CSR’s appeal allowed on demerger (asbestos liabilities)

CSR Limited, in the matter of CSR Limited [2010] FCAFC 34 (23 April 2010)

I refer to my earlier posting with respect to the demerger proposal of CSR and the concerns about payment of their asbestos liabilities.

The Full Court of the Federal Court has allowed CSR’s appeal to demerge.



As to the argument advanced on behalf of the James Hardie parties, the reports prepared by CSR’s actuaries purport to quantify the present value of CSR’s future long term exposure to asbestos claimants. There is nothing in these reports which suggests that any category of asbestos claimant has not been included in their actuarial assessment. There is, accordingly, force in CSR’s argument that the learned primary judge erred in treating the disclaimer in the Grant Samuel report as indicating that the assessments made on behalf of CSR did not include persons who have not yet contracted an asbestos related disease as a result of exposure for which CSR is responsible. On the other hand, this important question could have been resolved beyond the possibility of doubt by cross-examination of the relevant authors. That did not occur in the proceedings before the learned primary judge. To say this is in no way to level a criticism at her Honour: the case was conducted before her in accordance with the wishes of the applicant and the interveners. To say this is, however, to recognise that an application for the convening of the first meeting of shareholders under s 411(1) of the Act is not an ideal occasion to attempt to resolve such issues.


In Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485 at 504-505, speaking of s 411 of the Corporations Law which preceded the Act, Mason CJ, Brennan, Dawson, Toohey and Gaurdron JJ said:

It is certainly the case that “the court will not ordinarily summon a meeting unless the scheme is of such a nature and cast in such terms that, if it achieves the statutory majority at the … meeting the court would be likely to approve it on the hearing of a petition which is unopposed”. No doubt at the s 411(1) stage, when the Court decides whether it will grant leave to summon a meeting or meetings, the Court should be alive to the difficulties which may arise subsequently when it is called upon to decide whether the arrangement should be approved. But it is going too far to say that the grant of leave to summon meetings under s 411(1) necessarily amounts to a determination that the proposed arrangement is one which falls within the scope of the section. The application for leave to summon meetings is in the nature of an interlocutory proceeding and is a preliminary to the final determination which is to be made when the matter comes back to the Court for approval after the holding of the meetings which have been directed. (Footnotes omitted.)

See also Re Advance Bank Ltd (1996) 22 ACSR 513 at 519.


Reference may also be made to the observations of French J (as his Honour then was) in Re Foundation Healthcare Limited ((2002) [2002] FCA 742; 42 ACSR 252 at [36], [44]):

It is however important to bear in mind that, by granting leave to convene the meeting, the Court does not give its imprimatur to the proposed scheme. If the arrangement is one that seems fit for consideration by the meeting of members or creditors and is a commercial proposition likely to gain the Court’s approval if passed by the necessary majorities, then leave should be given: Re ACM Gold Ltd [1992] FCA 89; (1992) 34 FCR 530; 107 ALR 359; 7 ACSR 231; 10 ACLC 573 (O’Loughlin J). The court is not required to give close consideration to the effects of the scheme upon individual members of the classes of members or creditors affected. So to do would be to ‘introduce burdensome and to a large extent ineffectual consideration at this interlocutory stage’: Re Jax Marine Pty Ltd [1967] 1 NSWR 145 at 148 (Street J). The Court at the stage of ordering a meeting to approve a scheme does not ordinarily go very far into the question of whether the arrangement is one which warrants the approval of the Court. … That question is to be answered when the scheme returns to the Court for final approval. That is not to exclude the possibility that a scheme may appear on its face so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further. (Emphasis added.)



This Court should be circumspect in expressing its conclusions on matters which might be litigated either at the application for final approval of the scheme or in proceedings pursuant to s 1324 of the Act. It is sufficient, we think, for present purposes to say that:

(a) the consideration that the reduction in capital would increase the risk of non-payment of New CSR’s creditors in a theoretical rather than a material way is not a consideration which would warrant blocking the demerger as a matter of public policy or commercial morality by refusing to order the first meeting; and

(b) the prospect that the reduction in capital associated with the demerger of CSR may materially prejudice the ability of New CSR to pay all its creditors including asbestos claimants is not so clear as to warrant the conclusion that the scheme could never be approved and justify the order made below on this basis.

Brisbane Barrister – David Cormack

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