No.
6822
of
2001
- The plaintiff (Pinnacle) is a listed public company. The
defendant (Reliable) is a company registered in Delaware in the United
States
of America. On 22 January 2001, Reliable announced on the ASX that it
intended to make an off-market cash takeover bid for
all ordinary shares in
Pinnacle at no less than 55 cents per share conditional upon a minimum
acceptance of 51 per cent and upon
a number of other conditions.
- A Bidder's statement was lodged on 5 March 2001 and on 20 March
2001 Reliable made such a cash offer at 65 cents per share, the
offer to
expire at 7.30 p.m. on Tuesday 22 May 2001 unless withdrawn or extended. On or
about 14 May 2001, Reliable extended the
offer period until 7.30 p.m. on 10
July 2001. Reliable has since purported to extend the offer period again and it
is that extension
which is challenged by Pinnacle in this
proceeding.
- Pinnacle seeks by a proceeding commenced on 20 July 2001
declarations that Reliable's offer lapsed at 7.30 p.m. on 10 July 2001
and
that Reliable failed to comply with ss.650C and 650D of the Corporations Act
2001 when attempting to extend its offer. Reliable denies that its extension
of offer was invalid but, in the alternative, relies upon
ss.1322(4) and 1325D
of the Act and seeks an extension of time or to have any invalidity cured or
any contravention excused.
- On Friday 6 July 2001, Reliable lodged with ASIC a notice of
extension purporting to extend the offer period until 7.30 p.m. on
Tuesday 21
August 2001. Thereafter on the same day the notice was given to Pinnacle.
Notices were not dispatched to shareholders
before Tuesday 10 July 2001.
It cannot be disputed, on the evidence, that most of the notices were not
dispatched until after 7.30
p.m. on 10 July 2001 and some were not
dispatched prior to the following day, Wednesday 11 July 2001.
- It is thus clear that most of the notices to shareholders were
dispatched after the expiry of the offer period, that is to say after
the end
of the bid period (see s.9 of the Act for the definition of the "bid period").
On that basis the court is not concerned with the operation of s.659B of the
Act in relation to court proceedings before the end of the bid period unless,
in some way, Reliable has validly extended its
offer despite the late dispatch
of its notices. Of course if that were so, Pinnacle's proceeding would fail in
any event.
- Before considering some of the facts in a little more detail,
it is necessary to refer to the relevant provisions of the Act. The
parties did
not seek to contend that there were any problems arising from the transition
from the Law to the Act, while pointing
out that there were some limited
differences between the two pieces of legislation. All parties conveniently
treated the Act as the
source of all provisions now governing this current
dispute.
- Section 650A(1) of the Act provides that a bidder, "may only"
vary the offers under an off-market bid in accordance with s.650B, s.650C or
s.650D. Section 650C(1) of the Act empowers a bidder making an off-market
bid to extend the offer period at any time before the end of the offer
period.
- Section 650D provides:
"650D(1) Variation to be made by notice to the target and
holders. To vary offers under an off-market bid, the bidder must:
(a) prepare a notice that:
(i) sets out the terms of the proposed variation;
and
(ii) if the bid is subject to a defeating condition and the proposed variation
postpones for more than 1 month the time by which
the bidder must satisfy their
obligations under the bid - informs people about the right to withdraw
acceptances under section 650E; and
(b) lodge the notice with the ASIC; and
(c) after the notice is lodged, give the notice to:
(i) the target; and
(ii) everyone
to whom offers were made under the bid.
Note: Sections 648B and 648C provide for the manner in which documents may be
sent to holders.
650D(2) [Obligation to send notice] A person must be sent a copy of
the notice under subparagraph(1)(c)(ii) even if they have already accepted the
offer. However, they
need not be sent a copy if:
(a) the variation merely extends the offer period; and
(b) the bid is not subject to a defeating condition
at the time the notice is
given to the target.
650D(3) [Signatures required] A notice under subsection (1) must be
signed by:
(a) if the bidder is, or includes, an individual - the individual; and
(b) if
the bidder is, or includes, a body corporate with 2 or more directors -
not fewer than 2 of the directors who are authorised to sign
the notice by a
resolution passed at a directors' meeting; and
(c) if the bidder is, or includes, a body corporate that has only
one director
- that director.
650D(4) [Content of notice] A copy of a notice given to a person
under subparagraph (1)(c)(ii) must include a statement that:
(a) a copy of the notice was lodged
with ASIC on a specified date; and
(b) ASIC takes no responsibility for the contents of the notice."
- In my opinion the proper construction of these sections is that
they provide, subject to the Act, the sole method by which offers
under
off-market bids may be varied, including extensions of the offer period. I note
the use of the words in s.650A(1) "may only" and in s.650D(1) "the bidder
must".
- It follows that Reliable has failed to validly extend the
offer period beyond 10 July 2001 because, on any view, it failed to give
notice
to all shareholders or offerees before the end of the offer period as required
by ss.650C and 650D(1). However if the word "give" in s.650D(1)(c) means "send"
or "dispatch", the failure to comply with that section may be thought to be of
a lesser order than the failure to comply
if "give" means "serve" or "place in
the hands of the offerees" as Pinnacle contends. That is particularly so
because some of the
offerees have overseas addresses.
- In my opinion, contrary to Pinnacle's submission, there is no
non-compliance with ss.650C and 650D(1)(c) if the notices are served or
received, as opposed to dispatched or sent, after the end of the offer period.
In that regard
I would adopt what was said by Lee J in Diamond Rose NL v.
Striker Resources NL.[1] In my opinion the
construction urged by Pinnacle is impractical and commercially unrealistic and
would make variation of offers potentially
unmanageable. Despite the slight
change in terminology in the current provision, these consequences could not
have been intended
by the legislature.
- I also accept the submission of ASIC, which appeared by its
legal representative to argue this point only, that the construction
to be
preferred is that which promotes one purpose or object underlying these
provisions in the Act, which is that of commercial
certainty for participants
in financial markets. In addition, on a textual basis, I note that while the
word "give" is used in s.650D(1)(c), the word "sent" is used in relation to the
same notices to offerees by s.650D(2). It would seem that the verbs "give" and
"send" are being used interchangeably.
- I conclude therefore that the failure by Reliable was the
failure before the expiry of the offer period to send all of the notices
in the manner required by ss.648B and 648C of the Act (dealing with sending by
prepaid post -airmail for overseas, ordinary in Australia-- or by
courier). [2]
- The evidence is that Reliable used Computershare Investor
Services Pty Ltd to organise the mail-out and that Computershare in turn
used
Dynamic Direct Pty Ltd. There is some evidence that Dynamic's mail-out job
achieved the following results:
(a) 400 notices were posted, that is collected by Australia
Post, at 5 p.m. i.e. before the deadline;
(b) 1994 notices were posted, that is collected by Australia Post, at about
8 p.m., or in any event after the deadline of 7.30 p.m.;
(c) 116 notices were not posted on 10 July 2001, but the next day.
- At any rate, I am satisfied that all notices were posted by no
later than 11 July 2001, that is, no more than one day late.
- It was not contended that notices posted to offerees after
7.30 p.m. on 10 July 2001, in relation to a notice of variation initiated
on 6
July 2001, could be attacked on any basis other than the expiry of the offer
period at 7.30 p.m. on 10 July 2001.
- Pinnacle contended that Reliable's failure to effectively
extend the offer period could not be cured, validated or excused because
ss.1325D and 1322(4) of the Act were not available. Pinnacle submitted that the
words "may only" in s.650A(1) evinced an intention to exclude those provisions,
citing the constructional approach taken to s.459G of the law by the High Court
in David Grant & Co Pty Ltd v. Westpac Banking Corporation.[3]
- I do not accept that submission. The main factor in David
Grant was that the key section which granted jurisdiction to the court to
set aside statutory demands was itself expressly delimited because
the relevant
application could "only" be made within 21 days after service of the demand.[4] There were other features, too, based upon the
particular scheme established by Part 5.4 of the Corporations Law and its
context.
- To the contrary here, s.1325D(1) and (3) of the Act expressly
provide that the court may declare an act to be not invalid because a person
has contravened a provision
of, inter alia, Chapter 6, dealing with takeovers.
That shows a clear intent that Chapter 6 is not a self-contained regulatory
regime
as submitted by Pinnacle. I note that in s.9 of the former Law,
"contravene" was defined to include "fail to comply with" and, now, that
definition, although not contained in
the Act itself, is dealt with by
s.22(1)(j) of the Acts Interpretation Act 1901 which provides that "contravene
includes fail to comply with". I find no reason of policy why variations to
offers ought be excluded
from the operation of s.1325D(1) and (3) by reason of
the words "may only" in s.650A(1). If that is correct, there is no good
constructional
reason to exclude s.1322(4), either, from operating in relation
to variations of offers governed by s.650A(1) of the Act.
- I do not think that the use of the word "only" in s.650A(1)
should be taken to show an intent to exclude the court's broad powers
to
relieve against injustice to be found in ss.1322 and 1325D, as applied to the
time limit to be found in s.650C(1) of the Act.
Nor do I think that ss.650A and
650C fall within the reasoning applied by Young J in Re Infomedia Pty
Ltd.[5] In particular, I consider that
s.1322(4)(d) of the Act is available to extend the time limit contained in
s.650C(1) of the Act in
an appropriate case.
- Apart from the foregoing, Pinnacle did not suggest that there
was any other reason why ss.1322(4) and 1325D of the Act might not
be available
but submitted that, in all the circumstances of this case, those provisions
should not be utilised in favour of Reliable.
In that regard some additional
matters should be mentioned.
- Remarkably, there have been five applications to the
Corporations and Securities Panel in relation to Reliable's bid, one initiated
by Pinnacle and four by Reliable. It is unnecessary to detail the matters
considered and decided by the Panel, which are to some
extent canvassed in the
affidavits and the exhibits and which I have read, but it should be noted that
the Panel required Pinnacle
to call a shareholders' meeting to approve certain
transactions proposed to be entered into and that the timing of this meeting
and
material in relation to it to some extent affected the timing of Reliable's
decision to extend the offer period from 10 July 2001.
Another factor was
a modification granted by ASIC.
- However, I am satisfied that the failure to give all the
relevant notices to offerees prior to 7.30 p.m. on 10 July 2000 was
probably
mainly caused by the failure of Reliable's solicitors to expressly
instruct Computershare that all of the notices had to be posted
to meet a
deadline of 7.30 p.m. on 10 July 2001. The instruction given was to mail out on
that day but the solicitors assumed, without
expressly enquiring, that this
would ensure that the deadline was met. It is unnecessary to determine whether,
even with such an
instruction, some of the notices might not have been posted
in time or on that day and, if so, what was the cause of such delay.
Precisely
what happened in the mailing house is immaterial. Thus I consider that
Reliable's non-compliance was minor and unintentional.
The subsequent conduct
of Reliable's solicitors is in my view irrelevant.
- Pinnacle relied upon a number of matters in support of a
contention that no relief should be granted to Reliable including the time
and
trouble caused to Pinnacle by Reliable's bid, the costs involved in dealing
with Reliable's bid, including the various applications
to the Panel, and the
small number of acceptances of the bid to date (about four to five per cent).
While taking those matters into
account, it seems to me that the factors of
trouble time and cost are essentially historical and collateral to the present
question
and to some extent brought about by Pinnacle's own conduct in relation
to certain business transactions with associated parties.
The small number of
acceptances perhaps suggests that the bid is unlikely to succeed but it may be
that many shareholders are awaiting
the outcome of the meeting. A prime
consideration, it seems to me, is that the right of the shareholders to choose
should be maintained.
- I consider that, pursuant to s.1322(4)(d) of the Act and in
all the circumstances, the time for extending the offer period and for
giving
the notices by Reliable under ss.650C(1) and 650D(1)(c)(ii) of the Act should
be extended to midnight on 11 July 2001 on condition
that (1) Reliable
undertakes to pay to Pinnacle and ASIC their costs of this proceeding to be
taxed on a party-party basis including
reserved costs; (2) Reliable lodges with
the Prothonotary by 4 p.m. on Wednesday 1 August 2001 the sum of $30,000 as
security for
the aforesaid costs of Pinnacle and $2000 as security for the
aforesaid costs of ASIC. I make that order because of the absence of
any real
presence or assets of Reliable within Australia, so far as appears, and I also
note the failure of Reliable to pay costs
of $19,614 ordered on 1 May 2001 by
the Panel to be paid to Pinnacle. (I note Mr Strong's statement on behalf of
Reliable this morning
that the cheque is in the mail in relation to that latter
amount).
- I do not think that any substantial injustice has been or is
likely to be caused to Pinnacle or any other person by those orders.
- If the conditions are not met, Pinnacle is granted liberty to
apply for the declarations it seeks and any consequential relief,
and for an
order dismissing Reliable's interlocutory process.
---
[1] (1998) 85 FCR 76, 79-80.
[2] See the Note to s.650D(1).
[3] [1995] HCA 43; (1995) 184 CLR 265.
[4] David Grant,supra, at 276.
[5] [2000] NSWSC 649; (2000) 34 ACSR 682.
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