Smartec Capital Pty Ltd v Centro Properties Ltd
[2011] NSWSC 495
•30 May 2011
Supreme Court
New South Wales
Medium Neutral Citation: Smartec Capital Pty Limited v Centro Properties Limited & Anor [2011] NSWSC 495 Hearing dates: 19 May 2011 Decision date: 30 May 2011 Jurisdiction: Equity Division - Corporations List Before: Barrett J Decision: Limited order authorising access to be made
Catchwords: CORPORATIONS - documents - inspection - members - inspection of company documents by members Legislation Cited: Corporations Act 2001 (Cth), Chapter 6CA, s 247A(1)
Supreme Court (Corporations) Rules 1999, rule 2.13Cases Cited: Australian Securities Commission v Cracow Resources Ltd (unreported, NSWSC, Windeyer J, 12 August 1993 BC9305041)
Bateman v Newhaven Park Stud Ltd [2004] NSWSC 392; (2004) 49 ACSR 454
Czerwinski v Syrena Royal Pty Ltd (No. 1) [2000] VSC 125, (2000) 34 ACSR 245
Praetorin Pty Ltd v TZ Ltd [2009] NSWSC 1237; (2009) 76 ACSR 236
Re Borax Company Ltd [1901] 1 Ch 326
Re Claremont Petroleum NL (No. 2) [1990] 2 Qd R 310
Rowland v Meudon Pty Ltd [2008] NSWSC 381; (2008) 220 FLR 362
Silkman v Shakespeare Haney Securities Ltd [2011] NSWSC 148
Snelgrove v Great Southern Managers Australia Ltd [2010] WASC 51
Wentworth v Rogers (No 3) (1986) 6 NSWLR 642Texts Cited: Christos Mantziaris, "The member's right to inspect the company books: Corporations Act, s 247A" (2009) 83 ALJ 621 Category: Principal judgment Parties: Smartec Capital Pty Limited - Plaintiff
Centro Properties Limited - First Defendant
CPT Manager Limited - Second DefendantRepresentation: Counsel:
Mr J Stoljar SC/Mr N M Bender - Plaintiff
Mr A J Myers QC/Mr P W Flynn - Defendants
Mr J C Sheahan SC - Bracewell and Giuliani LLP by leave
Mr G K J Rich - BRE Retail Holdings LLP by leave
Solicitors:
Atanaskovic Hartnell - Plaintiff
Freehills - Defendants
File Number(s): 2011/00101089
Judgment
Background
Among the securities listed for quotation on the stock market of Australian Securities Exchange Ltd ("ASX") are "stapled securities" of "Centro Properties Group". Each such security consists of a share in the capital of Centro (CPL) Ltd and a unit of a registered managed investment scheme of which CPT Manager Ltd is the responsible entity.
It will be convenient to refer to these two companies together as "CNP". Otherwise, Centro (CPL) Ltd will be referred to as "the Company" and CPT Manager Ltd will be referred to as "the Responsible Entity".
CNP's activities and those of controlled entities are concerned with the ownership, management and development of shopping centres in Australia and the United States.
Some 0.4854% of the CNP stapled securities are held by Smartec Capital Pty Ltd ("Smartec"). Smartec therefore stands in such a relationship to each of the Company and the registered managed investment scheme as is contemplated by s 247A(1) of the Corporations Act 2001 (Cth). Section 247A(1) is in these terms:
"On application by a member of a company or registered managed investment scheme, the Court may make an order:
(a) authorising the applicant to inspect books of the company or scheme; or
(b) authorising another person (whether a member or not) to inspect books of the company or scheme on the applicant's behalf.
The Court may only make the order if it is satisfied that the applicant is acting in good faith and that the inspection is to be made for a proper purpose."
The present application
Smartec has made application to the court under s 247A(1). It seeks an order authorising inspection of certain documents (or "books") of the Company and the Responsible Entity. The "documents" in question are defined in Smartec's further amended originating process by reference to an announcement made by CNP to ASX on 1 March 2011 (the "March announcement"). The relevant documents are the following, as referred to in the March announcement:
(a) stock purchase agreement;
(b) heads of agreement with a "Senior Lender Group";
(c) governance protocols and memoranda of understanding;
(d) all documents provided to ASX by CNP (or on its behalf) referring to the March announcement and its subject matter; and
(e) all documents relating to "pre-pack" proposals.
together with a range of collateral, associated and incidental documents.
The desire of Smartec, as evidenced by its claim, is to have access to all documents in CNP's possession which, as it were, stand behind the March announcement and the aspects and details of its subject matter which have been referred to in later announcements and correspondence.
CNP opposes Smartec's application, as does the purchaser under the stock purchase agreement. That purchaser, BRE Retail Holdings Inc (an affiliate of Blackstone Real Estate Partners) was given leave under rule 2.13 of the Supreme Court (Corporations) Rules 1999 to be heard in these proceedings without becoming a party. It is submitted that, if Smartec were given access to any documents related to the stock purchase agreement, the access should be on terms as to confidentiality.
Like leave was granted to Bracewell & Giuliani LLP whose interest is principally in the aspect concerning the "Senior Lender Group".
The March announcement
By the March announcement, CNP notified ASX of a "proposed restructure" having several components. The announcement followed earlier disclosures that CNP was in discussion with its funders and that there was uncertainty about its ability to continue as a going concern.
The components of the proposal the subject of the March announcement were described as follows:
"h US Assets Sale - Following a competitive market process, Centro and its managed funds have entered into a binding stock purchase agreement with BRE Retail Holdings, Inc, an affiliate of Blackstone Real Estate Partners, Vl, L.P. "Blackstone" to sell all of their US assets and platform for an enterprise value of approximately US$9.4 billion;
h Headstock Debt Restructure - Centro has agreed with holders of approximately 73% of Centro's senior debt ('Senior lender Group') to progress a creditors scheme of arrangement to effect the cancellation of all Centro's senior debt in consideration for substantially all Centro's Australian assets. The Senior Lender Group has agreed that, subject to conditions (including all relevant approvals being provided for the creditors scheme and the amalgamation described below being implemented), $100 million will be made available for ordinary securityholders and other stakeholders who are junior to the senior lenders; and
h Discussions of Australian Funds Amalgamation - Centro has entered into discussions with its senior lenders, Centro Retail Trust (CER), and other Australian managed funds with a view to amalgamating their respective portfolios to create a listed fund ('Amalgamated Fund') owning a retail property portfolio of high quality Australian regional and sub-regional shopping centres. Centro's share of the Amalgamated Fund would be distributed to its senior lenders as part of the scheme of arrangement described above."
Further information about each component was then provided.
In relation to the US assets, there was reference in the March announcement to CNP's receipt of "a number of bids for its US platform and portfolios", to due diligence and review of alternative proposals and to "a binding stock purchase agreement" having been entered into with a US entity called "Blackstone" (more precisely, of course, BRE Retail Holdings Inc), subject to "conditions described below" - being, it seems the "conditions customary for a transaction of this nature" referred to later under the same heading. The financial aspect of the transaction was dealt with as follows:
"Centro's US platform is being acquired for an enterprise value of approximately US$9.4 billion, including the US real estate assets acquired at a 1.3% discount to 31 December 2010 book values, with value also being attributed to the US Services Business and other net tangible assets. The total equity proceeds for Centro, Centro Retail Trust and its other managed funds are US$1.38 billion."
For someone who tends to associate a "platform" with a railway station, the reference to the "US platform" might be confusing. The "US platform" appears to be CNP's assets in the United States.
It was explained in relation to the second element of the proposal that CNP and its "Senior Lender Group" had entered into "a Heads of Agreement to effect a restructure of CNP's headstock debt facilities". It seems that "headstock" here does not refer to a part of a machine or stringed instrument and that "headstock debt" is debt carried by CNP itself (that is, the Company and the Responsible Entity), as distinct from debt housed in subsidiary or controlled entities.
The further information in the March announcement about the "headstock debt restructure" and the heads of agreement relating to it included a statement that the "Senior Lender Group" had made available $100 million "to be applied for the benefit of ordinary securityholders and other stakeholders who are junior to the senior lenders, as determined by the Centro Board of Directors"; also that, on completion of the debt restructure, all CNP's external senior debt would be extinguished and CNP would have no substantial assets other than a cash sum of up to $100 million. This section of the announcement included the following passage:
"Stakeholders should be aware that the Headstock Debt Restructure, and therefore receipt of these funds, is contingent on a number of events occurring, including the amalgamation of the Australian funds in a form acceptable to the Senior Lender Group, and relevant stakeholder approvals being obtained once the transaction structure is finalised."
In a concluding section containing "further comments" of CNP's chairman and chief executive officer", the March announcement said:
"Centro cautions that the structuring of these transactions is not yet complete, and they are subject to a number of conditions and all relevant approvals being obtained. Until all conditions are met, there can be no assurance that any transaction will take place. Centro stapled securityholder approval will be required. Until the transaction structure is finalised it is not possible to be definitive about what other approvals, if any, are required."
Later announcements and events
On 7 March 2011, there was a meeting between representatives of Smartec and representatives of CNP. According to Mr Fenwick of Smartec, he asked for an explanation of the part of the March announcement referring to inclusion of "customary" conditions in the US assets sale agreement and was told that they were "minor" conditions that would be "easily satisfied". He said that a condition requiring securityholder approval could not be described in that way, to which the response was that CNP intended to complete the US assets sale without securityholder approval and had received advice from ASX that such approval was not required.
CNP made another announcement to ASX dated 6 April 2011 (the "April announcement"). That announcement followed what is referred to in it as "recent media commentary regarding the conditions of its US assets and services business sale" announced on 1 March 2011 and "suggestions" by Smartec "that security holder approval of the sale is required". The April announcement continued:
"Centro reviewed the Australian Securities Exchange (ASX) requirements before it entered into the stock purchase agreement with Blackstone, and concluded that securityholder approval is not required for the sale of its US assets and services business.
As noted in its 1 March 2011 announcement, the US sale contract contains conditions customary for a transaction of this nature. The sale is expected to close around the middle of 2011."
The April announcement also said:
"Following the US sale closing and if all the restructuring measures announced on 1 March 2011 are approved by securityholders and other stakeholders, subject to the other conditions and risks described in that announcement, $100 million will be made available for securityholders and other stakeholders who are junior to the senior lenders."
A press article of 14 April 2011 referred to CNP and its senior lenders having organised a "pre-pack credit bid" which "will allow them to push on with the amalgamation of Centro Properties Group and Centro Retail Group with or without stakeholder consent". This refers, clearly enough, to the third element of the proposed restructure. The press article hypothesised that CNP's lenders might adopt the "pre-pack" strategy which "would see the Centro Properties Group handed over to the administrators and receivers before it is taken over by Centro Retail Group, achieving the same result the lenders agreed to last month".
Publication of this article prompted an inquiry by Smartec's solicitors of CNP's solicitors. The response said, among other things, that the article purported to report the position of CNP's senior lenders, not any position of CNP and that CNP's position continued to be as stated in the market announcements.
On 6 May 2011, CNP made a further announcement to ASX entitled "US assets sale and major restructure update". It referred to, among other things, Smartec's having made submissions to ASX "to the effect that securityholder approval of the US asset sale transaction is required". The announcement then referred to CNP's having provided further information to ASX at ASX's request. The announcement continued:
"Centro's business and main undertaking is:
hthe ownership;
hproperty management; and
hfund management,
of interests in retail property. This is conducted in Australia and the US.
The US assets sale will not result in a significant change in the nature of Centro's activities.
Centro has received minimal cash flow from the US due to the investment and services business cash flows from Super LLC and, as announced on 16 January 2009, certain other US based assets which were contributed as additional collateral to the Super LLC lenders under the stabilisation arrangements, being "ring-fenced" for the repayment of Super LLC debt and other US secured debt at the asset level.
On closure of the US assets sale transaction, Centro will continue to own interests in, provide property manage services and fund management services to retail properties and relevant property funds in Australia.
Centro therefore continues to conduct its main undertaking."
The 6 May 2011 announcement also said:
"Work continues to finalise a transaction structure to implement a funds amalgamation and headstock debt restructure. This is contingent on a number of events occurring. In particular, implementation of the headstock debt restructure is conditional on the implementation of the funds amalgamation in a form acceptable to the senior lenders. If implementation is agreed, it is likely that the headstock debt restructure will constitute a disposal of Centro's main undertaking and therefore will require securityholder approval under listing rule 11.2.
Therefore, irrespective of the agreement with Blackstone and its expected closing around the middle of this year, there can be no certainty that the funds amalgamation and headstock debt restructure will occur."
Smartec ' s concerns
Smartec's reasons for wishing to have access to CNP's books may be summarised as follows:
1. Smartec is concerned that the US assets sale, either alone or in combination with the headstock debt restructure, may amount to a disposal by CNP of its "main undertaking" so that securityholder approval is required by rule 11.2 of the ASX listing rules or, in any event, that the case is one in which ASX, properly informed, should, under rule 11.1.2, impose a requirement for such approval.
2. Smartec wishes to assess whether CNP "has discharged its obligations of disclosure" in the March announcement "and elsewhere" in relation to the transactions. A particular aspect of this is described as follows:
"For example, CNP's solicitors have, in correspondence defended the commerciality of the US Assets Sale on the basis that the cash flows from the US assets have been ' ringfenced' , which they say means that income from the US assets is not available for distribution in Australia. If that is true, and if it is to be relied on as a justification for the disposal of the US assets, it is a matter that should have been the subject of public disclosures by CNP. Smartec is concerned that this matter has been insufficiently disclosed by CNP."
3. Smartec wishes to know more about the US assets sale and the headstock debt restructure "in order to ensure the security of its investment and further to consider whether it is necessary for it to take any one or more of a range of steps" (these words appear in counsel's written submissions). Examples of such steps are
"canvassing proposals alternative to those in the Announcement or making a derivative claim against the directors of CNP, restraining the transactions contemplated by the Announcement or to claim damages, in order to protect its position in this respect".
4. Smartec wishes to "consider whether the directors of CNP have appropriately managed any conflicts of interest in relation to US Assets Sale and Headstock Debt Restructure". Reference is then made to the fact that an investment bank identified in the March announcement as a financial adviser in relation to the US asset sale is also a creditor of CNP. There is also reference to an incentive entitlement of the CNP chief executive upon the board's acceptance of a restructure plan for the group.
5. In light of the most recently stated view of CNP that securityholder approval is not required in relation to the US assets sale, Smartec is "concerned about whether CNP has breached its legal obligations in making prior public statements expressing the contrary view".
6. Smartec apprehends that the "pre-pack" reference in the press report of 14 April 2011 may mean that Centro has in contemplation some alternative plan based on resort to some form of insolvency administration.
The US assets sale agreement
The main emphasis, in Smartec's articulated concerns, is upon the US assets sale. It is appropriate, therefore, to say something about the stock purchase agreement which is in evidence. The document is subject to confidentiality order accepted by Smartec as being warranted in the particular commercial context. Certain aspects of the content are not, however, of a confidential character and it is appropriate that I refer to three key features.
First, the subject matter of the sale and purchase consists wholly of shares of common stock of entities each of which has a name ending in "Inc", "LLC" or "LP", from which one would infer that each is a corporation, a limited liability company or a limited partnership under the law of a United States jurisdiction - that is, a body the members of which or investors in which hold capital shares and enjoy the benefit of limited liability. The subject matter of the agreement does not include real estate as such.
Second, more than twenty entities are named as sellers in the agreement (counting, in some cases, one entity several times where it is expressed to contract in distinct fiduciary capacities). The name of each of these includes the word "Centro".
Third, the completion obligations are subject to certain conditions, including conditions which, in broad concept, entail the severing of certain external links of the entities shares in which are the subject matter in the agreement.
My own perusal of the agreement has not revealed anything that would call into question its status as a "binding stock purchase agreement", albeit one containing, as I have said (and as CNP's announcements make clear), conditions to which the completion obligations are subject.
The CNP/Senior Lenders Heads of Agreement
A copy of this document is in evidence. It is subject to an agreed confidentiality order and again I shall refer to certain aspects only.
The heads of agreement detail a proposal the essence of which is as stated in the March announcement. They outline features of more detailed agreements by which the proposal might be carried into effect. There are obligations on all parties to negotiate in good faith to that end, with a view to producing agreements that "will contain detailed provisions that are consistent with the commercial intent set out in this agreement and any other provisions that are mutually acceptable to the parties". There is also a section headed "Fallback Approaches" under which the parties agree that, in certain eventualities, they will seek alternative means of implementing the purpose of the heads of agreement.
The heads of agreement contemplate, as part of the envisaged implementation mechanism, one or more schemes of arrangement between CNP (or, more accurately no doubt, particular debtor companies or other Part 5.1 bodies) and classes of creditors. It is said that CNP will propose these schemes "in connection with any required stapled securityholder approvals".
The first concern - ASX listing rules 11.1.2 and 11.2
It is convenient, at this point, to address an issue that loomed large in Smartec's case concerning the matter of concern raised by Smartec and referred to at item 1 of paragraph [24] above, that is, whether a requirement for securityholder approval arises under the ASX listing rules in relation to the US assets sale.
ASX's listing rules 11.1, 11.2 and 11.3 are as follows:
" Change to activities
Proposed change to nature or scale of activities
11.1 If an entity proposes to make a significant change, either directly or indirectly, to the nature or scale of its activities, it must provide full details to ASX as soon as practicable. It must do so in any event before making the change. The following rules apply in relation to the proposed change.
11.1.1 The entity must give ASX information regarding the change and its effect on future potential earnings, and any information that ASX asks for.
11.1.2 If ASX requires, the entity must get the approval of holders of its ordinary securities and must comply with any requirements of ASX in relation to the notice of meeting. The notice of meeting must include a voting exclusion statement.
11.1.3 If ASX requires, the entity must meet the requirements in chapters 1 and 2 as if the entity were applying for admission to the official list.
Change involving main undertaking
11.2 If the significant change involves the entity disposing of its main undertaking, the entity must get the approval of holders of its ordinary securities and must comply with any requirements of ASX in relation to the notice of meeting. The notice of meeting must include a voting exclusion statement. The entity must not enter into an agreement to dispose of its main undertaking unless the agreement is conditional on the entity getting that approval. Rules 11.1.1 and 11.1.3 apply.
Suspension
11.3 ASX may suspend quotation of the entity's securities until the entity has satisfied the requirements of rules 11.1 or 11.2."
The rules contain no definition of "significant change" or "main undertaking". There is, however, extensive commentary in Guidance Note 12 on ASX's policy in relation to the application of these provisions. It is appropriate to quote at length from the guidance note:
" Security holders' approval under listing rule 11.2
16. Listing rule 11.2 applies where an entity is disposing of its main undertaking. It does not apply where the entity is disposing of a major asset, or high profile asset, if these assets do not also constitute the entity's main undertaking.
17. Listing rule 11.2 is primarily directed at requiring security holder approval for a change that will result in the entity carrying on no significant business or holding no significant assets, other than cash (i.e., the creation of a cashbox). In many cases, the purpose of disposing of the main undertaking is to ready the entity to undertake a new business which may attract the operation of listing rules 11.1.2 and 11.1.3. This is discussed further in paragraph 34 of this Guidance Note. In other cases, the disposal may be a precursor to terminating the entity and listing rule 11.1.3 is not relevant.
18. Disposal of the main undertaking, which attracts the operation of listing rule 11.2, is distinguishable from disposal of a major asset or disposal of a high profile asset. A major asset is a lesser thing than the main undertaking - see the discussion at paragraphs 8 to 10 of Guidance Note 13 - Disposal of a Major Asset.
19. The application of listing rule 11.2 is relatively straightforward where the entity has a clearly identifiable main undertaking. However, where the entity has several business operations and none of them are clearly the predominant business of the entity, the position is more complex. ASX may apply listing rule 11.2 to the disposal of a significant individual business. ASX may also apply listing rule 11.2 where the entity proposes to dispose of several businesses, if collectively they are more significant than the business or businesses to be retained.
20. As mentioned in paragraph 11, an important consideration in the application of listing rules 11.1 and 11.2 is the extent to which the proposed change in business activiti4s is consistent with the business strategy that has been disclosed to the market by the entity and is understood and accepted by investors. For example, where the entity has announced that it proposes to concentrate on an identified substantial core business that it considers has growth prospects, ASX may be prepared to accept that the identified core business is the main undertaking and listing rule 11.2 does not apply to disposals of non-core businesses even if they are of significant size.
What comparisons will ASX use to determine what is a disposal of the 'main undertaking'?
21. Among other things, ASX uses transaction-based comparisons to decide what requirements an entity contemplating a change to its activities must meet under the Listing Rules. ASX will adopt a 50% rule-of-thumb benchmark to assist its application of listing rule 11.2. Where the comparison figures listed below vary by 50% or more, ASX is more likely to consider that the entity is disposing of its main undertaking. Although ASX refers to a benchmark of 50%, ASX will continue to assess all decisions on a case by case basis. This reflects the diversity in the operations of listed entities.
22. The comparisons are:
hTotal consolidated assets as a result of the transaction by the entity or its child entity compared to total assets in the entity's latest audited, consolidated financial statements.
hTotal equity interests as a result of the transaction by the entity or its child entity compared to total equity interests in the entity's latest audited, consolidated financial statements.
hThe number of securities issued by the entity as a result of the transaction compared to the number on issue before the transaction.
hThe projected annual profit (before tax and extraordinary items) of the entity (or group) after the transaction compared to the annual profit in the entity's (or group's) latest audited, consolidated financial statements.
hThe projected annual revenue of the entity (or group) after the transaction compared to the annual revenue in the entity's (or group's) latest audited, consolidated financial statements.
hThe projected exploration expenditure of the entity (or group) for its next reporting period after the transaction compared to the aggregated exploration expenditure over the previous period.
23. In some cases tests based on assets, profits or revenues may not give a meaningful indication of the significance of the acquisition to the entity. For example, revenue and expense items can vary considerably from year to year, and in some cases it will not be appropriate to adopt a profit or revenue-based test. If a comparison produces an anomalous result, ASX may substitute other relevant indicators of significance."
This commentary makes two things clear: first that, as ASX sees things, there will be some cases in which the "main undertaking" will be identified objectively by reference to the subject matter of the particular transaction viewed in the context in which the transaction occurs; and, second, that there will be other cases (of a "more complex" kind) where ASX will, in an active sense, "apply" rule 11.2 and have regard to certain principles "to assist its application" of it.
Except in an obvious case admitting of no doubt, therefore, the position seems quite clearly to be that a disposal will, for the purposes of listing rule 11.2, entail the "main undertaking" if ASX deems it to entail the "main undertaking"; and that, as a corollary it will not entail the "main undertaking" if ASX does not deem it to entail the "main undertaking".
It is not surprising that ASX has formulated its rules on the footing that identification of an entity's "main undertaking" will often involve uncertainty warranting what is, in essence, intervention by ASX as decision-maker. The "undertaking" of a company is often understood as the whole of its property, assets and operational capacity. Thus, in Re Borax Company Ltd [1901] 1 Ch 326, Lord Alverstone CJ was of the opinion that a company would "still be carrying on some part of the undertaking as contemplated by the memorandum of association", notwithstanding the sale of the whole of its assets and property (including goodwill) except certain securities. If the "undertaking" is thus a totality, any reference to the "main undertaking" is confusing and raises questions of degree and commercial judgment.
The applicability and meaning of a predecessor of listing rule 11.2 were in issue in Australian Securities Commission v Cracow Resources Ltd (unreported, NSWSC, Windeyer J, 12 August 1993 BC9305041). The listing rule there under consideration stated that " any sale or disposal of the company's main undertaking shall be conditional upon ratification by shareholders in general meeting". Upon an application made by Australian Securities Commission for an order directing compliance with the listing rule, the question was whether a large debt owed to the listed company (Cracow) by another company (NHM) and a parcel of shares in NHM held by Cracow constituted Cracow's "main undertaking". It is instructive to note the following passage in the judgment of Windeyer J:
"The plaintiff commission says that either:
i. undertaking is synonymous with business; that the business or undertaking of Cracow after 1991 was investing in mining companies by means of purchase of shares or the making of loans; and that any liquidation or disposal of those shares and loan investments represents a disposal of the main undertaking; and that the adoption of the business plan was a decision to dispose of the main undertaking; or
ii. if undertaking is not synonymous with business then the NHM investment was and is the main asset of Cracow and thus its main undertaking.
As against this Cracow says that since 1991 there has been only one undertaking that being investment and management in the mining industry; that this is borne out by the 1991 and 1992, Annual Reports and by many subsequent documents; that the proportionate share held by Cracow in the issued capital of NHM has reduced from 50.27% at 30 June 1992 to 20.2% at 20 July 1993 brought about partly by issues of new shares by NHM and partly by share sales of Cracow being four sales of 900000, 194000, 360000 and 3,262,528 shares respectively; and that even after the latest sale pursuant to the option agreement Cracow will hold 2,017,413 shares in NHM.
I think it reasonable to say that the investment of Cracow in NHM comprises its shares in the company and the moneys lent to the company. The evidence makes it clear that the loans were made to protect its investment and fund the company in the hope of earning income in due course from the shareholding. If that is the position then it seems clear that whether or not one looks at book values, market values of shares plus book value for debt or option values the NHM investment was the main investment of Cracow at the time of grant and exercise of the options. Thus if main undertaking means main investment rule 3S(2) has been breached. And so it has if in like circumstances main undertaking means main asset and main asset is equivalent to main investment which I do not think it is. Debts receivable and shares are entirely different assets in form.
The question then is whether or not main undertaking does mean main asset or even main investment. It would of course have been easy to say so if it did just as Listing Rule 3J(3) does. Asset is a relatively clear concept. I consider that in the context in which it appears in the listing rules and for that matter in the Articles of Association of Cracow undertaking relates to the business of the company. For instance the main asset of a bus company may be its buses; but its undertaking is I consider the business operation of a bus company. If the directors determined for the purposes of the business of a bus company to sell all its buses and then to lease them back that would not I think amount to a disposal of its main undertaking; it would still be operating the same business. Nor do I consider that if undertaking means business and direction is changed then the disposal of part of that business would necessarily be disposal of a main undertaking. A stockbroker may for instance conduct as a separate operation a mortgage broking business and decided to sell that operation. Its disposal would not I think be a disposal of a main undertaking. It is dangerous to seek too much guidance from decisions as to the meaning of the word undertaking in other contexts, particularly compulsory acquisition cases, The Electricity (Balmain Electric Light Co Purchase) Act 1957 57 SR 100 or cases determining the meaning of a charge over the undertaking of a company such as in Re Panama, New Zealand & Australian Royal Mail Company 1870 LR 5 Ch App 318 although that was held a charge over the assets of a continuing business. 3S of the Listing Rules is headed "Changes in control and/or activities" which supports the view that main undertaking in the context here means main business. That view is supported by Top of the Cross Pty Limited v FCT 1980 50 FLR 19 and Bayfront Holdings Limited v Inland Revenue Commissioner [1971] 1 WLR 1333. I can envisage a company formed for the single purpose of gold recovery from Cracow might have been changing its activities when it made the decision to go forward with a more diversified mining operation; and in fact it did seek shareholder approval for the purchase of the Tasmanian, Victorian and South Australian interests as it was obliged to do under another part of the listing rules although it did not seek approval for disposition of the Cracow interests. But since that time the company, not considering itself a trader, was an investor in mining enterprises albeit for the most part indirectly through company holdings; that was its business and on the evidence will continue to be its business."
Given the questions of degree and of commercial judgment involved in identifying a particular company's "main undertaking", it is not surprising that the listing rules contemplate that ASX will play a supervisory and decision-making role in determining the applicability of listing rule 11.2. Such a determinative role of ASX lies at the heart of the listing rules in any event: see the discussion in Bateman v Newhaven Park Stud Ltd [2004] NSWSC 392; (2004) 49 ACSR 454 at [10] - [12].
CNP has put into evidence its correspondence with ASX concerning the applicability of listing rules 11.1.2 and 11.2. Some of that correspondence is subject to a confidentiality order. Also in evidence are written representations made by Smartec's solicitors to ASX. I need not review the correspondence in any detail. It is sufficient to note that ASX stated (and later confirmed) that listing rule 11.2 does not apply and that ASX does not intend to impose a requirement under listing rule 11.1.2; also that these opinions or statements of position on ASX's part have been expressed after consideration of both information provided by CNP and representatives made by Smartec.
By letter dated 9 May 2011 to Smartec's solicitors, ASX referred to various relevant considerations and commented on several particular matters put to it on behalf of Smartec. Particularly pertinent, I think, is the following paragraph of the letter:
"Notwithstanding your submissions, ASX has not been provided with any new information that would suggest that its original decision was grounded on incorrect or incomplete information. Accordingly, based on the information currently to hand, ASX does not see any proper basis for it to change the original decision it conveyed to Centro that listing rules 11.1.2 and 11.2 do not apply to the proposed sale by Centro of its US property assets."
Viewed in context, therefore, Smartec's submission that it has a genuine need of access to CNP's books for purposes related to the applicability of listing rules 11.1.2 and 11.2 boils down to an assertion that it should be given such access so that it may investigate whether CNP has failed to give accurate and complete information to ASX for the purposes of ASX's decision-making.
I should add that I was taken to evidence of disclosure and announcements by CNP describing the assets position in a way that ascribes negative value to the United States property assets. At 30 June 2009, for example, the Super LLC vehicle was said to have a property portfolio valued at $6.1 billion and debt of $6.3 billion, with properties being secured against multiple tranches of debt. The position was, in concept, similar at later times. There is thus a cogent argument that, if the "main" undertaking is to be judged according to stand-alone value, the United States property assets are not "main". But that, of course, is not the only consideration that ASX might bring to bear.
According to CNP's 2010 annual report, Super LLC is a joint venture between CNP and other Centro entities which owns US properties which have been secured against the debt within the Super LLC structure. Under the terms of the joint venture, each participant is entitled to the economic benefits and bears the economic burdens of separately identified properties, including the property specific debt encumbering those assets.
Against this, counsel for Smartec pointed out that the gross book value of the United States assets in the 2010 annual report was $10.7 billion which, when the debt of the asset-owning entities is ignored, indicates a significant proportion of total assets.
The second concern - " ringfencing "
Smartec's second expressed concern (item 2 at paragraph [24] above) is whether CNP has "discharged its obligations of disclosure" in relation to the proposed transactions. There is reference, however, to only one apprehended shortcoming in that respect, being the "example" concerning ringfencing. The concern as a whole can only usefully be addressed by reference to that example.
Smartec's concern about "ringfencing" centres on the question whether income or cashflow from CNP's United States assets cannot be remitted to Australia and, if so, whether CNP has properly discharged its disclosure obligations in relation to the matter.
CNP points to evidence that "ringfencing" was described and explained in connection with the announcement of its results for the year to 30 June 2009. Part of a webcast presentation of 26 August 2009 lodged with ASX (and in which two representatives of Smartec are recorded as having participated) compared earnings before interest and tax with operating cash flow, with the latter being significantly smaller than the former for each of property investments, services business and total. Commentary on that aspect was as follows:
"Moving to slide 12. This illustrates the difference between Centro's EBIT and operating cashflow for FY09 split into its components of either property investment or services business. As EBIT reflects underlying performance it includes the underlying income earned irrespective of where the associated cash flowed through to Centro. You'll see the effect of this by looking at the cashflow columns. As an example, there is no contribution to cashflow from Centro's direct US property investments, which are either ring fenced through Super LLC or contributed to Super LLC as further collateral under the terms of the stabilisation agreement. Similarly, services business income generated with Super LLC does not contribute cashflow to Centro."
The half-yearly report for the period to 31 December 2008, as lodged with ASX on or about 26 February 2009, had already mentioned, as a post balance date event, the debt stabilisation and restructure with Super LLC, noting that the additional collateral provided included "other investments and US based assets outside Centro's Super interests" - plus, significantly, "the corresponding income streams". In September 2009, a presentation to CNP stakeholders (in which representatives of Smartec participated) contained this statement:
"Centro's headstock net cash flow is the only cash available to pay down debt."
Reasons for the difference between underlying income and cash flow were said to include "distribution and/or service fees lockups in managed funds (eg Super LLC)".
The same presentation contained a page headed "Detailed CNP Headstock Cash Flow". Cash flow from "Direct US Property" was shown as $22.2 million for the six months to 30 June 2008 but only $0.1 million for each of the six months to 31 December 2008 and the six months to 30 June 2009.
CNP's published annual results for the year ended 30 June 2010 contained a summary of headstock cash flow again showing, for Direct US Property, $0.1 million for the six months to 31 December 2008 and the six months to 30 June 2009, together with zero for the six months to 31 December 2009 and negative $0.2 million for the six months to 30 June 2010. In the published 2011 half yearly results, the corresponding figure for the six months to 31 December 2010 is zero.
The significance of these matters cannot have been lost on Smartec. After the release an announcement by CNP on 17 September 2009, Mr Zhang of Smartec emailed Mr Sofer of CNP asking certain questions. His email is dated 18 September 2009. Mr Sofer's reply of the same date reads in part as follows:
"With regards to yesterday's announcement, please note that it is a lodgement in the US by Centro NP LLC, which is a subsidiary of Super LLC. Super LLC is a joint venture between Centro Properties Group ('Centro'), Centro Retail Trust and Centro MCS 40. The notes which this relates to are disclosed on page 59 of Centro's 30 June 2009 supplemental information which was released in conjunction with our FY09 annual results. The current expiry dates of these notes is in 2026 and 2028. Centro itself is not party to this transaction and the put repurchase right would apply to Centro NP LLC, not Centro.
As you would appreciate, cash flows within Super LLC are ring-fenced within that entity, and therefore, any cost in relation to this transaction does not impact cash flow at Centro headstock level or the repayment of senior debt. The second and third proposed amendments are important and, as mentioned in the release, provide a number of benefits to Centro NP LLC including future cost savings through the discontinuation of filings with the Securities and exchange Commission in the US."
The third concern - " a range of steps "
Smartec's desire (see paragraph [24] above) to have access to documents so that it may further consider whether it is necessary for it to take any one or more of a range of steps is very vaguely expressed. Any shape it actually has comes wholly from the examples Smartec gives.
There are two examples. One is "canvassing alternatives to" the proposals in the March announcement. The other is "making a derivative claim against the directors of CNP" on one of two bases: first, "restraining the transactions contemplated by" the March announcement; or, second, "to claim damages".
There are imponderables here. Why does a 0.4854% securityholder need access to CNP's books to canvass "alternatives" that the company may have to the announced transactions? What are the foreseen or apprehended "alternatives" that the securityholder has it in mind to canvass? As to the "derivative claim against the directors of CNP", one must assume that Smartec postulates the existence of one or more causes of action of CNP against directors of CNP (technically, I suppose, causes of action of the Company and the Responsible Entity against their respective directors). The postulated basis is apparently such that the companies (or one or other of them) might obtain either an injunction restraining the directors from proceeding with the transaction or damages as against the directors.
Smartec does not articulate any basis of potential liability of directors, at the suit of the companies, in such a derivative proceeding. Nor, as I understand its submissions, does Smartec seek to bring itself within the specific aspects of s 247A concerning statutory derivative actions.
The fourth concern - conflicts
Again, this generally expressed concern (see item 4 at paragraph [24] above) has no substance or shape except as comes from the particular aspects mentioned.
On that basis, the apprehension appears to be that the directors of CNP may not have "appropriately managed" either or both of:
(a) a conflict of interests which may arise from the fact that an entity providing advice to CNP on the proposed transactions is a creditor of CNP; and
(b) a conflict of interests (or of interest and duty) by reason of the fact that CNP's chief executive is entitled to an incentive payment upon the board's acceptance of a restructure plan for the group.
The suggestion seems to be that the directors of CNP should not have allowed these circumstances to arise or that they should be doing something to counter them; and that Smartec needs access to CNP's books to "consider whether" the directors have acted appropriately.
The fifth concern - public statements
The fifth concern is set out at item 5 of paragraph [24] above. It requires no elaboration.
The sixth concern - " pre-pack "
The sixth concern is set out at item 5 of paragraph [24] above. It requires no elaboration.
The scope of s 247A(1)
Counsel for CNP relied upon the following passage in my judgment in Praetorin Pty Ltd v TZ Ltd [2009] NSWSC 1237; (2009) 76 ACSR 236:
"36. It is therefore for the present plaintiffs, being members of TZL, to satisfy the court that they are "acting in good faith" and that the inspection they seek is to be made "for a proper purpose". The content of that composite requirement was recently explained by Goldberg J in Re Style Ltd; Merim Pty Ltd v Style Ltd [2009] FCA 314; (2009) 255 ALR 63:
'Merim must do more than demonstrate that it is dissatisfied with the management decisions: Re Augold NL [1987] 2 Qd R 297 at 308; (1986) 11 ACLR 362 at 370; Cescastle Pty Ltd v Renak Holdings Ltd (1991) 6 ACSR 115 at 117. Merim must satisfy me that it is entitled to inspect the books because the information sought relates to matters that it as a shareholder ought to be informed of by the company: see, for example, Czerwinski v Syrena Royal Pty Ltd (No 1) (2000) 34 ACSR 245; [2000] VSC 12 5 at [12].'
37. Propositions stated by Debelle J in Acehill Investments Pty Ltd v Incitec Ltd [2002] SASC 344 at [29] were approved by Goldberg J and quoted as follows (with citations omitted):
'1. The requirement that the applicant is acting in good faith and that the inspection is to be made for a proper purpose expresses a composite notion and the court will determine whether each has been demonstrated by applying an objective test.
2. The onus is on the applicant to demonstrate that he is acting in good faith and that the inspection is for a proper purpose.
3. The section operates where the applicant seeks to protect some specific or a personal right by the making of the order. Examples are where a shareholder contemplates proceedings under s 233 of the Corporations Act (the statutory successor of s 320 of the Companies Code) ... or where a shareholder reasonably takes the view that a transaction could adversely affect his investment and he seeks to investigate the transaction for the purpose of determining what action he should take ... or where a shareholder seeks to ascertain facts for the purpose of considering a takeover offer ...
4. If the applicant's primary or dominant purpose is a proper purpose, it is not to the point that an inspection may be of benefit to the applicant for some other purpose ...
5. The rights provided by s 247A should not be regarded as affecting the basic rule of company law that a shareholder should not ordinarily have recourse to the courts to challenge a managerial decision made by or with the approval of the directors.
6. Since every shareholder has a right to apply under the section for an inspection order, it is no answer to an application that, if an order is made, the applicant may acquire information not available to other shareholders and thereby be in a more advantageous position than those shareholders.
7. Applicants do not necessarily lack a proper purpose merely because (a) they are hostile to other directors; or (b) they will, after inspection, have more information than other members.
8. The procedure under s 247A is not intended to be a process as wide-ranging as the process of discovery of documents so that, as a general rule, inspection will be confined to, say, the results of decisions of directors rather than all the documents such as board papers leading to decisions ... I emphasise that this is a general rule. There may be occasions where it is proper to admit inspection of board papers ...
9. Even where an applicant is acting bona fide and has shown a proper purpose, the court has a discretion whether to order inspection.'
38. Two additional points may be made. First, it was said by Brooking J in both Intercapital Holdings Ltd v MEH Ltd (1988) 13 ACLR 595 and Knightswood Nominees Pty Ltd v Sherwin Pastoral Co Ltd (1989) 15 ACLR 15 1 , that the requirement of good faith and proper purposes carries with it a need for the applicant for access to show "a case for investigation" - a concept his Honour expanded in the latter case to "a case for investigation as regards past or future wrongful or other undesirable conduct". Brooking J also said in that case:
'If he [the applicant] is unable to show some reasonable ground for believing that misconduct or maladministration (or whatever else is suggested) has taken place, or is going to take place, he may well fail to establish the prerequisite to the making of an order, namely, that he is acting in good faith and that the inspection is to be made for a proper purpose.'
39. Mr Sirtes SC noted, on behalf of the plaintiffs, that the Knightswood case was referred to by Goldberg J but that his Honour did not, in his summary of principles, include reference to the "case for investigation" criterion. That, however, does not mean that the criterion is not a useful one. In my opinion, it emphasises the need for some objective basis for intervention.
40. Second, and as a corollary, s 247A is not intended for cases in which an established cause of action has been identified. Thus, as Lunn J observed in McLean v DID Piling Pty Ltd [2009] SASC 205 at [19], if there is enough in the possession of the plaintiff already to mount an oppression action, the availability of the ordinary processes of disclosure of documents in such an action means that the plaintiff does not need relief under s 247A."
Mr Stoljar SC, who appeared for Smartec, emphasised in his submissions that the criterion expressed by the words "in good faith" and "for a proper purpose" are not confined by reference to some cause of action or legal wrong and are, on their face, at large. This is clearly so. The principle is stated in the judgment of Bryson AJ in Rowland v Meudon Pty Ltd [2008] NSWSC 381; (2008) 220 FLR 362 at [35]:
"In Re Claremont Petroleum NL (1990) 2 Qd. R 3 1 the Full Court of the Supreme Court of Queensland in a judgment given by Connolly J upheld an order made by McPherson J under s 265B of the Companies (Queensland) Code giving a shareholder leave to inspect books and records relating to nominated transactions. Connolly J. surveyed the antecedent common law and decisions and the operation of s 265B in a manner and in terms which command respect and should in my opinion be applied to an application under s 247A. In my opinion this decision authoritatively established that
1. The legislation should not be treated as doing no more than stating or clarifying the principles of the common law on the subject (p 33 line 50). The cases at common law should not be regarded as stating conditions for making an order, as the legislation has made the discretion wider and uncontrolled (p 34 line 4).
2. It is a relevant consideration that there is a specific dispute rather than general dissatisfaction with management (p34 line 8). However the judgment of Connolly J. as a whole shows that an application should not be necessarily be refused because it is grounded on general dissatisfaction with management.
3. It is a relevant consideration that the applicant is personally interested, and so also are the extent and value of his interest (p 34 line 8).
4. It is not necessary that the applicant's interest be separate and distinct from that of the general body of members (p 34 line 11). The confinement of the common law remedy to specific disputes or questions in which the party applying was interested, and related restrictions, was the perceived mischief which the legislation remedied. The remedy chosen was to give a broad unfettered discretion to the court (p 34 line 30)."
The relevant boundary is suggested by a comparison of cases in which proper purpose has been established and those in which it has not. These are conveniently collected in an article by Christos Mantziaris, "The member's right to inspect the company books: Corporations Act , s 247A" (2009) 83 ALJ 621 quoted by Le Miere J in Snelgrove v Great Southern Managers Australia Ltd [2010] WASC 51 at [66]:
"The court has recognised the following purposes as proper inspection purposes:
1. To allow a member to investigate prima facie irregularities in the company's financial accounts or transactions - for example, the creation of parallel financial records ( Vinciguerra v MG Corrosion Consultants Pty Ltd [2007] FCA 503; (2007) 61 ACSR 583), or a loan transaction between companies with a large number of common directors ( Cescastle Pty Ltd v Renak Holdings Ltd (1991) 6 ACSR 115).
2. To allow a member to investigate the conduct of the directors in relation to 'the whereabouts and commercial benefit [to] the company of the profit and cash flow' of the company for a certain periods ( United Rural Enterprises Pty Ltd v Lopmand Pty Ltd [2003] NSWSC 404 at [27], [29]-[30]; Vinciguerra v MG Corrosion Consultants Pty Ltd [2007] FCA 503; (2007) 61 ACSR 583 at [57 ] -[59], [64], [66]).
3. To allow a member to investigate other reasonably suspected breaches of duty ( Barrack Mines Ltd v Grants Patch Mining Ltd (1987) 12 ACLR 357 (affirmed Barrack Mines Ltd v Grants Patch Mining Ltd [No 2] [1988] 1 Qd R 606); McNeill v Hearing & Balance Centre Pty Ltd [2007] NSWSC 942 at [17]; Humes Ltd v Unity APA Ltd [No 1] [1987] VicRp 42; [1987] VR 46 7 ; (1986) 11 ACLR 641).
4. To allow a member to value the members' shares, so as to: (i) negotiate a fair exit price from the company ( Tinios v French Caledonia Travel [1994] FCA 1154; (1994) 13 ACSR 658), or (ii) to examine the effect of a corporate debt transaction on the value of the shareholding ( United Rural Enterprises Pty Ltd v Lopmand Pty Ltd [2003] NSWSC 404 at [20]-[23]; see also United Rural Enterprises Pty Ltd v Lopmand Pty Ltd (2003) 45 ACSR 271; [2003] NSWSC 405.
5. To allow a member to prosecute a proceeding to enjoin the holding of an extraordinary general meeting on the ground that the company directors will have failed to discharge their duty of disclosure to their shareholders ( ENT Pty Ltd v Sunraysia [2007] NSWSC 270; (2007) 61 ACSR 626 at [79]; [2007] NSWSC 270).
6. To allow a member of a corporation holding property in an apartment block in which all members reside to investigate board decisions regarding the conduct of litigation by the corporation ( Rowland v Meudon [2008] NSWSC 38 1 ; (2008) 220 FLR 362; 66 ACSR 83)."
The learned author then lists instances in which the court has refused applications, indicating the following as not "proper" purposes:
"1. To ascertain the value of the equity of redemption in respect of a mortgage issued over the member's share by investigating the exercise of rights between mortgagor and mortgagee ( United Rural Enterprises Pty Ltd v Lopmand Pty Ltd [2003] NSWSC 404, [24]-[26], [10]).
2. To outflank a claim for client legal privilege made (or anticipated) over the company's books ( Czerwinski v Syrena Royal Pty Ltd [No 1] (2001) 34 ACSR 245; [2000] VSC 125; Keenfern Pty Ltd v Thorlock International Ltd (2002) 20 ACLC 1322 at [6]; [2002] WASC 142) or to serve as a substitute for discovery ( Rowland v Meudon [2008] NSWSC 381; (2008) 220 FLR 362 at [38]; [2008] NSWSC 381; 66 ACSR 83; Re Claremont Petroleum NL [No 2] [1990] 2 Qd R 310 at 314; Czerwinski v Syrena Royal Pty Ltd [No 1] (2001) 34 ACSR 245; [2000] VSC 125).
3. To obtain confidential information for a competitor to the company ( Knightswood Nominees Pty Ltd v Sherwin Pastoral Co Ltd (1989) 15 ACLR 151; 7 ACLC 536).
4. To improve the chances of a take-over bid ( Garina Pty Ltd v Action Holdings Ltd (1989) 7 ACLC 962).
5. To ascertain whether the corporation is solvent (a finding which should be attended by some doubt if it is intended to state a general principle) ( Keenfern Pty Ltd v Thorlock International Ltd (2002) 20 ACLC 1322 at [9]; (2002) WASC 142)."
In Rowland v Meudon Pty Ltd (above) at [41], Bryson AJ referred to decisions of McPherson J and Warren J, respectively, in Re Claremont Petroleum NL (No. 2) [1990] 2 Qd R 310 and Czerwinski v Syrena Royal Pty Ltd (No. 1) [2000] VSC 125, (2000) 34 ACSR 245 and said:
"The references by McPherson J and by Warren J to information about matters of which a shareholder ought to be informed by the company are not references to information which the company has a legal duty to give to the shareholder. These observations were made in exposition of the operation of legislation which confers a broad discretion on the court, and the operation of that discretion extends to consideration of what the court ought to require that the company tell its shareholder, a different test to what the company has a legal duty to tell its shareholder. If the section was limited to providing means of enforcement for existing legal duties it would take an altogether different form, and the good faith requirement would not be appropriate. In my opinion the assignment of powers of management to the directors, and the non-involvement of shareholders in management of a company are important considerations. Business conducted in the corporate structure could readily be rendered inefficient or disrupted if this power became too ready a vehicle for examination by shareholders of management decisions and documents relating to them. However there is no rule of exclusion and no reason why involvement of a management decision should be a ground for refusal of access to documents; the matter is discretionary. With respect to management decisions a conservative approach to exercise of the discretion is appropriate."
Some matters of context
Two matters of context call for comments. The first is that CNP's announcements, taken as a whole, show that the only element of the threefold plan that has reached a point of contractual commitment is the US assets sale. There, as I have said, there is in force a formal stock purchase agreement in relation to the shares in various United States corporate entities, albeit a contract that contains conditions to which the completion obligations are subject.
Other elements of the overall plan continue to be as described in the March announcement: "the structuring of these transactions is not yet complete". CNP, in the interests of timely disclosure to the market, has obviously notified significant milestones as progress towards a final structure continues.
The second matter to be mentioned concerns the make-up of CNP's securityholder base. Smartec, as I have said, holds some 0.4854% of the securities of CNP. According to CNP's 2010 annual report, there were, at 19 July 2010, 30,311 securityholders in all. The top 20 holders accounted for 34.29% of the securities on issue. Smartec ranked fourteenth in the list of top 20 holders. Mr Renwick of Smartec says in an affidavit that Smartec is a member of "the CNP Shareholders Association (formerly known as the Centro Shareholders Association)" and that the members of that association hold 10.65% of CNP's issued securities.
In these proceedings, the court is asked to give one of more than 30,000 securityholders access to company documents that the directors of CNP, no doubt guided by their advisers, have decided are not required to be disclosed to securityholders or more generally, whether by lodgment with ASX or otherwise. The particular securityholder is said to be a member of an association of securityholders but it is not suggested that it brings these proceedings in some representative capacity or otherwise than for its own separate benefit. Nor would access, if granted, be available otherwise than to Smartec or someone acting on its behalf.
The clear policy of the legislation is that a single stakeholder may receive the court's assistance in obtaining access to company books. The efficacy of s 247A(1) in the case of a closely held company is illustrated by Rowland v Meudon Pty Ltd (above), which involved a home unit company the members of which were occupants of a residential building.
In cases such as the present, by contrast, the securities are widely held and a particular dimension is added by the ASX listing and the role that ASX plays, with legislative support, in ensuring the availability to the market of material information pursuant to continuous disclosure requirements: see listing rule 3.1 and Corporations Act , Chapter 6CA.
In exercising the discretion conferred by s 247A(1), the court is entitled to bear in mind the function of ASX in relation to the maintenance of an informed market. I venture to repeat here what I said in Praetorin Pty Ltd v TZ Ltd (above) at [79] - [81], albeit in a discussion of the role that s 247A(1) might play in causing a shareholder to be better informed in relation to a possible decision to sell the shareholder's shares:
" [79] It has been held in some cases that a desire of an applicant under s 247A to assess the value of his or her shares may constitute a ground for permitting inspection of books. In the context of an ASX listed company, however, such a desire requires assessment in the light of the disclosure rules of ASX itself to which reference has already been made and the statutory underwriting of those rules by Ch 6CA of the Corporations Act.
[80] The tenor of the disclosure regime emerges from a combination of s 674 of the Corporations Act and r 3.1 of the ASX listing rules. The section says that if a listed company has information that the listing rules require to be notified to the exchange and the information "is not generally available" and "is information that a reasonable person would expect, if it were generally available, to have a material effect on the price or value of quoted securities of the company", the company must notify the exchange of the information in accordance with the listing rules. Listing r 3.1 imposes such a requirement in respect of information of which a listed company becomes aware concerning itself "that a reasonable person would expect to have a material effect on the price or value of" its securities.
[81] The law and the listing rules both require that there be made generally available information of the relevant price-sensitive kind. The notion that, in such an environment, the court should give one shareholder alone access to internal and unannounced information that that shareholder thinks might more adequately equip him to make an informed judgment whether to sell shares is one that the court would be very slow to accept. It does not accept it in this case. It has not been shown that TZL has failed to communicate to ASX information that s 674 and listing r 3.1 require to be available to enable shareholders to make properly informed decisions about whether to sell or hold. Nor has it been shown that there are grounds for any suspicion to that effect. But even if there had been such a failure, the correct course would be one that made the information available to all shareholders, not just one who applied to the court under s 247A."
These observations are, I think, of wider relevance. The court's discretion under s 247A(1) is likely to be more sparingly exercised in the case of an ASX listed entity where the expectation of the maintenance of an informed market and investor body is strongly underwritten by the continuous disclosure regime actively administered by ASX with statutory report. The need for one investor to have access to company documents to the exclusion of all other investors is likely to be very greatly reduced by the existence of that regime. Any legitimate expectation of additional information is likely to apply to all, not just one. In Silkman v Shakespeare Haney Securities Ltd [2011] NSWSC 148, a case involving access by a beneficiary to trust documents, Hammerschlag J was influenced by the fact that the relevant trust was a registered managed investment scheme. The disclosure requirements applying to that type of trust, as distinct from others, was a factor taken into account by the court in deciding whether the court should assist one particular beneficiary. Similar thinking is appropriate here.
With these matters in mind, I proceed to address Smartec's expressed concerns.
The first concern - assessment and decision
In relation to the first concern, the position is, in essence, as follows:
1. The March announcement stated, in the part quoted at paragraph [16] above, that "Centro stapled securityholder approval will be required". This was said in relation to the whole of "these transactions" - that is, all three together - albeit in a context making it clear that "the structuring of these transactions is not yet complete".
2. CNP later told Smartec's representatives and announced to the market, before the US assets purchase agreement was entered into, it had reached a conclusion that, based on a review of the ASX listing rules, securityholder approval was not required.
3. Smartec itself made submissions to ASX on the matter of the need for securityholder approval and CNP provided further information to ASX at ASX's request.
4. On 9 May 2011, ASX confirmed its original decision of non-applicability of listing rules 11.1.2 and 11.2 to the proposed US assets transaction.
5. The applicability of those rules is, as has been explained, a matter for decision by ASX, rather than any purely abstract and objective assessment.
6. There are, in a general sense, arguments both for and against the proposition that the US assets are CNP's "main undertaking".
It is, I think, unfortunate that the March announcement conveyed a message about securityholder approval that was, at best, ambiguous and, at worst, wrong. The subsequent statements that securityholder approval was not required under ASX listing rules for the US assets sale was, on the basis of ASX's advice to CNP, the correct message and should have been conveyed in unambiguous terms from the outset.
Smartec was understandably distrustful of what was, on the face of things, a radical change of position by CNP on this aspect. Smartec chose, as it was entitled to do, to make submissions of its own to ASX. It did so, however, without knowledge of the content of the submissions made by CNP itself and, of course, without knowledge of the terms of the sale agreement.
I am of the opinion that Smartec may, in the circumstances, properly pursue a purpose of seeking to be informed of the basis on which ASX reached its expressed conclusion about listing rules 11.1.2 and 11.2 and, to that end, of obtaining from CNP the documents that passed between CNP and ASX on the matter.
CNP takes the view that some of the content of its written exchanges with ASX is commercially sensitive, in that the availability of it to persons outside CNP and its advisory group could enable such persons, if minded to do so, to act in ways that might prejudice the successful progress and completion of the US assets sale. That apprehension is shared by BRE Retail Holdings Inc, the purchaser under the US assets purchase agreement.
My decision on this part of Smartec's claim is that there should be an order that Smartec be authorised to inspect the "books" of CNP consisting of correspondence between CNP (or its advisers) and ASX on the question of the applicability or application of listing rules 11.1.2 and 11.2 to the US assets sale transaction, but that this authority should be on terms as to the maintenance of confidentiality to be determined by the court after hearing further submissions from such of the entities heard on the s 247A(1) application as wish to make such submissions. There will be no access to the sale agreement itself or any associated documents beyond the CNP-ASX correspondence.
The second concern - assessment and decision
As I have said (see paragraph [47] above), this generally expressed apprehension has only one concrete aspect to it. I refer to the matter of "ringfencing". The apprehension has no expressed content except as is given to it by the concrete aspect.
The evidence makes it clear that "ringfencing" was explained to Smartec in 2009 and can, in any event (and without explanation of the kind Smartec was given), be understood from the various aspects of CNP's published statements to which reference has been made.
Since the particular matter does not leave Smartec in need of information and the general matter involves no more than an expressed unease the only tangible aspect of which has been shown to be without foundation, no "proper purpose", as contemplated by s 247A(1), has been demonstrated in this connection.
The third concern - assessment and decision
The expressed concern here is one of general curiosity only. That, coupled with the observations at paragraphs [57] and [58] above, means that no "proper purpose" within s 247A is identified by Smartec.
The fourth concern - assessment and decision
Nothing of substance arises here. The fact that the one entity is both adviser and lender bespeaks no valid ground of plausible apprehension that CNP's directors have caused matters not to be "appropriately managed". And the fact that the chief executive may stand to receive an incentive payment if and when the board accepts a restructure plan for the group means simply that the decision whether to accept a restructure plan (and therefore to trigger the entitlement to the incentive payment) rests - and properly rests - with the directors themselves. No "proper purpose" of Smartec is demonstrated in this connection.
The fifth concern - assessment and decision
This matter is very closely allied with the issues concerning securityholder approval under listing rules 11.1.2 and 11.2 and the uncertainty that arose from CNP's statements on that matter. The ability of Smartec better to inform itself on that particular issue (see paragraphs [83] above) will deal with the more general matter in such a way as to leave no separate "proper purpose" in relation to it.
The sixth concern - assessment and decision
CNP has said nothing about any "pre-pack" alternative or fall-back strategy. The press report referring to the matter ascribed the "pre-pack credit bid" strategy to the senior lenders, not CNP. This, coupled with the fact that the particular possibility, if it exists at all, is, at best, an alternative to which the senior lenders might resort if the principal proposal is not consummated means, in my view, that Smartec cannot at this stage have any "proper purpose" in relation to it which would ground a claim for access to CNP's books.
Conclusion
There will be a limited order in favour of Smartec as outlined at paragraph [83] above, subject to terms as to confidentiality as there stated. Otherwise, there will not be any order authorising either Smartec or anyone on its behalf to inspect books of the Company or the managed investment scheme.
CNP, Smartec and the entities granted leave under rule 2.13 should attempt to agree the form of the order giving effect to this decision, including the terms as to confidentiality.
Because I have now entered on long leave, it will be necessary for the final orders to be settled and made by another judge: Wentworth v Rogers (No 3) (1986) 6 NSWLR 642.
The parties therefore have leave to approach the Corporations Judge for the time being for that purpose and for the determination of the costs of the proceedings.
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Decision last updated: 30 May 2011
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