Re North Flinders Mines Ltd No. SCGRG 96/211 Judgment No. 5520 Number of Pages 5 Corporations (1996) 66 Sasr 437

[1996] SASC 5520

COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA DEBELLE J

CWDS
Corporations - Meetings - Scheme of Arrangement - shareholder meeting convened by court - power to vary order - application that court order adjournment of the meeting dismissed. Corporations Laws411, referred to. Smith v Paringa Mines Limited (1906) 2 Ch 193; Re Park Lane Jewellers Pty Ltd
(1985) 10 ACLR 138, considered.

HRNG ADELAIDE, 22 March 1996 #DATE 22:3:1996

Counsel for applicant:                Dr R Baxter

Solicitors for applicant:             Johnson Winter and Slattery

Counsel for other party Normandy Mining Ltd:   Mr C Bagot

Solicitors for other party Normandy Mining Ltd:  Piper Alderman

Counsel for other party Australian Securities Commission:     Mr J Connor

Solicitors for other party Australian Securities Commission:     ASC

ORDER
    (1) Dismissing the application to revoke the order made on 5
    March 1996.

(2) Dismissing the application to adjourn the meeting without
    prejudice to the right of the meeting itself to adjourn.

(3) Copies of these reasons shall be available for
    shareholders at the meeting.

(4) The Chairman shall give notice to members present at the
    meeting that the reasons are available for inspection.

(5) Liberty to apply on short notice.

JUDGE1 DEBELLE J This is an application to revoke orders calling meetings or, in the alternative, to adjourn the meetings called by the Court.

2. On 5 March 1996 I made orders calling meetings of shareholders of North Flinders Mines Ltd ("North Flinders") for the purpose of considering and, if thought fit, agreeing (with or without modification) to a scheme of arrangement to be made between the company and its members. The meetings are to be held on 4 April 1996. Notice of the meetings was sent to all shareholders no later than 11 March 1996.

3. The scheme of arrangement concerned a proposed merger between North Flinders and three other companies, Normandy Mining Limited, PosGold Limited ("PosGold") and Gold Mines of Kalgoorlie Limited. The scheme of arrangement proposed by North Flinders was conditional upon approval by the shareholders of PosGold of a like scheme of arrangement or, more accurately, a scheme in similar terms. On 15 March 1996 the members of PosGold met at two meetings which had been convened in compliance with orders made on 8 February 1996. The special resolution to approve the scheme of arrangement was not carried. The board of PosGold is considering re-submitting the scheme to its shareholders.

4. North Flinders initially applied for an order revoking the order made in this Court on 5 March calling a meeting of its shareholders. It submits that it would be futile to hold a meeting given that the condition precedent to the proposed scheme, namely, the approval of the scheme of arrangement with the shareholders of PosGold has not been satisfied.

5. I do not think it appropriate to make an order revoking the calling of a meeting. It is open to serious question whether a meeting which has not only been convened by order of the Court but of which notice has been given can be cancelled by the Court, Smith v Paringa Mines Limited (1906) 2 Ch 193. It might be appropriate to revoke or vary the order when notice has not been given: Re Park Lane Jewellers Pty Ltd (1985) 10 ACLR 138. But the Court should not lightly deprive shareholders of the right to vote at a meeting of which they have had notice, in this case for at least ten days. The factors to which I am about to refer also tell against revoking the order.

6. When I indicated that I would not make an order revoking the calling of the meeting, an oral application was made to adjourn the meetings. As I have said, notice of meetings has been given. North Flinders has incurred substantial costs in giving notice together with notice of the terms of the scheme of arrangement. More significantly, given that the meeting has been called and notice given to the shareholders, the Court should not, as I have said, lightly deprive the shareholders of the opportunity to meet to express their views on the proposed scheme. There are a number of courses which shareholders might adopt, depending on the views they hold. It is not known, for example, if there are a number of shareholders who would have approved the proposed scheme sufficient to carry the special resolution, even if the members of PosGold had approved the scheme. Alternatively, now that the scheme has not been approved by the members of PosGold, there may not be a sufficient number of shareholders to carry the special resolution, notwithstanding that the board of PosGold is considering re-submitting the scheme to its shareholders. On one view of the matter, the meeting should proceed so that the shareholders can consider what they believe to be the appropriate course. It is for the shareholders to decide whether they should adjourn the meeting or vote upon the motion broadly described in the notice of meeting. Shareholders might even wish to approve it in case it is again submitted to and approved by shareholders in PosGold.

7. There are other factors which point to the desirability of making an order adjourning the meeting. If the meeting proceeds, shareholders might be put to unnecessary cost and convenience by attending a meeting which might be adjourned in any event. There is also the cost and convenience to North Flinders. In addition, if the meeting is adjourned, therefailure of the share will be the additional costs of the adjourned meeting. Further, as the directors of PosGold are considering resubmitting the scheme to the shareholders of PosGold, there is a degree of futility in requiring shareholders to attend the meeting when they do not know, first, whether the directors of PosGold will resubmit the scheme; secondly, the terms of any such proposed scheme; and, thirdly, whether the scheme has been approved. The absence of such information might have a real potential to stultify debate at the meeting of shareholders of North Flinders. In addition, the present uncertainty concerning the proposed merger may create difficulty for shareholders considering whether they should approve the scheme. They will not have all the information necessary to make an informed decision. If the meeting is adjourned, it provides at least a potential for the shareholders to be better informed at the reconvened meeting. All of these are important factors.

8. On the other hand, it is not appropriate for the Court to speculate upon the outcome of the meeting. The meeting might be adjourned before any discussion. Or the meeting may wish to take a vote to get some guide to the likely vote for or against the proposed scheme, particularly having regard to the fact a special resolution is required. Or it might wish to debate some modification of the proposed scheme for the consideration of the shareholders of PosGold and of the shareholders of the other companies involved in the proposed merger. Or it might wish to hear from the directors themselves of the events that have led to the failure of the shareholders of PosGold to approve the proposed scheme and of the circumstances of the possible re-submission of the scheme to those shareholders. I do not overlook the fact that the proposed scheme and the meeting to approve the scheme has been reported in the press. With all respect to those who prepared those reports, I do not know whether all material facts have been reported. More significantly, the shareholders are entitled to hear the relevant facts from the directors themselves. The Court should not act in a way which denies the shareholders that opportunity, even given the present degree of uncertainty concerning the position of PosGold. The risk that costs might be unnecessarily incurred is not, I think, sufficient reason for the Court to remove from the shareholders their right to determine how they should respond to the present state of affairs. If the Court were to accede to the application that it should adjourn the meeting, it will be arrogating to itself a decision which is for the shareholders and the shareholders alone to make.

9. It is relevant also to have regard to the Articles of Association of North Flinders and, in particular, article 91 which authorises the directors to call meetings of shareholders. The Article also authorises directors, if they think fit, on suitable action to cancel a meeting that they have called or to adjourn it. Dr Baxter, who appeared for North Flinders, submitted that the Court was, in fact, convening a meeting at the request of directors. There is some force in that argument. But a meeting convened by the Court pursuant to s.411 falls, I think, into such a different category that it is not appropriate to compare it with a meeting called pursuant to article 91. If the directors call a meeting pursuant to article 91 and then decide to cancel it or adjourn it, it is open to the shareholders in the case of cancellation to requisition a meeting. Such course could not occur in this case. Dr Baxter also drew attention to the fact the Court is exercising a supervisory jurisdiction when calling meetings pursuant to s.411. No doubt it is. But that fact does not, in my view, justify the Court making decisions which are properly the prerogative of the shareholders. I acknowledge also that the shareholders are not considering a proposal in general terms for merger but have before them a specific scheme and that scheme is contingent upon the approval of the shareholders of PosGold to a scheme in somewhat similar terms. Nevertheless, notwithstanding the failure of the shareholders to approve the scheme, it is for the shareholders of North Flinders to decide what should now occur. I have already referred to a number of possible outcomes of the meeting. There may be others.

10. At the end of the day, the factor which tells most against the holding of the meeting is the question of cost and inconvenience. While undoubtedly there is, in the present circumstances, uncertainty, if not a considerable degree of uncertainty which will inhibit informed discussion at the meeting, I think it is for the shareholders, not the Court, to assess the consequences of that uncertainty. It is for the shareholders, not the Court, to decide the course they wish to adopt. It may be that, in the end, they will decide to adjourn to await further information. That only serves to emphasise that it is their decision to make. It is not for the Court to make it.

11. For all of these reasons, both the application to revoke the order and the application to adjourn the meeting are dismissed.

12. I will also direct, subject to what you have got to say Dr Baxter, that copies of these reasons are available for inspection by shareholders at the meeting. I am very much alive to the concern that people might justifiably express they have been called to a meeting which has difficulties. DR BAXTER: I have nothing to say on that. HIS HONOUR: These settled reasons will be available to you, I hope very shortly by about 5 o'clock. DR BAXTER: I take it it is implicit in your Honour's reasons it does have the power to adjourn itself. HIS HONOUR: It does. It always did for the very reasons you pointed out. The meeting is to be conducted in accordance with the Articles. The Articles provide a power of adjournment. DR BAXTER: The reports of the chairman subject - HIS HONOUR: It will be sufficient compliance with the order that the chairman report that the meeting adjourned to a specified date.

13. There will be an order:
    (1) Dismissing the application to revoke the order made on 5
    March 1996.

(2) Dismissing the application to adjourn the meeting without
    prejudice to the right of the meeting itself to adjourn.

(3) Copies of these reasons shall be available for
    shareholders at the meeting.

(4) The Chairman shall give notice to members present at the
    meeting that the reasons are available for inspection.

(5) Liberty to apply on short notice.