Village Roadshow Ltd v Boswell Filmgesellschaft mbH
[2003] VSC 437
•31 October 2003
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
PRACTICE COURT
CEQ No. 7620 of 2003
| VILLAGE ROADSHOW LTD | Plaintiff/Respondent |
| v | |
| BOSWELL FILMGESELLSCHAFT mbH | Applicant |
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JUDGE: | NETTLE J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 31 October 2003 | |
DATE OF JUDGMENT: | 31 October 2003 | |
CASE MAY BE CITED AS: | Village Roadshow Ltd v Boswell Filmgesellschaft mbH | |
MEDIUM NEUTRAL CITATION: | [2003] VSC 437 | |
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CORPORATIONS – Injunction – Scheme of arrangement – Allegation of failure to comply with s 275D – Whether scheme meetings should be restrained – Corporations Act 2001, s 275D.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff/Respondent | Mr N. O’Bryan SC with Mr M. O’Bryan | Minter Ellison |
| For the Applicant | Mr N. Young QC with Mr M. Gronow | Blake Dawson Waldron |
HIS HONOUR:
Village Roadshow Ltd (“Village”) has proposed a scheme of arrangement with its A‑Class preference shareholders under which Village will buy-back and then cancel all of the issued preference shares in consideration of the payment of a buy-back consideration of $1.25 per preference share. The buy-back consideration is to be satisfied by Village paying 25 cents in cash and issuing an unsecured note with face value of $1 for each preference share.
Implementation of the scheme depends upon shareholder approval under s.257D(1) and s.411 of the Corporations Act 2001. In particular, the terms of the buy-back agreement must be approved at a general meeting by a special resolution under s.257D(1)(a) or a resolution passed by all ordinary shareholders under s.257D(1)(b), and the scheme of arrangement must be approved by a resolution to be passed by preference shareholders at a scheme meeting in accordance with s.411.
The notices of meeting are set out in an appendix to the scheme booklet, and it is fair to say that the two resolutions are inextricably linked. As set out in the notice of general meeting, the proposed special resolution under s.257D(1)(a) is “that the buy-back and terms of any buy-back agreements entered into under the buy-back are approved in accordance with s.257D(1) of the Act”. “Buy-back” is defined to mean the buy-back by Village of the preference shares pursuant to the scheme and “buy-back agreement” is defined to mean an agreement pursuant to the scheme for the buy-back of the preference shares. As set out in the notice of scheme meeting, the scheme resolution that is to be put to preference shareholders is conditional on the passage of the resolutions that are to be put to the general meeting. The resolution is “that conditional on the resolutions to be put to the general meeting having been passed at the general meeting, the scheme is approved (with or without modification as approved by the court)”.
On 26 September 2003, Hanson J directed that the scheme meeting be convened on 3 November 2003 and that notice of the meeting be given by sending to all persons entitled to the notice a scheme booklet in the form or substantially in the form set out in Schedule A to the order. So far as appears, his Honour was not asked to consider, and did not turn his mind to whether the notice of meeting for the general meeting satisfied the requirements of s.257D(1)(a).
On 27 October 2003, Mr Gadi Bloch of the Australian Securities and Investment Commission sent a facsimile transmission to the solicitors for Village concerning the voting entitlements of those ordinary shareholders of Village who are also holders of A-Class preference shares, and in particular the effect of s.257D on those voting entitlements for the purposes of the two special resolutions to be put to ordinary shareholders at the general meeting to be held on 3 November 2003. In that facsimile transmission there was set out the view of ASIC that ordinary shareholders who are also holders of A-Class preference shares in Village may vote against the buy-back resolution, whereas it is stated in the scheme booklet that ordinary shareholders who are also preference shareholders may not vote at all; which is to say either for or against the buy-back resolution.
In the period between 27 and 29 October, solicitors for Village and officers of Village had a number of discussions with Mr Bloch of ASIC. As a result of those discussions, Village informed ASIC that it would make an announcement on 29 October 2003 to the Australian Stock Exchange and publish advertisements in the Age, Australian, Sydney Morning Herald and Courier Mail newspapers on 30 October 2003: of which the substance was that Village had agreed to record and report to the court all votes cast by ordinary shareholders who are also preference shareholders against the buy-back resolution and to count the votes if the court should determine that it was appropriate so to do.
The applicant, Boswell Filmgesellschaft mbH, now applies by interlocutory process for directions, pursuant to s.1319 of the Act, that the meeting of the holders of Class‑A preference shares in Village that is proposed to be convened on 3 November 2003 and the general meeting proposed to be held immediately prior to it on that day be adjourned to a date yet to be fixed, and that Village be required to give notice to each shareholder and by a publication in newspapers circulating generally in principal States to the effect that preference shareholders have an entitlement to vote against the resolution and that such votes will be counted. If and in so far as it be necessary, Boswell has signified that it would institute a fresh proceeding for injunctions to the same effect and for ancillary orders.
Boswell claims standing to make its applications for directions in the scheme proceeding and for orders that might be sought in the fresh proceeding under ss.1319 and 1324 of the Act as the legal and beneficial owner of issued ordinary and preference shares in the capital of Village. It contends that its interests are affected by what it submits are misleading statements contained in the scheme booklet that "excluded shareholders" are not entitled to vote at all upon the buy-back resolution, as opposed to being entitled to vote against the resolution if they choose to do so.
The applicant contends that any person who is registered as an ordinary shareholder and also a preference shareholder may vote against the resolution, even though they would be prohibited from voting in favour of it. The applicant says that s.257D(1)(a) of the Act provides that members of the company whose shares are to be bought back under a proposed scheme of this type may not vote in favour of the resolution, but it does not prohibit such shareholders from voting on the resolution at all. Thus the statements to the contrary in the scheme booklet and notice of general meeting are both wrong and misleading.
The applicant contends further that the inaccurate and misleading statements in the booklet amount to misleading conduct in relation to a financial product in contravention of s.1041H of the Corporations Act, and that a refusal to count votes cast by an excluded holder against the buy-back consideration would constitute a breach of the company’s constitution, and thus take the buy-back outside the authority conferred by ss.257A and 257D(1) of the Act. It submits that the statements which are contained in the scheme as to the disentitlement of excluded shareholders to vote against the resolution are likely to have the effect of distorting voting at the scheme, unless the meetings are adjourned and the statements are corrected. It argues that persons who hold ordinary shares and preference shares will be led to believe that if they wish to vote on the buy-back resolution they must dispose of their preference shares, which would then render them ineligible to vote at the scheme meeting.
The applicant says that upon the evidence there is a substantial overlap of Village shareholders who hold both ordinary and preference shares, and that they may have been misled by the scheme booklet into thinking that they cannot vote at all on the buy-back resolution on 3 November 2003.
In the Stock Exchange announcement and in the advertisements which were published in the newspapers after discussions between Village and ASIC, it was stated:
“It has been suggested that although excluded holders are not entitled to vote in favour of Resolution 1, they are entitled to vote against Resolution 1. To remove any doubt, VRL will record and report to the Supreme Court of Victoria all votes cast by excluded holders against Resolution 1 and count those votes should the court so determine.”
In the applicant’s submission, neither the announcement nor the advertisements go far enough to correct the position. The applicant says that the announcement and advertisements failed to inform shareholders who have been both ordinary and preference shareholders that they are entitled to vote against the buy-back resolution, and moreover it compounds the difficulties by continuing to describe shareholders who are eligible to vote under s.257D(1)(a) as “excluded shareholders”. The announcement and the advertisements are deficient, in that they do not confirm or state that the so-called excluded shareholders who cast votes against the buy-back resolution will have their votes counted. The announcement and advertisements do no more than indicate that Village will record and report those votes to the court. That does not address the problem of shareholders who are eligible to vote but who may have been or may be deterred from attending the meeting or voting at the meeting because they were told by Village that they were not eligible to vote.
In the applicant’s contention, the only way in which the problems created by the misinformation contained in the scheme booklet can now be overcome is by ordering the adjournment of the meeting which it seeks and requiring or compelling Village to publish notices of the kind which are sought.
Mr Young of Queen’s Counsel, who appears with Mr Gronow for the applicant, submits that the misinformation constituted of what is said in the notice of meeting contained in the scheme booklet goes to the very heart of the operation of s.257D. This is not, he submits, just a matter of detail which can be overlooked or waived. It is a precondition to the engagement of that section and thus something which must be complied with before the buy-back could proceed.
Mr Norman O’Bryan, of Senior Counsel, who appears with Mr Michael O’Bryan for Village, opposes the application. He does not dispute that there is a serious question to be decided as to the correct construction of s.257D, albeit that he is resolute in the contention that it has the effect of denying excluded shareholders a vote either in favour of or against the resolution. He concedes that, in the absence of definitive authority, other views are open to be argued. Nevertheless, upon the balance of convenience, he submits that the weight is very much against the grant of orders of the kind which are sought by the applicant.
He submits that:
· First, that it is likely that any effects resulting from the alleged error in the notice of meeting would be substantially, if not wholly, ameliorated by the Stock Exchange announcement and the newspaper advertisements.
· Secondly, that even though one may not be able to say precisely how many shareholders could be deflected from voting by what Mr Young has described as the misinformation, one will have a much better idea of the numbers after the meeting has been held and the votes and the proxies have been counted. Indeed, he submits, in respect of the buy-back resolution it will be possible to say, after the poll has been taken, whether the outcome would have been different if from the outset shareholders had been informed of what are said by the applicant to be their entitlement to vote against the resolution.
· Thirdly, as a matter of logic and experience it is preferable to allow meetings of the kind which have been convened to proceed and to leave until the time when application is made to the court for approval of the scheme the determination of any dispute about the validity of the scheme or any of the resolutions involved in it. He refers in that connection to what was said by the Full Court in Nordic Bank Plc v International Harvester Aust Ltd,[1] and more recently by Beach J in Re Hudson Conway Ltd.[2]
· Fourthly, the costs which would be thrown away by reason of the orders sought would be very great indeed. Village is a listed public company with a large number of shareholders and, in Mr O’Bryan’s submission, the printing costs would be substantial. Although the applicant has offered security in the amount of GB £50,000 for such undertaking as to damages as might be required as a condition of the relief which is sought, Mr O’Bryan submits that it should not be thought enough, either for the printing and other costs which would be directly involved or, more importantly, the costs of delay which would be associated with a deferral of the meeting and thus, by any significant period of time, payment of the consideration for the buy-back and cancellation of shares which in aggregate total some $310m.
[1][1983] 2 V.R. 298 at 303.
[2][1999] 33 ACSR 657, esp. at [25] and following..
Mr Young replies that there is a high probability of the court ultimately determining that s.257D has the meaning for which he contends, and therefore a considerable probability that the company as a whole and shareholders involved in particular will be significantly disadvantaged if the meetings are not adjourned and shareholders apprised of the rights which they have to vote. In his submission, until and unless the question is finally determined, shareholders will be left in a state of uncertainty, in a market which is constantly changing, and they should be protected against that sort of inconvenience and loss by the orders which he proposes.
As it appears to me, there is not a little to be said for the construction of s.257D for which Mr Young contends. As a matter of language and as a matter of supposed legislative purpose, it appears that section may well be directed only to preventing excluded shareholders from voting in favour of a buy-back resolution. But, as matters have transpired, neither side seeks a determination of that question at this stage, and therefore I do not provide one. It is, as is conceded by Village, sufficient to say for present purposes that there is a serious question to be tried about it.
I also accept Mr Young’s contention that, if he is correct about the meaning of s.257D, a failure to comply with the notice provisions may well be one which goes to the heart of the operation of the section, and that, other things being equal, it may not be appropriate to treat any failure to comply as a procedural irregularity within the meaning of s.1322 of the Act.
Upon the balance of convenience, however, I consider that matters fall very much in favour of Village. To begin with, Hanson J made the order for the convening of the meetings a considerable period of time ago, and Village, at least upon the evidence before me, seems to have done its best to comply with the orders and to meet with the requirements of ASIC; albeit that it disagrees with the construction of the section which ASIC prefers. Certainly there is involved here a public interest greater than the interests of Village; for, as Mr Young rightly points out, if it is at all possible, shareholders should not be left in a state of uncertainty or at risk of loss if that can be avoided. Nevertheless, it does seem to me that shareholders can best be protected against the risks associated with delay and consequent loss if the meetings are allowed to proceed and the question of the validity of the resolutions passed at those meetings is dealt with when the matter comes back before the court for scheme approval.
If, when the matter comes back before the court for scheme approval, the applicant succeeds in demonstrating that the construction of the Act is that which it prefers, and that the failure of Village in sending out notices of meeting of the kind which were sent out has had the effect upon voters’ actions that the applicant fears, the judge that hears the application for approval will be far better placed than I am at the moment to decide whether the failure to comply with the section is one which ought be treated as a procedural irregularity.
So to say is not to suggest that one can determine the correct construction of the section by looking first to see whether compliance with what is said to be its true meaning would have produced a different result. It is simply that if it is found that Mr Young is correct in the construction of the section which he prefers, but that, correctly construed, the failure to comply with the section was only a procedural irregularity, it will or at least may be relevant to the determination of the judge as to whether to approve the scheme, to know if any failure to comply with the section as correctly construed would have produced a different outcome.
It is true, as Mr Young contends, that until and unless that issue is finally determined, shareholders, or at least some of them, may be kept in a state of uncertainty and therefore suffer loss, but that works both ways. If the meetings are now adjourned and time is lost while new notices are printed and advertisements are sent out, shareholders will equally be kept in a state of uncertainty and be kept out of the money, which is considerable, for the period of time which will elapse.
Given that any incurable irregularity which may have resulted from a failure to comply with s.257D of the kind which is contended for can be dealt with adequately by the judge that hears the application for approval, and given, as it seems to me upon the evidence before me, that there is no more risk of loss to shareholders by allowing the meetings to go ahead than would be suffered if they were adjourned, I consider that the appropriate course to adopt is to allow the matters to proceed.
That being so, the interlocutory application for directions will be refused and the application which is proposed to be made in the fresh proceeding for interlocutory injunction will be dismissed.
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