Hibernian Friendly Society (NSW) Limited [2002] FCA 1139 (11 September 2002)

Last Updated: 24 January 2003

FEDERAL COURT OF AUSTRALIA

Hibernian Friendly Society (NSW) Limited [2002] FCA 1139

CORPORATIONS - scheme of arrangement by way of demutualisation of long established friendly society - approved by members by substantial majority - formalities required to be implemented - matters for which the Court is required to be satisfied in the circumstances.

Corporations Act 2001 (Cth) subs 411(4), (5), (6), (11) and (17)

Re Montana Frocks Pty Ltd [1967] 2 NSWR 584 cited

Re Advance Bank Australia Ltd (1996-1997) 22 ACSR 513 cited

Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485 cited

Central Pacific Minerals NL [2002] FCA 239 applied

Re Challenge Bank Ltd (1995) 19 ACSR 421 cited

HIBERNIAN FRIENDLY SOCIETY (NSW) LIMITED

N 3034 of 2002

CONTI J

11 SEPTEMBER 2002

SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 3034 OF 2002

IN THE MATTER OF HIBERNIAN FRIENDLY SOCIETY (NSW) LIMITED

ACN 087 648 691

	HIBERNIAN FRIENDLY SOCIETY (NSW) LIMITED ACN 087 648 691 APPLICANT
JUDGE:	CONTI J
DATE OF ORDER:	11 SEPTEMBER 2002
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The scheme of arrangement between the applicant and its members ("Hibernian Scheme"), a copy of which is attached to the Short Minutes of Order placed on the Court file, be approved

2. The applicant be exempted from compliance with section 411(11) of the Corporations Act 2001 (Cth) in relation to the Hibernian Scheme.

3. A copy of these Orders be lodged with the Australian Securities and Investments Commission within 7 days of being entered.

4. These Orders be entered forthwith.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 3034 OF 2002

IN THE MATTER OF HIBERNIAN FRIENDLY SOCIETY (NSW) LIMITED

ACN 087 648 691

HIBERNIAN FRIENDLY SOCIETY (NSW) LIMITED ACN 087 648 691 APPLICANT

JUDGE:	CONTI J
DATE:	11 SEPTEMBER 2002
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1 In conformity with the orders of this Court made on 22 July 2002 and reproduced in my reasons for judgment of that day, being orders made pursuant to s 411(1) of the Corporations Act 2001 (Cth) ("the Act"), meetings of members of Hibernian Friendly Society (NSW) Limited ("Hibernian"), being a company limited by guarantee, and separately of Demutualisation Nominee Pty Limited ("Demutualisation Nominee") and Income Beneficiary Pty Limited ("Income Beneficiary") (the latter two companies being members of Hibernian), duly resolved in favour of the scheme of arrangement for the demutualisation of Hibernian. Each of those respective meetings took place consecutively on 2 September 2002 as class meetings, pursuant to subs 411(5) of the Act. As Senior Counsel for Hibernian rightly submitted, whilst the jurisdiction of the Court requires that approval be confirmed by meetings of appropriate or relevant classes (see Re Montana Frocks Pty Ltd [1967] 2 NSWR 584), nevertheless by the operation of subs 411(5), the votes of the classes may be aggregated, and in those circumstances it became unnecessary to additionally convene a combined meeting of the members of Hibernian inclusive of Demutualisation Nominee and Income Beneficiary.

2 Prior to the meetings of 2 September 2002, a general meeting of members of Hibernian comprising certain branch delegates had taken place on 30 August 2002, at which the following special resolutions were unanimously passed, subject to the scheme of arrangement becoming subsequently effective:

(i) That Hibernian change from a company limited by guarantee to a company limited by shares;

(ii) That the new constitution of Hibernian be adopted; and

(iii) That the issue of shares in Hibernian in accordance with the Share Allocation Rules be approved.

The Share Allocation Rules were stipulated in the scheme of arrangement. At the time of passing the resolutions referred to below, no members of Hibernian had been allotted or issued with any shares, whether pursuant to the Share Allocation Rules of the scheme of arrangement, or otherwise. The purpose of the resolution was to conditionally put in place the proposed demutualised Hibernian share structure, subject to and in anticipation of a subsequent favourable response from the majority of members of Hibernian at the meeting subsequently to be convened. Had no such favourable response been achieved, the condition precedent for the taking effect of the resolution would not have been fulfilled, and the resolution would not have taken ultimate effect.

3 The text of the resolution for demutualisation passed on 2 September 2002 by each of Hibernian, Demutualisation and Income Beneficiary was in the following terms:

"That the Scheme proposed to be entered into between Hibernian and its Members, as contained in and more particularly set out in the Explanatory Memorandum accompanying this Notice, is agreed to (with or without modification as approved by the Federal Court of Australia)."

4 After the commencement of the meeting of Hibernian members convened by the Court's earlier order of 22 July 2002, the Chairman of Hibernian announced that he was by then holding 2923 proxy votes, and pursuant to a preliminary resolution of Hibernian members present at the meeting which authorised him so to do, the Chairman further announced to that meeting that 2573 proxy votes had been cast in favour of the resolution to approve the scheme of arrangement, and 78 proxy votes had been against the same, and that in addition there were 248 open proxies exercisable by the Chairman, which he proposed to use by voting in favour of the resolution, and there were in addition 24 open proxies in favour of other persons. Thereafter a number of members spoke from the floor, whereof five spoke in favour of the resolution to demutualise and one spoke against the resolution. After certain questions were subsequently asked from the floor, the motion was duly put, and the Chairman called for a poll to be taken. The meeting closed on the basis that the poll result was to be expected within 20 to 30 minutes. Subsequently the result of the poll was ascertained as follows:

For the resolution: 2949 votes representing 97% of votes cast.

Against the resolution: 91 votes representing 3% of votes cast

Abstain the resolution: nil.

5 Senior Counsel for Hibernian has pointed out incidentally that since no shares were then held in Hibernian, it still retaining the status of a company limited by guarantee (notwithstanding what appears in [2-3] above), the resolution may have been effective if supported by less than 75% of the members present by person or by proxy at the meeting, whilst being still in compliance with s 411(4)(a)(ii) of the Act. There is some substance in that submission, in the light of segment A of that sub-paragraph and its contrast with segment B thereof, and the then status of Hibernian as a company limited only by guarantee, though any resolution of that hypothetical question might have had to confront the implications of the conditional resolution referred to in [3] above. That is a hypothesis which did not of course arise in the voting events which happened, and is therefore unnecessary to determine.

6 Of those votes cast by proxy, totalling 2573 out of 3040, the following categories appeared as at 10:00am on 31 August 2002:

Appointed as Proxy	For	Against	Open	Total
Chairman	2358	75	248	2681
Others	215	3	24	242
Total	2573	78	272	2923

7 No notification from any person of intention to appear in the proceedings before me on 11 September 2002 was given to Hibernian or filed in Court. Moreover a favourable letter bearing date 10 September 2002, written to Hibernian's solicitors from Australian Securities and Investments Commission, was furnished in the following terms:

"I advise that, under s 411(17)(b) of the Corporations Act 2001 ("Act"), the Australian Securities and Investments Commission ("ASIC") has no objection to the scheme of arrangement between Hibernian and its members the subject of meetings on 2 September 2002, on the basis that ASIC is satisfied that the scheme has not been proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Chapter 6 of the Act."

I agree with the submission of Senior Counsel for Hibernian that the production of the above letter from ASIC removed the necessity for me to express the Court's satisfaction pursuant to s 411(17)(a) of the Act, particularly in the light of the dictum of Santow J in Re Advance Bank Australia Ltd (1996-1997) 22 ACSR 513 at 519. Were that not the case, I would have readily expressed my satisfaction pursuant to that statutory provision.

8 Senior Counsel has also made submissions concerning the operation of s 411(4)(b) of the Act, relating to the approval of the Court to a scheme of compromise or arrangement such as the present, in the light of subs 411(6) thereof. Those submissions were to the effect that the approval power is conferred by s 411(4)(b), a submission made by the company involved in Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485 as recorded at 504, and not criticised in the unanimous reasons for judgment of the High Court. That construction has been subsequently confirmed in a series of single judgments concluding with that of Emmett J in Central Pacific Minerals NL [2002] FCA 239 at [5] and [31], and is I think with respect clearly correct.

9 In addition to the expert testimony provided at the earlier hearing of the present proceedings on 22 July 2002, when I made orders inter alia for convening the meeting of members of Hibernian, there was provided to me at the subsequent hearing on 11 September 2002 contemporaneous affidavits verifying the report of 25 June 2002 made by a consulting actuary from Ernst & Young, and the report of the same date by Deloitte Corporate Finance Pty Limited, being the reports referred to in [13] of my earlier reasons for judgment herein. There has been no evidence placed before me, nor submission made to me, in opposition to the granting of approval of the scheme of arrangement, and in particular as to any lack of fairness inherent in the same. In those circumstances there is authority to the effect that I need not make any definitive statement concerning the Court's function on a second hearing such as this (Re Challenge Bank Ltd (1995) 19 ACSR 421 at 422 per Nicholson J).

10 Nevertheless in the light of what was stated by Emmett J in Central Pacific Minerals at [12], which reads as follows:

"12. In considering whether to approve an arrangement at the third stage, the Court must first be satisfied that the second stage has been fully completed. It must be satisfied that the resolutions have been passed in accordance with the statutory requirements. Secondly, however, the Court must then consider the exercise of its discretion whether to approve the arrangement. While the primary task of the Court is to see that the procedure whereby the arrangement has been approved by security holders is formally correct, it has the further duty of satisfying itself that the arrangement is fair and equitable between different classes of security holders, and as between security holders and those who will benefit from it."

11 I would express the following conclusions which I have reached in the light of what was produced to me by way of evidence in the approval stage of the present proceedings:

(i) the second stage of the process culminating in the meetings of September 2002 has been fully completed to my satisfaction, including the passing of the required resolutions in accordance with the statutory requirements;

(ii) I continue to be satisfied that the scheme of arrangement is fair and equitable between all members of Hibernian, irrespective of the type, number, size, and duration of the policies respectively held by them, and otherwise.

I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Conti.

Associate:

Dated: 11 September 2002

Counsel for the Applicant:	M Oakes SC
Solicitor for the Applicant:	Minter Ellison
Date of Hearing:	11 September 2002
Date of Judgment:	11 September 2002