Australian Securities and Investment Commission v Cardinal Financial Securities Limited and 1 Ors [1999] NSWSC 1289 (21 December 1999)

Last Updated: 24 December 1999

NEW SOUTH WALES SUPREME COURT

CITATION: Australian Securities and Investment Commission v Cardinal Financial Securities Limited & 1 Ors [1999] NSWSC 1289

CURRENT JURISDICTION: Equity

FILE NUMBER(S): 5105/99

HEARING DATE{S): 21/12/1999

JUDGMENT DATE: 21/12/1999

PARTIES:

Australian Securities and Investment Commission (Plaintiff)

Cardinal Financial Securities Limited (First Defendant)

Corporate Investment Australia Funds Management Limited (Second Defendant)

JUDGMENT OF: Santow J

LOWER COURT JURISDICTION: Not Applicable

LOWER COURT FILE NUMBER(S): Not Applicable

LOWER COURT JUDICIAL OFFICER: Not Applicable

COUNSEL:

G L Turner (Plaintiff)

A Sullivan, QC (Second Defendant)

SOLICITORS:

CATCHWORDS:

CORPORATIONS -- ASIC injunction to restrain a meeting of participants in an investment scheme to convert to shares in a listed company and terminate original project -- Arguable case of insufficient disclosure -- Effect on balance of convenience of participants representing necessary majority confirming other additional information would still vote for change -- Need to maintain policy of the law met by former ASIC discretion in approving future amendments to trust deed following meeting -- Other conditions to avert injunction.

ACTS CITED:

Corporations Law s1069A(2), s1324

DECISION:

Injunction granted unless various conditions satisfied.

JUDGMENT:

IN THE SUPREME COURT

OF NEW SOUTH WALES

IN EQUITY

SANTOW J

No. 5105/99

Australian Securities and Investment Commission

Plaintiff

Cardinal Financial Securities Limited

First Defendant

Corporate Investment Australia Funds Management Limited

Second Defendant

JUDGMENT -- ex tempore

21 December 1999

1 ASIC by summons dated 21 December 1999 seeks an injunction to restrain the holding of a meeting of participants from what I will describe in this judgment and the orders as "the First TrackNet Project". Essentially what is proposed at a meeting of participants in a prescribed interest scheme is a replacement of that scheme with the attendant winding up of what is defined as "the Project" and instead the issuance of shares in a new public company, TNL, to a Trustee to be held subject to the conditions of the resolution pro rata for the Participants. The Project essentially involves the exploitation of a tracking system technology for vehicles and is currently held by a corporation TrackNet Australia Pty Limited ("TPL") for the participants.

2 ASIC, as is conceded, have made out an arguable case that the relevant material by way of the manager's explanatory notes forming part of the Notice of General Meeting contravenes the law. There is also the possibility that the issuance of shares in TNL to be effected by these proposals and in turn associated with an offer of the relevant shares to the Trustee should have been carried out by a prospectus. I do not express a concluded view on the matter since it goes to balance of convenience rather than being one of the matters relied on by ASIC in its Summons.

3 Ordinarily, where there was an arguable case of a serious contravention of the law in making adequate disclosure to participants an injunction would follow unless there were compelling reasons based on the balance of convenience and which still preserved the application of the law. In the orders which follow and which are made by consent, I have granted the injunction sought but have provided for that injunction to operate unless certain events have occurred. The nature of those events are intended to safeguard the policy of the law and its proper enforcement as well as to recognise one matter of substantial significance in the present case.

4 That matter is this. The Defendant has indicated that it is confident that further affidavits will be forthcoming from participants representing in excess of 75% of the total relevant interests which will affirm that upon their having been advised of the matters requiring, in ASIC's view, express disclosure, they would still intend to vote or direct a proxy to vote in favour of all the relevant resolutions, thus in effect affirming what has been stated in a series of affidavits from such participants dated 21 December 1999 filed to-day.

5 It is also recognised by the Defendant that ASIC must grant its approval to the relevant amending deed to the trust deed and that the Defendant would withdraw any application for its approval in the event that ASIC concluded, based on Senior Counsel advice and take into account any relevant aspects of ASIC policy:

(a) That the circumstances of the meeting failed to comply with the Corporations Law, and

(b) That having regard to all relevant circumstances including the further affidavits contemplated it would not excuse such non-compliance.

6 In regard to the foregoing it may be expected that ASIC would apply a common sense approach having regard to the present commercial situation in which it appears that, based on what is said at page 40 of GDP1 there are no net tangible assets or scheme property other than the technology presently in the Project and the alternative though speculative depended on tomorrow's meeting not being delayed and may represent the best thing going. That of course is a matter for ASIC to consider based on the circumstances as may emerge including any issue regarding entitlements of Participants to vote.

ORDERS

Not by consent:

1. ASIC's costs of this application shall be paid by the Defendant.

By consent:

1. An order pursuant to s1324 of the Corporations Law that the Second Defendant not hold the meeting convened for 9.30 am on 22 December 1999, by the Second Defendant, of participants in the First TrackNet Project, being a project constituted by a deed dated 12 December 1997 unless the following has first occurred:

(a) affidavits shall be provided by participants constituting not less than the majority required by s1069A(2) of the Corporations Law as applicable in respect of the relevant meeting being in each case participants entitled to vote to the following effect:

(i) that the deponent has been provided with ASIC's letter of 13 December 1999 and such additional information as would inform the deponent accurately of the true position or is otherwise already aware of that additional information and of the true position, such that the deponent is satisfied that it has been adequately informed of the subject matter of the meeting so as not to be misled or deceived within the meaning of s995 of the Corporations Law, and

(ii) it has been informed of these orders and this judgment, and

(iii) taking (i) and (ii) into account, the deponent intends to vote or alternatively direct a proxy to vote in favour of all of the resolutions set out in annexure "A" at the general meeting of Participants to be held on Wednesday 22 December 1999 or as it may be adjourned.

(b) That subject to the relevant resolutions being passed, each of TPL, TNL, the Second Defendant and Springsley Pty Limited undertake for each of themselves to consent to all matters and take all such steps as are within its power to effect the fulfilment of the conditions and elements of the proposal before the meeting of 22 December 1999 and of the transactions contemplated thereby including without limiting the generality of the foregoing placing the Participants in the equivalent position mutatis mutandis and subject to the proviso which follows, so far as access to contracts, property or rights are concerned as they are under the present arrangements provided that their interest will be held via a direct shareholding in TNL and which will in turn own TPL or all of its assets and undertaking and which will likewise own Halion Pty Limited and Garrison Monitoring Pty Limited directly or through a wholly-owned subsidiary. In the event that the amending deed to the trust deed in relation to the scheme is not approved by ASIC and subject to the existing Project not having been terminated, the foregoing undertaking will cease to have effect.

(c) The First Defendant undertakes that it will withdraw the amending deed and not seek the approval of such an amending deed in the event that either the foregoing undertaking is not complied with save as waived by ASIC, or in the event that ASIC concludes, based on Senior Counsel's opinion (to be obtained at the Defendants' expense) and ASIC policy,

(i) that the circumstances of the meeting failed to comply with the Corporations Law, and

(ii) that having regard to all relevant circumstances including the further affidavits contemplated it would not excuse such non-compliance.

2. The foregoing undertakings though given to the Court are also given to ASIC and the relevant affidavits shall be furnished to ASIC and filed in due course.

3. Leave to apply on reasonable notice.

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LAST UPDATED: 23/12/1999