy of the information provided to shareholders about the cash availability and the company's capacity to redeem the new shares. Secondly, the court needed to examine whether the scheme complied with the statutory requirements under the Corporations Act. Additionally, the court had to consider the concept of "preference share" and whether the new shares truly had a preference or priority over other shares, particularly in the context of the company's inability to redeem them except out of profits or proceeds of a new issue.

The court found that the information provided to the shareholders was inadequate, as it did not sufficiently address the availability of cash and the company's capacity to redeem the new shares. The court also ruled that the new shares did not qualify as "preference shares" since they lacked a preference or priority over other shares. Furthermore, the court concluded that the scheme did not comply with the statutory requirements. Consequently, the court declared the scheme of arrangement and capital reduction to be invalid. The court's decision was based on the principle that shareholders must be adequately informed about the financial implications and the company's ability to meet its obligations under the proposed scheme.

Orders