"Commercial morality" as a legal concept: the full federal court decision in Re CSR Ltd

Floyd, Louise (2010) "Commercial morality" as a legal concept: the full federal court decision in Re CSR Ltd. Company and Securities Law Journal, 28 (6). pp. 411-415.

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[Extract] On 23 April 2010, in Re CSR Ltd (2010) 183 FCR 358 [PDF] ; [2010] FCAFC 34 the Full Court of the Federal Court of Australia overturned a decision of Stone J in which her Honour had dismissed an application by CSR Ltd for the convening of a meeting under s 411 of the Corporations Act 2001 (the Act) to consider a scheme of arrangement and corporate demerger. A condition precedent to the scheme was a capital reduction (s 256B of the Act). Essentially, Stone J was not satisfied that the scheme was consistent with "commercial morality". Her Honour was concerned that the result of the demerger and capital reduction may be "oppressive" and prejudice the ability of CSR Ltd to meet future asbestos claims (at [1]-[4]).

In overruling the determination of Stone J and ordering the meeting, the Full Federal Court analysed the factors that should inform what is "commercial morality" in the context of the scheme of arrangement. In particular, the court found that for the proposed capital reduction to offend "commercial morality", there should be a material rather than an abstract risk that creditors will not be paid as a result of the demerger (eg at [49]-[50] and [65]-[66]). To that end, there was a strong link, in the case, between ss 411 and 256B of the Act. The judgment is also significant because it takes an approach towards corporate demergers and schemes of arrangement that seeks to balance the corporation's commercial agenda with fairness to creditors (at especially [51]-[56]); and acknowledges that a scheme meeting may not be the appropriate place to deny parties an opportunity to deal with difficult issues. In terms of civil procedure, the judgment also highlights the difficulties involved in assessing asbestos liabilities for companies and it suggests that further cross-examination by counsel might have been useful in elucidating certain evidence.

Item ID: 17826
Item Type: Article (Short Note)
ISSN: 0729-2775
Keywords: company law; commercial law
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Date Deposited: 10 Oct 2011 04:08
FoR Codes: 18 LAW AND LEGAL STUDIES > 1801 Law > 180118 Labour Law @ 100%
SEO Codes: 94 LAW, POLITICS AND COMMUNITY SERVICES > 9405 Work and Institutional Development > 940599 Work and Institutional Development not elsewhere classified @ 100%
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