Australian Gas Light Company (ABN 95 052 167 405), inthe matter of [2006] FCA 120 (10 February 2006)

Last Updated: 22 February 2006

FEDERAL COURT OF AUSTRALIA

Australian Gas Light Company (ABN 95 052 167 405), in the matter of [2006] FCA 120

AUSTRALIAN GAS LIGHT COMPANY (ABN 95 052 167 405), IN THE MATTER OF AUSTRALIAN GAS LIGHT COMPANY (ABN 95 052 167 405)

NSD182 OF 2006





EMMETT J
10 FEBRUARY 2006
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD182 OF 2006

IN THE MATTER OF:

	AUSTRALIAN GAS LIGHT COMPANY PLAINTIFF
JUDGE:	EMMETT J
DATE OF ORDER:	10 FEBRUARY 2006
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. Pursuant to section 411(1) of the corporations act, the plaintiff (‘AGL’) convene a meeting (the ‘Scheme Meeting’) of the holders of shares in AGL (‘AGL shares’) for the purpose of considering and, if thought fit, agreeing (with or without modification) to a scheme of arrangement being the scheme substantially in the form of the draft, a copy of which is at Section 13 of Exhibit "1A" (the ‘Demerger Scheme’).
2. The Scheme Meeting be held at 10:30am, on 27 March 2006 at City Recital Hall, Angel Place, Sydney or as soon thereafter as the AGL general meeting has been concluded or adjourned.
3. On or before 24 February 2006 there be despatched by prepaid ordinary post (or in the case of overseas members, by airmail), to each AGL Shareholder appearing in the register of AGL shareholders, a document substantially in the form or to the effect of Exhibit "1A" (the ‘Demerger Booklet’) together with the proxy form that accompanies the Demerger Booklet.
4. The Chairman of the Scheme Meeting be Mark Roderick Granger Johnson and in his absence Graham John Reaney.
5. The Chairman appointed to the Scheme Meeting has the power to adjourn the meeting in his absolute discretion.
6. All voting at the Scheme Meeting be by poll as declared by the Chairman.
7. Pursuant to section 411(1) of the Corporations Act, the explanatory statement for the Demerger Scheme, a copy of which forms part of the documents comprising Exhibit "1A", be approved.
8. AGL advertise the scheme meeting in the form of the attached document in The Australian newspaper no later than 25 February 2006.
9. AGL publish a notice of hearing of any application to approve the Demerger Scheme on or before 29 March 2006 and AGL shall otherwise be exempted from compliance with the requirement to publish such notices at least 5 days before the date fixed for the hearing of the application pursuant to rule 3.4(3)(b) of the Federal Court (Corporations) Rules 2000 (Cth).
10. The proceedings be stood over to 30 March 2006 at 10.15 am before Justice Emmett for the hearing of any application to approve the scheme.
11. These orders may be entered forthwith.

Date that entry is stamped:

Deputy District Registrar

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

THE AUSTRALIAN GAS LIGHT COMPANY
ACN 052 167 405
("AGL")
NOTICE OF MEETINGS

Take notice that the following meetings have been convened:

(a) A meeting of holders of ordinary shares in AGL (AGL Shareholders) to consider and, if thought fit, approve:

(i) a reduction in AGL’s share capital of an amount of $3.00 per ordinary share in AGL to be effected and satisfied in accordance with the scheme of arrangement between AGL and AGL Shareholders referred to in (b) below (‘Scheme of Arrangement’); and
(ii) AGL adopting "AGL Infrastructure Limited" as its name with effect from the Scheme of Arrangement coming into effect and AGL’s constitution being amended accordingly; and

(b) Pursuant to Orders of the Federal Court of Australia, a meeting of AGL Shareholders to consider and, if thought fit, approve the Scheme of Arrangement.

The resolutions referred to in (a) are conditional on the Scheme of Arrangement coming into effect. The Scheme of Arrangement referred to in (b) is conditional on, among other things, the capital reduction referred to in (a)(i) being approved.

The meeting referred to in (a) above will be held at 10:00am on 27 March 2006 at City Recital Hall, Angel Place, Sydney, New South Wales. The meeting referred to in (b) above will be held at 10:30am on 27 March 2006 (or as soon thereafter as the meeting referred to in (a) above concludes or is adjourned) at City Recital Hall, Angel Place, Sydney, New South Wales.

A copy of the Scheme of Arrangement, Explanatory Statement, Notices of Meeting and the form of proxy for the meetings referred to above may be obtained by calling the AGL Demerger Information Line on 1800 824 522 (within Australia) or [phone] (International) between 9:00am and 5:00pm (Sydney time) Monday to Friday.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD182 OF 2006

IN THE MATTER OF:

	AUSTRALIAN GAS LIGHT COMPANY PLAINTIFF
JUDGE:	EMMETT J
DATE:	10 FEBRUARY 2006
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1 The plaintiff, Australian Gas Light Company (‘the Company’), is a company within the meaning of the Corporations Act 2001 (Cth) (‘the Act’) and applies under s 411 of the Act for an order convening a meeting of its members. Section 411(1) relevantly provides that, where an arrangement is proposed between a company and its members, the Court may, on the application of the company in a summary way, order a meeting of the members of the company to be convened in such manner and to be held at such place as the Court directs. Section 411 also provides that the Court may approve the explanatory statement required by s 412(1)(a) to accompany notice of such a meeting.

2 Section 412(1)(a) relevantly provides that, where a meeting is convened under s 411, the company must, with every notice convening the meeting, send a statement explaining the effect of the arrangement and setting out such information as is prescribed and any other information that is material to the making of a decision by a member whether or not to agree to the arrangement. Section 411(2) provides that the Court must not make an order pursuant to an application under s 411(1) unless 14 days notice of the hearing of the application has been given to the Australian Securities and Investments Commission (‘the Commission’) and the Court is satisfied that the Commission has had a reasonable opportunity to examine the terms of the proposed arrangement and a draft explanatory statement and to make submissions to the Court in relation to the proposed arrangement and the draft explanatory statement.

3 The arrangement proposed between the Company and its members is described as a ‘demerger’. At present the Company is engaged in two enterprises. One enterprise involves the supply of energy in the form of gas and electricity. The other involves a reticulation infrastructure for the delivery of energy. The proposed demerger involves the creation of a separate listed company. The Company’s shares are presently listed for quotation on Australian Stock Exchange Limited (‘ASX’). It is proposed that the Company will undertake an internal restructure so as to ensure that its energy business and its infrastructure business are owned separately. The Company will continue to own the infrastructure business. The separate listed company will own the energy business.

4 The proposed owner of the energy business (‘AGL Energy’), which is a subsidiary of the Company, will issue to the Company a number of shares in its capital, such that the number of issued shares of AGL Energy will be the same as the number of issued shares of the Company. The Company will then undertake a reduction of its capital of $3 per share. That capital reduction will be satisfied by the transfer by the Company to its shareholders, other than a category described as ‘ineligible overseas shareholders’, of one share in AGL Energy for each share held in the Company. The capital reduction will be satisfied in relation to ineligible overseas shareholders by the transfer to a nominee of the number of shares that would otherwise have been transferred to those shareholders on trust for sale and distribution of the proceeds to ineligible overseas shareholders.

5 The proposed demerger involves two meetings of the members of the Company. The first is a general meeting, at which the members will be asked to approve the reduction of capital and to change the name of the Company from ‘Australian Gas Light Company’ to ‘AGL Infrastructure Limited’. The second meeting is the meeting that the Company asks the Court to convene pursuant to s 411.

6 The scheme itself is not complicated and gives effect to the demerger in the way that I have described. The proposed explanatory statement, however, is of considerable size and complexity. It is not for the Court to be satisfied as to the commercial desirability of the proposal, so long as the Court is satisfied that members have been given ample material upon which to base the decision whether to vote in favour or against the proposed scheme.

7 Before the Court is the affidavit evidence of Ms Jane Frances McAloon sworn 2 February 2006, Mr Phillip Andrew Stewart Breden sworn 9 February 2006, Mr Mark Roderick Granger Johnson sworn 2 February 2006, Mr Graham John Reaney sworn 7 February 2006, Ms Caleena Gai Stilwell sworn 7 February 2006, Mr Craig Allan Evans sworn 9 February 2006 and Mr Ian Richard Jedlin sworn 9 February 2006.

8 The proposed explanatory statement is in the form of a booklet to be sent to all shareholders. As I have said, the demerger proposal involves the re-organisation of certain assets of the Company and its subsidiaries. That involves the transfer of assets within the group prior to the demerger, so that the infrastructure business and the energy business are held separately. That transfer required a valuation certain of the assets of the Company and its subsidiaries, consisting of the New South Wales gas distribution network, property, plant and equipment. KPMG Corporate Finance Australia Pty Limited (‘KPMG’) was requested by the Company to review the internal valuation prepared by the Company to support the re-valuation of those assets.

9 In particular, KPMG was asked to provide an opinion as to whether the methodology adopted in the valuation was appropriate and whether the revised carrying value of the network assets was not unreasonable. On the basis of the work undertaken by KPMG in completing their review of the internal valuation, KPMG are of the opinion that the methodology adopted in the valuation is appropriate and that the revised carrying value of the network assets is not unreasonable. Those opinions are expressed in a report of 8 February 2006, the contents of which are verified by Mr Jedlin, who is an executive director of KPMG.

10 The directors of the Company also engaged Grant Samuel and Associates Pty Limited (‘Grant Samuel’) to prepare an independent report setting out whether, in its opinion, the proposed demerger is in the best interests of the shareholders of the Company and to state reasons for that opinion. Grant Samuel was also requested to give an opinion as to whether the capital reduction is materially prejudicial to the Company's creditors.

11 In a report to the directors of the Company, Grant Samuel expressed the opinion that the proposed demerger is in the best interests of the Company’s shareholders. The report says that the Company’s shareholders are likely to be ultimately better off if the demerger is implemented than if it is not, notwithstanding the costs, disadvantages and risks. The report says that, in essence, the current investment of the Company’s shareholders will be simply split into two parts as shareholding in AGL Infrastructure and a separate shareholding in AGL Energy. There will be no change in the underlying economic interests of shareholders, unless they choose to sell shares in either company.

12 Grant Samuel expressed the opinion that the current share market environment, in which there is strong demand for ‘pure play’ infrastructure assets and infrastructure investment opportunities, including the impending development of the PNG/Australian gas pipeline, provides an impetus for structural change. Grant Samuel provided a detailed opinion in support of a number of conclusions as follows:

• Current sharemarket attitudes and circumstances provide the impetus for structural change.
• The proposed demerger provides a better way forward for the Company's shareholders.
• The proposed demerger enhances the prospect of takeover.
• Shareholders will have flexibility to manage their investment exposure.
• The Company’s share price since announcement endorses the benefits of the proposed demerger.
• The downside risks for shareholders are relatively limited.
• The capital reduction does not materially prejudice the interests of the Company’s creditors.

Those opinions are verified by Ms Stilwell in her affidavit.

13 By letter of 9 February 2006 from the Commission to the Company’s solicitors, the Commission confirmed that it has had a reasonable opportunity to examine the terms of the proposed demerger scheme and the draft explanatory statement. The Commission also says that it does not propose to intervene to oppose the proposed order convening a meeting of members of the Company.

14 In all of the circumstances, I am persuaded that the scheme is one that it would be open to the members of the Company to adopt. Accordingly, I propose to convene a meeting pursuant to s 411 as asked by the Company.

I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

Associate:

Dated: 20 February 2006

Counsel for the Plaintiff:	Mr T F Bathurst QC
Solicitor for the Plaintiff:	Gilbert + Tobin
Date of Hearing:	10 February 2006
Date of Judgment:	10 February 2006