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Re Citect Corporation Ltd

Re Citect Corporation Ltd

Case [2006] NSWSC 143 10 March 2006

Schemes of Arrangement

Takeover Bids

Voting Rights

Shareholding

Procedure for Approval

Corporate Law & Governance

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Reported Decision:
56 ACSR 663
(2006) 24 ACLC 290

New South Wales

Supreme Court

CITATION: Citect Corporation Ltd [2006] NSWSC 143

HEARING DATE(S): 05/12/05, 30/01/06, 31/01/06, 20/02/06, 10/03/06

JUDGMENT DATE :
10 March 2006

JURISDICTION: Equity Division
Corporations List

JUDGMENT OF: Barrett J

EX TEMPORE JUDGMENT DATE: 03/10/2006

DECISION: Orders under s.411(4)(b)

CATCHWORDS: CORPORATIONS - arrangements and reconstructions - Part 5.1 schemes of arrangement involving acquisition of all shares by another party and cancellation of all options - applications for approval under s.411(4)(b) - Chapter 6 off-market takeover bid launched by third party after s.411(1) orders made - procedure for incorporation of more favourable terms into proposed Part 5.1 schemes - inability of company unilaterally to alter proposed Part 5.1 schemes - 15 per cent shareholding acquired by the third party - undertaking given to Takeovers Panel prevents voting of that shareholding at scheme meeting - whether court should consider how such votes might have been exercised - evidence of third party's intentions - whether court should be influenced by possibility of further increase in third party's takeover bid

LEGISLATION CITED: Australian Securities and Investments Commission Act 2001 (Cth), Part 10, s.201A
Corporations Act 2001 (Cth), Chapter 6, Part 5.1, s.411(1), 411(4), 411(17), 623, 657A
Supreme Court (Corporations) Rules 1999, r 3.4

CASES CITED: Cleary v Australian Co-operative Foods Ltd (Nos 2 and 3) (1999) 32 ACSR 701
Re Adams International Food Traders Pty Ltd (1988) 13 ACLR 586
Re Australian Energy Ltd [2006] FCA 155
Re A W Allen Ltd [1930] VLR 251
Re Chevron (Sydney) Ltd [1963] VR 248
Re Minster Assets plc [1985] BCLC 200
Re Savoy Hotel Ltd [1981] Ch 351

PARTIES: Citect Corporation Limited - Plaintiff

FILE NUMBER(S): SC 5788/05

COUNSEL: Mr M.B. Oakes SC - Plaintiff
Mr T.F. Bathurst QC - SEAH

SOLICITORS: Mallesons Stephen Jaques - Plaintiff
Freehills - SEAH

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

BARRETT J

FRIDAY 10 MARCH 2006

5788/05 - CITECT CORPORATION LTD

JUDGMENT

1 I have before me an application by Citect Corporation Limited (“Citect”) for orders under s.411(4)(b) of the Corporations Act 2001 (Cth) approving two schemes of arrangement, one between Citect and its members and the other between Citect and the class of its creditors consisting of holders of options to subscribe for unissued shares. In accordance with the line of cases of which the decision of Lindgren J on 23 February 2006 in Re Australian Energy Ltd [2006] FCA 155 is the most recent, option holders are treated as creditors for these purposes.

2 It is desirable, at the outset, that I set out part of s.411:

“(1) Where a compromise or arrangement is proposed between a Part 5.1 body and its creditors or any class of them or between a Part 5.1 body and its members or any class of them, the Court may, on the application in a summary way of the body or of any creditor or member of the body, or, in the case of…

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 Citect Corporation Ltd

Details

AGLC: Re Citect Corporation Ltd [2006] NSWSC 143
Case: [2006] NSWSC 143
Decision Date: 10 March 2006

CaseChat Overview and Summary

In the matter of Citect Corporation Ltd, the dispute involved a proposed Part 5.1 scheme of arrangement where another party sought to acquire all the shares of the company. A third party subsequently launched an off-market takeover bid, which raised procedural issues regarding the incorporation of more favourable terms into the proposed scheme. The matter was before the Supreme Court of New South Wales, which was required to determine whether the court should consider how votes from the third party’s shareholding might have been exercised, given that the third party had provided an undertaking to the Takeovers Panel to prevent those votes from being cast at the scheme meeting.

The central legal issues the court needed to address were whether the company could unilaterally alter the proposed scheme in light of the third party’s bid and whether the court should take into account the possibility of the third party increasing their bid further. The court also had to consider the evidence of the third party’s intentions and whether these should influence the decision regarding the scheme. The crux of the matter was determining the appropriate procedure for incorporating more favourable terms from the third party’s bid into the Part 5.1 scheme.

The court held that the company was unable to unilaterally alter the proposed scheme after orders under section 411(1) had been made. It was also determined that the court should not consider how the third party’s votes might have been exercised, as the undertaking given to the Takeovers Panel prevented those votes from being cast. The court found that it should not be influenced by the possibility of the third party increasing their bid further, as this was speculative. Ultimately, the court ruled that the proposed scheme should proceed as planned, without incorporating the terms of the third party’s bid.

The final orders of the court were that the scheme of arrangement proposed by the acquiring party should be approved, and the company was not to unilaterally alter the scheme to incorporate terms from the third party’s bid. The third party’s undertaking to the Takeovers Panel was upheld, and the court’s decision was based on the preservation of the integrity of the Part 5.1 scheme process.

Orders