The Supreme Court of NSW has held that section 259A(c) of the Corporations Act 2001 (Cth) (Act) does not confer freestanding jurisdiction on courts to make orders permitting a company to sidestep the requirement to obtain shareholder approval for a selective share buy-back where there is no other specific legislative basis for such an order (such as in a scheme of arrangement or oppression proceedings).
In connection with settlement of an earlier dispute between the parties, Wollongong Coal Limited (WCL) (a listed company) and Bellpac Pty Ltd (recs and managers apptd)(in liq) (Bellpac) entered into a binding heads of agreement which required Bellpac, on receipt of $6.3 million from WCL, to return the 2,472,063,680 ordinary shares held by Bellpac in WCL (the WCL Shares) or to consent to the cancellation of the WCL Shares. A condition precedent to the settlement was that WCL obtained all “necessary approvals” to buy-back or cancel the WCL Shares.
Section 259A of the Act prohibits a company from acquiring shares in itself except where shares are bought back under Part 2J.1 of the Act (which allows for a selective share buy-back with approval by a special resolution of shareholders). However, section 259A(c) of the Act provides an exemption to the prohibition where the acquisition is “under a court order”. As WCL did not wish to obtain shareholder approval, it sought an order under section 259A(c) of the Act.
In holding that a court did not have a freestanding discretionary jurisdiction to dispense with the buy-back procedures (and holding that the decision in Australian Kunquian International Energy Co Pty Ltd  VSC 386 was incorrect), Black J in the Supreme Court of New South Wales reasoned that:
- a narrower reading of section 259A(c) allows it a sensible application to permit an acquisition where it takes place under a court order made otherwise than under section 259A(c) (such as under a scheme of arrangement or in oppression proceedings); and
- it seemed unlikely that the legislature would have intended to create a wide exemption to the detailed buy-back procedures in Pt 2J.1 of the Act which are directed to shareholder and creditor protection, particularly without identifying any criteria for the exercise of the court’s discretion in respect of Pt 2J.2 of the Act.