Re Paragon Apartments Ltd
[2003] WASC 71
•21 MARCH 2003
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE PARAGON APARTMENTS LTD; EX PARTE PARAGON APARTMENTS LTD [2003] WASC 71
CORAM: HASLUCK J
HEARD: 21 MARCH 2003
DELIVERED : 21 MARCH 2003
FILE NO/S: COR 59 of 2003
MATTER :Section 411(1) of the Corporations Act 2001
IN THE MATTER of PARAGON APARTMENTS LTD (ABN 36 087 200 413)
EX PARTE
PARAGON APARTMENTS LTD (ACN 36 087 200 413)
Plaintiff
Catchwords:
Corporations - Scheme of arrangement - Application to convene a meeting to approve scheme - Orders made to convene a meeting - Further application to vary orders - Whether Court has power to vary orders - Factors bearing upon exercise of discretion
Legislation:
Corporations Act2001 (Cth), s 411, s 1319
Superannuation Industry (Supervision) Act 1993 (Cth), s 67(1)
Result:
Application allowed
Category: B
Representation:
Counsel:
Plaintiff: Mr S M Davies & Mr A J Gibson
Solicitors:
Plaintiff: Blake Dawson Waldron
Case(s) referred to in judgment(s):
Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485
CMPS and F Pty Ltd v Crooks Mitchell Ltd (1997) 76 FCR 366
Deputy Commissioner of Taxation for the Commonwealth of Australia v Healy [2003] WASC 38
Re Park Lane Jewellers Pty Ltd (1985) 10 ACLR 138
Taylor v Taylor (1979) 143 CLR 1
Case(s) also cited:
Ansons Pty Ltd v Merlex Corp Pty Ltd (2001) 162 FLR 443
Esther Investments Pty Ltd v Markalinga Pty Ltd (1989) 2 WAR 196
Lewis v Daily Telegraph (No 2) [1964] 2 QB 601
Light v William West & Sons [1926] 2 KB 238
Monaco v Arnedo Pty Ltd (1994) 13 WAR 522
Pillinger v Ropework Services, unreported; SCt of WA; Library No 7976; 5 December 1989
Re North Flinders Mines Ltd (1996) 66 SASR 437
HASLUCK J: This is an application to vary certain orders made pursuant to s 411 of the Corporations Act.
Background
On 6 March 2003 orders and directions were sought pursuant to s 411(1) of the Corporations Act so that the plaintiff, Paragon Apartments Ltd, could convene a meeting of its members holding ordinary shares for the purpose of considering and, if thought fit, approving a proposed scheme of arrangement.
The nature of the proposed scheme was described in par 9 and par 11 of the supporting affidavit. At the hearing, as appears from the relevant reasons for decision, I made orders in terms of the minute of proposed orders dated 6 March 2003. The orders in question made provision for the holding of a meeting on 3 April 2003.
Broadly described, it was intended that pursuant to the scheme all of the ordinary shares issued by Paragon would be subject to a call option granted by each Paragon shareholder in favour of Westpoint. In exchange for the granting of the call option, Westpoint would procure the issue by Market Street of debenture notes to be known as MSM notes to each Paragon shareholder on the basis of 118 MSM notes for every 100 Paragon shares held.
I noted in my reasons for decision that the Court will ordinarily order meetings to be convened where the proposal is such that it could reasonably be supposed by sensible business people to be for the benefit of the class concerned.
I referred to the decision of the High Court of Australia in Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 in which the Court said at 504 ‑ 505 that the grant of leave at this stage is not necessarily a determination of whether the proposed arrangement falls within the scope of the section; rather the application for leave to summon meetings is in the nature of interlocutory proceedings. It is a preliminary to the final determination which is to be made when the matter comes back to the Court for approval after the holding of the meeting which has been directed.
Application to vary
An application to vary the orders previously made has now been brought before me and it is that application that I now address. In doing so, I note that the orders previously made have been extracted and the notice and related papers convening the meeting have been dispatched.
I pause to say that I have had the benefit of a carefully prepared set of submissions from Mr Davies as counsel for the applicant. He has acquainted me with some recent developments which, on his submission, make it necessary and desirable that the orders previously made be varied. The terms of the variation contended for are set out in a minute of proposed orders dated 21 March 2003.
I note that the application to vary is supported by the affidavit of Alan James Gibson sworn 19 March 2003 and by the affidavit of Alan James Gibson sworn 20 March 2003. I also have before me submissions in writing in support of the application for variation.
It emerges from the supporting papers, and from what has been put to me by counsel, that the reason for the proposed variation orders is essentially that approximately 27 per cent of the plaintiff's shares are held by trustees for superannuation funds. This has come to light since the notice of meeting was dispatched.
One effect of the scheme as presently configured is to create for a period of time a loan to the scheme participants. The loan may have the effect of putting a superannuation fund in breach of s 67(1) of the Superannuation Industry (Supervision) Act 1993. The loan may result in the superfund shareholders losing certain taxation benefits that they have by reason of being trustees for superannuation funds.
In essence, the proposed variation to the scheme will change the scheme by removing, insofar as it applies to the superfund shareholders, that part of the transaction that gives rise to the loan. It is also proposed that separate meetings be held for these two classes of shareholders. That is referred to in the minute of proposed orders at par 1(c) where it is proposed that the Court ordered meetings take place at the function room, level 2, the QVI Conference Centre, 250 St Georges Terrace, Perth, Western Australia, on Thursday, 3 April 2003 at 11 am for the non-superfund shareholders and 11.15 am for superfund shareholders.
Thus, when the position is looked at in overview, my understanding is that the essential constituents of the scheme are to remain as was originally proposed. However, some remedial action is reflected in the proposed variation orders in respect of the point of legal concern that has been raised by those representing the superfund shareholders.
I am told by counsel and so understand that at this stage there are no indications of any widespread or deep rooted opposition to the scheme that is to be placed before the meeting. There are some indications that if the particular and rather specific point of legal concern can be addressed and remedied, then that will satisfy the matter of concern that has been raised.
I pause to say that nothing in the comments I have just made should in any way be thought to preclude the right of any shareholder to voice other concerns at the meetings which are to be held or in any subsequent hearing before the Court for final approval of the scheme.
Legal principles
Counsel for the plaintiff has undertaken a thorough review of the law with a view to satisfying me that in the circumstances I have described there is a power to vary the orders previously made.
The general precept concerning court orders is that once an order is made it becomes final and effective. Subject to any correction under the slip rule or equivalent provisions, the order can only be modified or overturned by an appeal unless there is a power to vary. A number of previously decided cases relevant to the finality of orders and the application of the slip rule are reviewed in Deputy Commissioner of Taxation for the Commonwealth of Australia v Healy [2003] WASC 38.
As to the power to vary, counsel for the plaintiff submits that the Court has power to vary an order made under s 411 of the Corporations Act. He referred to the decision of Young J, Equity Division, Supreme Court of New South Wales in Re Park Lane Jewellers Pty Ltd (1985) 10 ACLR 138. That was a case where the notice in question had not yet been sent to creditors. However, Young J observed that the whole object of the Court making orders is to do justice between the parties, and therefore, at least in the case before him where the original application had been made ex parte and no notices had been sent to creditors, the Court had power to vary an order made under s 315 of the Companies (New South Wales) Code, being the legislation in force at that time.
His Honour went on to say this at 139:
"…in this day and age a less strict view is taken of variations of orders, even final orders, than was taken in 1899." (Re McCracken's Brewery Co Ltd (1899) VLR 784.)
He said further that in Taylor v Taylor (1979) 143 CLR 1 the High Court made it quite clear that this matter of varying final orders was not some sort of intellectual game that courts were playing but that the whole object of making orders of the Court is to do justice between parties and has no other purpose. In the case before him, where an order was made ex parte to convene a meeting of creditors, and where no notices of meeting had been sent out, apart from some theoretical or technical objection he could not see how any aspect of justice was served by refusing to vary the order.
Counsel for the plaintiff relies also and more specifically upon s 1319 of the Corporations Act which reads as follows:
"Where, under this Act, the Court orders a meeting to be convened the Court may, subject to this Act, give such directions with respect to the convening, holding or conduct of the meeting, and such ancillary or consequential directions in relation to the meeting, as it thinks fit."
Counsel went on to submit that there was authority that s 1319 of the Corporations Act gives power to the Court to vacate orders made under s 411 of the Corporations Act. He referred to the decision of Burchett J of the Federal Court in CMPS and F Pty Ltd v Crooks Mitchell Ltd (1997) 76 FCR 366.
The CMPS case concerned circumstances in which the notice of the meetings in question had already been given. Nonetheless Burchett J was prepared to exercise the power allowed to the Court by s 1319. He indicated and so held at 367 that an order revoking the convening of a meeting could not be described as ancillary, however, it could be described as consequential where the usefulness of the meeting had been destroyed or greatly compromised. In such a case a direction having the effect of revoking the convening of the meeting would be consequential on its having been convened in the first place.
His Honour held that it was appropriate in the circumstances of the case before him to revoke the previous order convening the meeting to consider the first of two proposals which were under notice in that matter.
I pause to observe that the decision of Burchett J is a persuasive precedent in the circumstances of the present case because the orders sought in the present case are simply to vary the manner in which the proposed meeting is to be held, that is to say, there will be a division between the classes of shareholders and two meetings in place of one.
Counsel submitted also that, independently, and additionally to the power enunciated in s 1319 of the Corporations Act, there was a power to vary pursuant to the Court's usual powers to vary or discharge an interlocutory order of the kind made in the circumstances of the present case. I do not intend to canvass the submissions made in regard to that aspect of the matter at any length because I am satisfied that the appropriate basis for the power to be exercised in the present case is to be found in s 1319.
Conclusion
I consider on the authority of the CMPS case (supra) that there is power in the circumstances of the present matter to make the orders proposed pursuant to s 1319 of the Corporations Act. However, as counsel recognised, and as is apparent from the language of the relevant provision, the power in question is a discretionary power. Accordingly, I must take account of the considerations that bear upon the exercise of the discretionary power.
In proceeding to evaluate those considerations, I return to the comments I made earlier concerning the decision of the High Court in the Marlborough Gold Mines case (supra). An application of the present kind is essentially an application in respect of a preliminary matter. It precedes the determination which is to be made by the Court when approval of the scheme is finally sought. This approach colours my review of the facts and matters bearing upon the exercise of the discretion.
First, I take account of and give weight to a further letter that has been received by the solicitors for the plaintiff, Blake Dawson Waldron, from the Australian Securities and Investments Commission or ASIC, dated 20 March 2003. That letter refers to the supplementary documentation that has been lodged in relation to the proposed scheme of arrangement between Paragon and MSM. ASIC says that on the basis of the information provided it has no objection to the proposed scheme.
ASIC reserves the right to change its view should further material information come to its notice prior to the confirmation hearing. ASIC notes that the proposed scheme meetings are still to be held on 3 April 2003. ASIC does not have an objection to this date, provided the scheme documents are sent to all scheme participants by the close of business on Friday, 21 March 2003.
The letter goes on to say that if this is not possible, scheme participants, including those voting by proxy, should be given at least 10 days after postage to consider the supplementary documentation before the new meeting date or deadline for Paragon receiving proxies. ASIC was not minded to attend the hearing before me this morning.
It therefore emerges that in the opinion of the regulating agency there is no objection to the variation proposed provided there is a prompt dispatch of the scheme documents which are now to be sent out if the variation orders are made.
The minute of proposed orders has been amended to take account of this consideration. It is now contemplated that if the proposed orders are made, the supplementary explanatory statement and the attachments annexed to the further supporting affidavits as AJG5, 6, 7, 8 and 9 will be dispatched by mail to shareholders by close of business on Friday, 21 March 2003. Thus the requirements of the regulating agency as to time are satisfied. I consider and am of the view that there is still sufficient time for the shareholders to consider the revised papers that will come before them.
In reviewing the considerations going to the discretion, I take account also of a point I have already touched upon, namely, that the variations do not effect a significant reconstruction of the original proposal. The variations are directed to a point of specific legal concern concerning the superfund shareholders. It seems to me that as the amendments to the scheme contemplated by the variation orders are of comparatively limited effect, this is a matter which weighs in favour of the exercise of the discretionary power.
The CMPS case (supra) contains reasoning which to my mind bears also upon the exercise of the discretion. This case and the earlier case to which I referred, namely, Park Lane Jewellers (supra), clearly contemplate that one should not take an overly technical approach in this day and age to the variation of orders. If in a commonsense way it becomes apparent that orders should be made, then one should not let technical objections stand in the way of such a course.
To my mind, having regard to the circumstances of the present case, unless the concern of the superfund shareholders is addressed, then the plaintiff might be left in the situation of presenting to the meeting, and ultimately to the Court, a scheme which was known to be flawed, and flawed in a way that was capable of remedy. That would seem to be inconsistent with the requirements of commonsense. I give weight to that as a factor which suggests the discretion should be exercised in the manner the applicant proposes.
Finally, as I have already noted, the making of the variation orders do not preclude shareholders from raising any other matters of concern, either at the proposed meetings or ultimately at the hearing at which approval of the scheme is sought. That avenue of redress remains open.
Accordingly, for all these reasons, I am prepared to make orders in terms of the minute of proposed orders as amended at the hearing.