FEDERAL COURT OF AUSTRALIA

In the matter of Professional Golfers Association of Australia Limited

[2007] FCA 1571

CORPORATIONS – two schemes of arrangement under Pt 5.1 of Corporations Act 2001 (Cth) (the Act) – merger of two professional golfing associations structured as not-for-profit companies limited by guarantee, into a new association also structured as a not-for-profit company limited by guarantee, in which the members of the merging companies become members – assets and liabilities of the two merging companies to be transferred to, and accepted by, the new company, by a transfer order to be made under s 413 of the Act – the two existing companies then to be deregistered under s 413(1)(d) of the Act – 21 classes of members in one of the existing companies and six in the other, but only 12 in the new company – whether necessary that separate meetings be held of the members within the respective existing 27 classes – principles applicable – whether directions should be made fixing quorum for each scheme meeting – consideration of power to fix quorum. 

Held: (1) Not appropriate that separate meetings of classes of members be held – sufficient that there be two meetings, one of all the members of each of the two merging companies; (2) orders made under s 1319 of the Act fixing quorum for each scheme meeting.

Corporations Act 2001 (Cth) ss 411, 413

Federal Court (Corporations) Rules 2000 r 3.3(2)

Ball v Pearsall (1987) 10 NSWLR 700 cited

Green v The Queen (1891) 17 VLR 329 cited

In the Application of United Medical Protection [2007] FCA 631 referred to

Municipality of St Leonards v Williams [1966] Tas SR 166 cited

Nordic Bank plc v International Harvester Australia Ltd [1983] 2 VR 298 referred to

Re Australian Consolidated Press Ltd (1994) 14 ACSR 639 referred to

Re HIH Casualty and General Insurance Ltd (2006) 57 ACSR 791 cited

Re Stork ICM Australia Pty (2007) 25 ACLC 208 cited

Royal Victorian Institute for the Blind Ltd v RBS.RVIB.VAF (2004) 206 ALR 581 cited

SGIC Insurance Ltd v Insurance Australia Ltd (2004) 51 ACSR 470 cited

Sovereign Life Assurance Co v Dodd [1892] 2 QB 573 referred to

UDL Argos Engineering & Heavy Industries Co Ltd v Li Oi Lin [2001] 3 HKLRD 634 referred to

PROFESSIONAL GOLFERS ASSOCIATION OF AUSTRALIA LIMITED

(ACN 002 829 058) AND PGA TOUR OF AUSTRALASIA LIMITED

(ACN 002 539 433) v NEW GOLF LIMITED (ACN 127 641 829)

NSD 1879 OF 2007

LINDGREN J

9 OCTOBER 2007

SYDNEY

THE COURT ORDERS THAT:

1.         The plaintiffs have leave to file in Court an Amended Originating Process joining New Golf Limited as defendant.

2.         Service on the defendant of the documents that have been filed in support of the present application be dispensed with.

3.         Pursuant to section 411(1) of the Corporations Act 2001, the First Plaintiff (PGA) convene a meeting of all holders of PGA memberships (PGA Members) for the purpose of considering and, if thought fit, agreeing (with or without modification) to a scheme of arrangement proposed to be made between PGA and PGA Members, the terms of which are contained in Appendix 3 of the Scheme Book which is Exhibit 1 in this proceeding (Scheme Book).

4.         Pursuant to section 411(1) of the Corporations Act 2001, the Second Plaintiff (PGA Tour) convene a meeting of all holders of PGA Tour memberships (PGA Tour Members) for the purpose of considering and, if thought fit, agreeing (with or without modification) to a scheme of arrangement proposed to be made between PGA Tour and PGA Tour Members, the terms of which are contained in Appendix 4 of the Scheme Book.

5.         The PGA Scheme Meeting be held at 12 noon (New South Wales time) on Monday, 26 November 2007 at St Michael’s Golf Club, Jennifer Street, Little Bay, New South Wales.

6.         The PGA Tour Scheme Meeting be held at 4.15 pm (Queensland time) on Tuesday, 4 December 2007 at Hyatt Regency Coolum, Warran Road, Coolum Beach, Sunshine Coast, Queensland.

7.         PGA Members who are recorded in the members register of PGA at 5.00 pm (Victorian time) on 22 November 2007 shall be eligible to vote at the PGA Scheme Meeting.

8.         PGA Tour Members who are recorded in the members register of PGA Tour at 5.00 pm on 29 November 2007 shall be eligible to vote at the PGA Tour Scheme Meeting.

9.         The Chairperson of the PGA Scheme Meeting be Geoffrey Scott and, in his absence, Richard Beer.

10.     The Chairperson of the PGA Tour Meeting be Peter Senior and, in his absence, Wayne Smith.

11.     The Chairperson of the PGA Scheme Meeting and the Chairperson of the PGA Tour Scheme Meeting each have the power to adjourn the relevant meeting in his absolute discretion.

12.     Except for procedural motions, all voting at each of the PGA and PGA Tour Scheme Meetings be by poll as declared by the Chairperson.

13.     The quorum for the PGA Scheme Meeting be 20 PGA members present in person or by proxy.

14.     The quorum for the PGA Tour Scheme Meeting be 20 PGA Tour members present in person or by proxy.

15.     Pursuant to section 411(1) of the Corporations Act 2001, the explanatory statement for the PGA and PGA Tour Schemes, a copy of each of which forms part of the documents comprising the Scheme Book, be approved for distribution to members of each of PGA and PGA Tour.

16.     Rule 2.15 of the Federal Court (Corporations) Rules 2000 shall not apply to either the PGA Scheme Meeting or the PGA Tour Scheme Meeting, except insofar as that rule applies Regulation 5.6.13 of the Corporations Regulations 2001.

17.     The proceeding be stood over to 13 December 2007 at 2:15 pm before Justice Lindgren for the hearing of any application to approve the PGA Scheme and PGA Tour Scheme.

18.     Liberty to restore on two days’ notice.

19.     These Orders to be entered forthwith.

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

REASONS FOR JUDGMENT

(first court hearing)

INTRODUCTION

1                     The plaintiffs (I will refer to them respectively as “PGA” and “PGA Tour”) have applied for orders under ss 411 and 413 of the Corporations Act 2001 (Cth)(the Act).

2                     PGA and PGA Tour are both golfing associations structured as not-for-profit companies limited by guarantee.  Two schemes of arrangement are proposed: one between PGA and its members (PGA Members), and the other between PGA Tour and its members (PGA Tour Members).  If implemented, the two schemes will effect a merger of PGA’s and PGA Tour’s respective activities, assets and liabilities to form those of a new not-for-profit company limited by guarantee, New Golf Limited (New PGA), which will have as its members the PGA Members and the PGA Tour Members.  PGA and PGA Tour will then be deregistered under s 413(1)(d) of the Act.

3                     Recent cases in this Court in which transfer orders under s 413 have been made in connection with the approval of compromises or arrangements under Pt 5.1 of the Act include Royal Victorian Institute for the Blind Ltd v RBS.RVIB.VAF (2004) 206 ALR 581;  SGIC Insurance Ltd v Insurance Australia Ltd (2004) 51 ACSR 470;  Re Stork ICM Australia Pty Ltd (2007) 25 ACLC 208 and In the Application of United Medical Protection [2007] FCA 631 (United Medical Protection).

4                     At the first court hearing (on 9 October 2007), the plaintiffs sought, and I made, an order under s 411(1) of the Act that PGA convene a meeting of the PGA Members for the purpose of considering and, if thought fit, agreeing (with or without modification) to the scheme of arrangement proposed to be made between PGA and the PGA Members (the PGA Scheme).  Similarly, PGA Tour sought, and I made, an order that PGA Tour convene a meeting of the PGA Tour Members for the purpose of considering, and if thought fit, agreeing (with or without modification) to the scheme of arrangement proposed to be made between PGA Tour and the PGA Tour Members (the PGA Tour Scheme).  These are the reasons why I made those orders.

5                     When the originating process was filed on 18 September 2007, New PGA had not been incorporated.  It was subsequently incorporated and I gave the plaintiffs leave to file in court at the hearing an amended originating process joining New PGA as defendant.  There was affidavit evidence that New PGA was aware of the present proceeding, did not wish to appear, and was content with any order that the Court might see fit to make under s 413 of the Act.  As well, the affidavit showed that New PGA’s Board of Directors had approved of the Scheme Book (see below).  In all the circumstances, I made an order dispensing with service on New PGA.

6                     As Mr MB Oakes SC, who appeared for the plaintiffs, submitted, the following propositions are now well accepted and I do not think it necessary to cite authorities or examples:

·                    the present schemes are properly cast as members’ schemes and not as creditors’ schemes, the position of creditors being relevant to the exercise of the Court’s discretion whether to grant approval;

·                    each of the present schemes is proposed for the purpose of an “amalgamation” for the purposes of s 413 of the Act; and

·                    it is appropriate that the two scheme companies be co-plaintiffs as distinct from each commencing a separate proceeding.

BACKGROUND FACTS

7                     Apparently PGA can trace its origins back to 1911 when a group of expatriate Scottish golf professionals formed a national Australian organisation to promote the game of golf and to help elevate the vocation of the golf professional in Australia.  Apparently this makes PGA through its antecedents the second oldest association of professional golfers in the world.

8                     PGA itself was incorporated in October 1984.  It is the peak national sporting association for professional golf in Australia.  Among other activities, PGA conducts a wide range of golfing events and tournaments.  As at 8 October 2007, PGA had 2,344 members.  They include club professionals, accredited golf coaches and tournament professionals.

9                     PGA has 44 staff, 29 of whom are based at its national office in Victoria and 15 of whom are spread across its state offices in Queensland, New South Wales and Western Australia.  The Victorian, Tasmanian and South Australian staff are “co-located” at the national office, while three national staff are “co-located” within the New South Wales state office in Sydney.

10                  Approximately 90 percent of PGA’s members work primarily at local golf facilities teaching, administering and promoting the game.  Only a small number play tournament golf for a living.

11                  In 1978 a “Tournament Players Division” of the PGA’s predecessor body was created for the purpose of recognising and identifying champion tour golfers in Australia and New Zealand.  In 1982, this Tournament Players Division formed a separate organisation for the specific purpose of promoting tournament golf.  That entity is now PGA Tour.

12                  PGA Tour is the official sanctioning body for elite men’s professional tournament golf in Australia and New Zealand, and is the regional representative on the International Federation of PGA Tours.  The PGA Tour Members total 178, of whom 155 are also members of PGA.

13                  PGA Tour promotes golf within Australia and New Zealand, attending specifically to the interests of tournament players.  The PGA Tour Members are predominantly tournament players who mostly play and are based overseas.

14                  PGA Tour has five staff, four in Sydney and one in Melbourne.

15                  On 26 June 2007, PGA and PGA Tour entered into a Merger Agreement by which they agreed, subject to the agreement of their respective memberships, to merge their activities into a new company, on the basis that their members would become members of the new company and that the assets and liabilities of the two companies would be transferred to the new company.

16                  The Merger Agreement provided (cl 10.2) that the obligation to implement the merger would be terminable if certain conditions should occur, such as that either the PGA Scheme meeting or the PGA Tour Scheme meeting should not agree to the merger by the required majority, or that the Court should not grant its approval.

17                  I need not discuss the reasons for the proposed merger.  They include streamlining of administration and the saving of administrative costs.

18                  Derek Maxwell Ryan, a Fellow of the Institute of Chartered Accountants in Australia, has given affidavit evidence that in his opinion the proposed Schemes are in the best interests of PGA Members and PGA Tour Members.  Mr Ryan and his co-director of DMR Corporate, Paul Lom, have provided a report giving reasons for that opinion.

19                  Although it is perhaps a matter for the second court hearing rather than the first, Messrs Ryan and Lom also express the opinion that the proposed scheme of arrangement will not prejudice the interests of creditors of PGA and PGA Tour.  As they explain in their report, as at 30 June 2007 both PGA and PGA Tour were solvent and were able to pay their debts as and when they fell due.  They explain that following a merger, New PGA would have, on the basis of figures as at 30 June 2007, a net cash surplus of $3,271,821.  That figure represents the total of the cash surpluses of PGA and PGA Tour.

20                  The draft Explanatory Statement referred to in s 411(2) and (3) of the Act takes the form of a Scheme Book.  I decided to approve of the draft so that it would become the Explanatory Statement referred to in s 411(1) of the Act, which is required by s 412(1)(a) of the Act to accompany notices of the meetings.  As is common in applications under s 411, the draft Explanatory Statement is a lengthy document with several lengthy appendices.

21                  I was satisfied that 14 days’ notice of the hearing had been given to the Australian Securities and Investments Commission (ASIC) and that ASIC had had a reasonable opportunity to do the things referred to in s 411(2)(b) of the Act.  There was before the Court on the hearing the “usual” letter from ASIC to the effect that it did not wish to be heard on the first hearing.

22                  There was also evidence of the willingness of certain individuals to fill the roles of chairperson and deputy chairperson of each of the PGA Scheme meeting and the PGA Tour Scheme meeting.

23                  The two proposed Schemes are interdependent, so that if one is not agreed to the other will not proceed either.

24                  By a Deed Poll, New PGA undertakes to “issue New PGA Memberships” to all the Participating PGA Members and Participating PGA Tour Members, and to accept the transfer of the assets and liabilities of PGA and PGA Tour.  New PGA acknowledges that the Deed Poll may be enforced by any PGA Member and any PGA Tour Member, even though the person is not a party to the Deed Poll.

QUORUM

25                  A question was raised as to the quorum for the meetings of the PGA Members and the PGA Tour Members. 

26                  It is important to note that s 411(1) of the Act speaks of a compromise or arrangement between a Pt 5.1 body on the one hand and, relevantly, its members on the other.  The decision on the company’s part to enter into the scheme is taken by its directors in the usual way.  When para (a)(ii) of s 411(4) speaks of the resolution in favour of the compromise or arrangement being passed by “a majority in number of the members … present and voting (either in person or by proxy)”, it is not referring to a resolution passed at a general meeting of the company, but to a resolution passed at a Court-ordered meeting of, relevantly, “the members” – those with whom the company proposes to enter into the scheme. 

27                  At a meeting convened under s 411 all members are entitled to vote, even if some of them would not be entitled to do so at a general meeting of a company.  Without more, the quorum for the meeting would be that required at common law for the meeting of the members of an unincorporated voluntary association of individuals – in the absence of a consensual arrangement to the contrary, all of the members: see, for example, Green v The Queen (1891) 17 VLR 329;  Municipality of St Leonards v Williams [1966] Tas SR 166;  and Ball v Pearsall (1987) 10 NSWLR 700.  Obviously, there is no question here of the members having consented to fewer members than all being the quorum for a scheme meeting.

28                  However, r 3.3(2) of the Federal Court (Corporations) Rules 2000 (the Rules) provides, in substance, that unless the Court otherwise orders, a meeting of members ordered under s 411 of the Act must be convened, held and conducted in accordance with, relevantly, the scheme company’s constitution.  In my view, a quorum requirement is a requirement for the holding and conduct of meetings.

29                  Article 54 of PGA’s constitution provides for a quorum of “twenty members” at meetings of the company, and art 9.1 of PGA Tour’s constitution provides for a quorum of “Twenty Members (excluding Non-Voting Members)” at meetings of the company. Both constitutions provide for some classes of members not to have the right to vote at general meetings.

30                  Should the Court make an order for a different quorum for the Scheme meetings?  The proposed merger will affect non-voting classes, as well as voting classes, of PGA Members and PGA Tour Members. 

31                  The Court’s power to make an order with respect to the holding and conduct of scheme meetings was considered by McLelland CJ in Eq in Re Australian Consolidated Press Ltd (1994) 14 ACSR 639.  His Honour stated (at 640):

The power of the court under s 411 is limited by the terms of that section, and the constitutional source of the power of any meeting convened under that section is the section itself, activated by the order of the court. Such a meeting is not a general meeting of the company, even if it happens that all the persons and the only persons entitled to attend it are the members of the company. It is a meeting which is convened for a specific statutory purpose and which is subject to provisions different from those to which a general meeting of the company convened under its articles of association is subject.  The court can, pursuant to s 1319 of the Corporations Law, give procedural directions in relation to such a meeting which may not correspond with the procedural requirements of a general meeting of the company convened under its articles of association.

32                  The statutory power to which his Honour referred is now found in s 1319 of the Act, which provides:

Where, under this Act, the Court orders a meeting to be convened, the Court may, subject to this Act, give such directions with respect to the convening, holding or conduct of the meeting, and such ancillary or consequential directions in relation to the meeting, as it thinks fit.

33                  I was of the view that the Court should, for the purpose of r 3.3(2) of the Rules, “otherwise order”. Accordingly, I ordered, having regard to the provisions in the articles in the two constitutions, that the quorum at the two Scheme meetings be simply 20 PGA Members present in person or by proxy, or 20 PGA Tour Members present in person or by proxy, as the case may be.

CLASSES

34                  A particular matter addressed in the Scheme Book, to which Mr Oakes drew my attention, is the question of classes of members.  PGA has 21 classes of members.  However, this statement does not adequately reflect the position.  For example, one class, “International Member”, comprises only two members, as does the class “Student Member”, whereas the class “Full Member” accounts for 1,446 of the total of 2,344 PGA Members.  There are several classes that have no members and several others are considered redundant and are no longer used.

35                  PGA Tour has six classes of members.  Of the total membership of 178 PGA Tour Members, 157 belong to the “Full Member” class.  The next largest class is that of “Life Member” which has only 11 members.  There are, in addition, six “Honorary Members”, four “Affiliate Members” and no “Restricted Members” or “Temporary Members”.

36                  New PGA will have, not 27 (21 + 6) classes of members, but only 12 classes of members.  The Scheme Book explains that it was considered preferable to simplify the classification of members rather than to continue the existing numerous classes.  The Scheme Book sets out (at cl 2.3(e)) the “Key Existing Rights/Obligations of Members” and the comparable position under the 12 classes of membership provided for in the constitution of New PGA.

37                  The Scheme Book also has a table (cl 10.2) which sets out the classes of membership in PGA and in PGA Tour with the comparable classes in New PGA.  For example, both an Associate Member and a Student Member of PGA will each become an Associate Member of New PGA, while an Overseas Member and a Temporary Member of PGA, together with a Temporary Member of PGA Tour, will each become a “Temporary Member – Tournament” of New PGA.

38                  An attempt has been made to ensure that each PGA Member and each PGA Tour Member will belong to a class of member in New PGA that will give rights as closely similar as possible to the person’s existing rights.

39                  Obviously, there are differences between the rights of PGA Members of the existing 21 classes and of PGA Tour Members of the existing six classes.  The extent of the minor changes in rights arising from the “transfer” to a particular class of membership of New PGA will not be identical as between the various existing classes.  Notwithstanding this, I did not think it necessary that there be separate meetings of the classes of members of PGA and of PGA Tour.  In summary, my reason was that the differences, as between the rights attached to the existing classes and as between anyone of those classes and the comparable class in New PGA, are not so great that it would be unfair to require that all members of all classes within the one company (PGA or PGA Tour) be bound by a decision taken by the required majority at a single meeting of all members of the company.

40                  This approach is in accordance with the authorities.

41                  In the leading authority on the question of classes, Sovereign Life Assurance Co v Dodd [1892] 2 QB 573, there was a question whether a life assurance company’s creditors, who were policy holders, should be required to consider a scheme in one meeting of all creditors or in two meetings:  one meeting of the holders of policies that had matured and the other of the holders of policies that were yet to mature.  In the former case but not the latter, the holder would have become absolutely entitled to be paid a specific amount.  The Court of Appeal agreed with the primary Judge that separate meetings should have been held.  Bowen LJ stated (at 583):

If we are to construe the section as it is suggested on behalf of the plaintiffs it ought to be construed, we should be holding that a class of policy-holders whose interests are uncertain may be a mere majority in value override the interests of those who have nothing to do with futurity, and whose rights have been already ascertained.  It is obvious that these two sets of interests are inconsistent, and that those whose policies are still current are deeply interested in sacrificing the interests of those whose policies have matured.  They are bound by no community of interest, and their claims are not capable of being ascertained by any common system of valuation.  Are we, then, justified in so construing the Act of Parliament as to include these persons in one class?  The word “class” is vague, and to find out what is meant by it we must look at the scope of the section, which is a section enabling the Court to order a meeting of a class of creditors to be called.  It seems plain that we must give such a meaning to the term “class” as will prevent the section being so worked as to result in confiscation and injustice, and that it must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest.  If that be so, in considering the deed of arrangement made with the company which took over the business of the Sovereign, we must so construe it as not to include in one class those whose policies had already ripened into debts, and those whose policies might not ripen into debts for years to come; for the position of a person like the defendant, who had an ascertained sum of 2000l. due to him from the company, was entirely different from that of those policy-holders whose future was entirely uncertain.  It was, therefore, not right to summon as members of one and the same class those who had an absolute bar against any claim of the company and those who had not.

42                  In Nordic Bank plc v International Harvester Australia Ltd [1983] 2 VR 298, the Full Court of the Supreme Court of Victoria said (at 301):

It is appropriate that creditors who share an interest via-à-vis the company which places them in a position distinct from that of other creditors and so dissimilar as to make it impossible to consult together with a view to their common interest should be allowed to make a separate decision.  To break creditors up into classes, however, will give each class an opportunity to veto the scheme, a process which undermines the basic approach of decision by a large majority, and one which should only be permitted if there are dissimilar interests related to the company and its scheme to be protected.

43                  In UDL Argos Engineering & Heavy Industries Co Ltd v Li Oi Lin [2001] 3 HKLRD 634, Lord Millett NPJ (with whom Li CJ, Bokhary, Chan and Ribeiro PJJ agreed) set out, inter alia, the following principles (at [27]):

(2)       Persons whose rights are so dissimilar that they cannot sensibly consult together with a view to their common interest must be given separate meetings.  Persons whose rights are sufficiently similar that they can consult together with a view to their common interest should be summoned to a single meeting.

(3)       The test is based on similarity or dissimilarity of legal rights against the company, not on similarity or dissimilarity of interests not derived from such legal rights.  The fact that individuals may hold divergent views based on their private interests not derived from their legal rights against the company is not a ground for calling separate meetings.

(4)       The question is whether the rights which are to be released or varied under the Scheme or the new rights which the Scheme gives in their place are so different that the Scheme must be treated as a compromise or arrangement with more than one class.

Barrett J quoted this and other passages from Lord Millett’s judgment with apparent approval in Re HIH Casualty and General Insurance Ltd (2006) 57 ACSR 791 at [69].

44                  Finally, in United Medical Protection [2007] FCA 631, Finkelstein J considered that while there might be different categories of membership of the medical defence organisations that were before him (both were companies limited by guarantee, whose members were medical practitioners) there was for each organisation but one “class” for the purposes of s 411 of the Act, because the categories of members were not “so dissimilar as to make it impossible for them to consult together with a view to  their common interest” (at [15]).

45                  It was my opinion that the different categories of members of PGA and PGA Tour have so much in common that it was not necessary or indeed appropriate that there be separate meetings of the various classes of them.  The differences between their rights pale into insignificance when compared with their community of interest in the question whether their association’s activities, assets and liabilities should be combined with those of the other association, and whether they should all become members of the new merged entity, in less numerous and simplified classes closely resembling, albeit not identical to, the existing classes.  It should not go unremarked that if separate meetings were held, it would be possible, for example, for any of the 27 classes, with only, say, two members, to veto the proposal, even though all of the 1,446 Full Members of PGA and all of the 157 Full Members of PGA Tour agreed to it.

46                  I did not think that separate class meetings were called for.

CONCLUSION

47                  For the above reasons I considered that the PGA Members and the PGA Tour Members should have the opportunity to consider the respective Schemes, and I made orders for the convening of the two Scheme meetings.

Associate:

Dated:         19October 2007