FEDERAL COURT OF AUSTRALIA

Australian Gas Light Company (ABN 95 052 167 405), in the matter of [2006] FCA 346

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

14 MARCH 2006

SYDNEY

IN THE MATTER OF:

THE COURT ORDERS THAT:

1.         The meeting convened by the plaintiff pursuant to Order (1) made on 10 February 2006 not be held.

2.         On or before 20 March 2006 the plaintiff despatch to its members by pre-paid post or, in the case of overseas members, by air mail, a notice in the terms attached to these orders. 

3.         Orders (2), (4) to (6) inclusive, and (9) to (11) inclusive, made on 10 February 2006 be revoked.

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 MATTER OF:

REASONS FOR JUDGMENT

1                     On 10 February 2006, I made orders under s 411(1) of the Corporations Act 2001 (Cth) (‘the Act’) that the plaintiff, Australian Gas Light Company (‘the Company’), convene a meeting of all holders of its shares for the purpose of considering and, if thought fit, agreeing, with or without modification, to a scheme of arrangement in the form annexed to my order.  Relevantly for present purposes, the scheme was expressed to be conditional upon the satisfaction or waiver of a number of conditions precedent, including a condition that, between the date of the notice of meeting and the proposed scheme meeting, a majority of the directors of the Company do not change or withdraw their recommendation to members of the Company to vote in favour of the scheme.

2                     On 23 February 2006, in accordance with other orders that I made on 10 February 2006, the Company despatched, by pre-paid ordinary post or by airmail, in the case of overseas members, to each member a copy of the Demerger Booklet comprising the notice of meeting, the explanatory memorandum and other material including a copy of the scheme.  On 24 February 2006, in accordance with the orders that I made, the Company advertised in The Australian Newspaper that the scheme meeting was to be held on 27 March 2006 in Sydney.

3                     The Company now seeks orders that the meeting not be held and a revocation of other ancillary orders that I made on 10 February 2006 relating to the holding and conduct of the meeting.  The reason for the present application is related to an announcement made on 21 February 2006 by Alinta Limited (‘Alinta’), that Alinta had acquired a 10 per cent shareholding in the Company.  On 22 February 2006, Alinta made a further announcement that, as at that date, it held 19.9 per cent of the issued share capital of the Company.

4                     In its announcement of 21 February 2006, Alinta proposed a merger with the Company.  Its proposal consisted of the following:

• The Company and its shareholders would enter into a scheme of arrangement to merge Alinta and the Company.
• If the scheme is approved, Alinta would acquire the remaining 90 per cent, as it then was, of the Company’s issued shares that it did not already own in return for shares in Alinta.  The ratio was to be 1.773 shares in Alinta for each share in the Company, based on the closing price at the time of Alinta shares at $10.97 per share and the Company’s shares at $19.45 per share. 

·        Following the merger, a number of internal restructuring steps would be taken to separate the combined infrastructure assets from the combined energy assets. 

Such a restructuring was proposed in relation to the present assets of the Company and its subsidiaries under the scheme.  It was proposed by Alinta that at the end of those transactions, current members of the Company would own a share in the merged energy company and a share in the merged infrastructure company.

5                     At the time when the Company commenced this proceeding, seeking orders under s 411, the directors of the Company had no knowledge of Alinta’s proposal as announced on 21 February 2006.  The directors of the Company have now considered Alinta’s proposal and, on 12 March 2006, they resolved to reject the Alinta proposal, to make an offer for all of the ordinary shares in Alinta on the basis of a consideration consisting of the allotment of shares in the Company to the members of Alinta and then to demerge the combined businesses along the lines originally contemplated.  The proposal adopted by the Company’s directors is similar to that proposed by Alinta except that the takeover would be driven by the Company rather than by Alinta.

6                     On 13 March 2006, the Company announced an offer to merge with Alinta.  Under the Company’s proposal, Alinta shareholders would receive 0.564 shares in the Company for each Alinta share.  That apparently represents the same proportion as was proposed under the Alinta proposal announced on 21 February 2006.

7                     The board of directors of the Company also resolved on 12 March 2006 to withdraw the recommendation to the Company’s shareholders, which they had made in the demerger booklet, that the members vote in favour of the scheme.  The directors also resolved to ask the Court for orders that the proposed meeting not be held.  The directors have also resolved to cancel the general meeting of members that they had convened for the same day as the scheme meeting.  That meeting was also convened by the demerger booklet.  It was necessary in order to effect the proposed scheme.

8                     It is now apparent that a condition precedent to the commencement of the scheme will not be satisfied.  It is, of course, theoretically possible that the members might vote to modify the scheme by deletion of that condition precedent.  However, there is no reason to think that that is a likely possibility. 

9                     It is clear enough from the terms of the announcements that have been made by Alinta that its proposal could not proceed if the scheme were to proceed.  It is likely, therefore, that Alinta would vote against the proposed scheme if the meeting were to be held.

10                  In the circumstances, it seems to me that considerable confusion would be generated if the meeting were to proceed as convened.  Most of the cost of holding the meeting has now been incurred, but some further costs no doubt would be saved.  Even if neither takeover proceeds, the demerger could be revived and much of the costs may then be utilised. 

11                  The disadvantage of acceding to the Company’s present application is that substantial costs, however, would be thrown away.  It seems to me, however, that it is highly likely that those costs have now been thrown away because, even if the meeting were to be held, the resolution approving the scheme is highly unlikely to be passed.

12                  Senior counsel for the Company has drawn my attention to possible doubt as to the Court’s power to make the order now sought.  The doubt arises from observations made by Debelle J in dealing with an application in the Supreme Court of South Australia in North Flinders Mines Limited (1996) 19 ACSR 602.  His Honour was there dealing with an application to revoke orders calling meetings for the purposes of considering schemes of arrangement.  The proposal involved schemes that would give effect to a merger between North Flinders Mines Limited (‘North Flinders’) and three other companies.  The scheme of arrangement proposed by North Flinders was conditional upon approval by the members of one of the other companies.  At a meeting of the members of one of the other companies, the resolution to approve the scheme of arrangement was not passed.  The directors of North Flinders therefore sought the vacation of the order that the meeting be convened because there would be no utility in convening it.

13                  Debelle J doubted whether there was power to accede to the request.  However, in the exercise of his Honour’s discretion, he did not decide the question because his Honour considered that it was not appropriate to make the order.  He did not consider that it was appropriate to deprive the shareholders of the opportunity to meet to express their views on the proposed scheme.  His Honour made those observations particularly in the light of the evidence before him that the board of the other company was considering resubmitting the scheme to its shareholders.  In those circumstances, even if his Honour had concluded that there was power to revoke the orders, his Honour would have declined to do so.

14                  On the other hand, in CMPS&F Pty Limited v Crooks Mitchell Limited & Ors (1997) 147 ALR 292, Burchett J considered that the Court has power to do what the Company now asks.  His Honour considered that that power was conferred expressly by s 1319 of the Corporations Law, which finds its equivalent in s 1319 of the Act.  Section 1319 provides that where, under the Act, the Court orders a meeting to be convened, the Court may, subject to the Act, give such directions with respect to the convening, holding or conduct of a meeting and such ancillary or consequential directions in relation to the meeting as it thinks fit.

15                  The circumstances before Burchett J were similar to those presently before me.  Orders had been made to convene meetings of the Company to deal with a proposed scheme and notices of the meetings had been given to shareholders.  However, before the meetings were held, the Company entered into a different transaction with the approval of shareholders given in general meeting.  That transaction was so inconsistent with the proposed scheme of arrangement as to deprive the scheme of all utility.

16                  His Honour took into account that it would be confusing, as well as useless, to provide the members with the sort of material that they would have to receive in respect of two schemes of arrangement if the meetings went ahead in conjunction with the meetings that had been called in relation to the new proposal.

17                  As I have said, if the Company’s bid for Alinta’s shares is successful, the directors propose to demerge the combined infrastructure and energy businesses of the merged entity.  The information required to be provided to the Company’s members to consider and vote upon a demerger would, in the directors’ opinion, be materially and fundamentally different from the information contained in the present demerger booklet.  The directors have considered the possibility of postponement of the scheme meeting, but do not consider that that is a viable option, having regard to the uncertainties that must exist in the market place as to the outcome of the competing proposals.

18                  Whether Alinta will continue with its bid is by no means clear.  It appears, however, that the Company intends to proceed with its bid for Alinta.  Until such time as the outcome of any merger of the two companies, either by takeover or otherwise, is known, there would be no utility in holding the proposed meeting convened on 10 February 2006.

19                  In the circumstances, I consider that it is appropriate to accede to the request of the Company.

Associate:

Dated:              31 March 2006