Australian Court Allows CSR's Appeal Of Ruling Dismissing Demerger Plan

SYDNEY, Australia - (Mealey's) An Australian federal court on April 23 allowed an appeal by CSR Limited of a ruling that denied its application to submit a demerger plan to its shareholders for review, finding that the lower court justice's conclusion that the demerger would cause a reduction in capital and could leave CSR without the ability to pay asbestos-related claims did not warrant dismissal (CSR Limited, in the matter of CSR Limited, No. [2010] FCAFC 34, Australia Fed.).

On June 17, CSR announced that it would pursue a demerger of its sugar and renewable energy business.  As part of the demerger, CSR would create two companies known as Sucrogen Co., a renewable energy company in Australia and New Zealand, and CSR, a building products company.

CSR filed an originating application process on Oct. 8 in the Federal Court of Australia, seeking orders pursuant to Section 411(1) of the Corporations Act 2001 (Cth) for a meeting of its shareholders to review a scheme of arrangement and for the approval of an explanatory statement summarizing the scheme.  CSR submitted that if approved by the shareholders and the court, the demerger would be implemented by a capital reduction and the scheme of arrangement.

The reduction in capital prompted opposition from the Australian Securities and Investments Commission to the proposed scheme, and various objecting parties were given leave to intervene in the proceedings.  The objecting parties are James Hardie Industries NV and James Hardie 117 Pty Ltd., the Asbestos Injuries Compensation Fund Limited, AMACA Pty Ltd. and AMABA Pty Ltd. and the attorney general for the State of New South Wales.

On Feb. 3, Justice Margaret Stone dismissed CSR's application to have its shareholders review the demerger, finding that the proposed demerger would reduce the capital currently available to the company and could potentially leave CSR without enough funds to pay its asbestos liabilities.

CSR appealed Justice Stone's judgment to the Federal Court of Australia, Full Court.  The Full Court allowed CSR's appeal and set aside Justice Stone's order, finding that she erred in dismissing CSR's application.   The finding that a reduction in CSR's capital would reduce its ability to pay asbestos 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," the court said.\The Full Court said the possibility that the reduction in capital caused by the demerger could materially prejudice the new CSR's ability to pay asbestos claims did not warrant a finding that CSR's proposed scheme would not be approved.

[Editor's Note:  Full coverage will be in the May issue of Mealey's International Asbestos Liability Report. In the meantime, the judgment  is available at www.mealeysonline.com or by calling the Customer Support Department at 1-800-833-9844.  Document #64-100518-004X. For all of your legal news needs, please visit www.lexisnexis.com/mealeys.]

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For more information, call editor Lisa Schaeffer at 610-205-1132, or e-mail her at lisa.schaeffer@lexisnexis.com.