Opponents of the scheme can still bring legal action
A FULL bench of the Federal Court has upheld an appeal by CSR over its $3 billion plan to split into two companies but left open the prospect of further legal challenges to the demerger on asbestos compensation concerns.
Yesterday's decision means CSR can hold a shareholder vote on the demerger but could face another fight when its scheme of arrangement returns, as required under the Corporations Act, to the Federal Court for approval after the shareholder meeting.
The judgment also said CSR's opponents, who argue that the demerger poses unacceptable risk that there will be insufficient funds to compensate sufferers of asbestos diseases, could bring their own legal action to stop it.
CSR proposes creating a new company, to be called Sucrogen, to hold its sugar and renewable energy assets, leaving "New CSR" with the building products businesses and their associated asbestos liabilities.
Chief Justice Patrick Keane and Justice Peter Jacobson overturned Justice Margaret Stone's February decision to block the demerger on the grounds that Justice Stone had insufficient evidence on which to decide there was "a material rather than an abstract" increase in the risk that asbestos sufferers would not be paid.
In separate reasons also in CSR's favour, Justice Ray Finkelstein said it was inappropriate to refuse the scheme on "a merely theoretical fear of adverse consequences".
All three judges said the first stage of a scheme of arrangement, which involves applying to the court for an order convening a shareholder vote, was not an appropriate time for investigating whether the demerger was fair to asbestos claimants.
Their comments on the merits of the demerger were mixed.
Justices Keane and Jacobson said the expert evidence "does not contain any suggestion that one may reasonably predict that CSR will not be able to pay all its creditors, in the event of the demerger proceeding, even in scenarios of extraordinary stress".
But they also said Justice Stone had been "understandably concerned by the uncertainty attending the ability of New CSR to meet all CSR's asbestos-related liabilities".
They referred to CSR's rejection of the New South Wales government's suggestion that Sucrogen should guarantee New CSR's liabilities.
"It may be accepted that for Sucrogen to accept such a liability would be inconsistent with the commercial motivations for the demerger, but CSR's attitude does little to allay the concern that the risk of non-payment by New CSR is a material, as opposed to a merely theoretical, risk," they said.
Justice Finkelstein said: "On the material before the court, it appears that the company would be able to pay all creditors should the worst eventuate."
The demerger was opposed by the NSW government, the Asbestos Injuries Compensation Fund and James Hardie. The fund, which is funded by James Hardie and has a line of credit from the government, often shares liability for compensation with CSR.
Frequently Asked Questions about this Article…
What did the Federal Court decide about CSR's $3 billion demerger plan?
A full bench of the Federal Court upheld CSR's appeal, overturning a prior decision that blocked the demerger. The judgment allows CSR to proceed to a shareholder vote on the scheme, but left open the possibility of further legal challenges when the scheme returns to the Federal Court for final approval after that vote.
Can opponents still bring legal action to stop CSR's demerger over asbestos compensation concerns?
Yes. The court decision said opponents who argue the demerger could leave insufficient funds to compensate asbestos sufferers may still bring their own legal action to try to stop the scheme, particularly at the later Federal Court approval stage.
What is CSR proposing to do in the demerger and which businesses will be affected?
CSR proposes creating a new company called Sucrogen to hold its sugar and renewable energy assets. The remaining business, described as "New CSR," would retain the building products operations and their associated asbestos liabilities.
Why were asbestos compensation risks central to the legal dispute over the CSR demerger?
Opponents argued the demerger poses an unacceptable risk that New CSR might not have sufficient funds to pay asbestos claimants. The initial judge found concerns about a material increase in risk; the full bench disagreed that there was sufficient evidence at the first stage, but acknowledged uncertainty and left room for further challenge.
Which judges heard the appeal and what did they say about the merits of the demerger?
Chief Justice Patrick Keane and Justice Peter Jacobson overturned the earlier blocking decision, saying there was insufficient evidence at the first stage to show a material increase in non-payment risk. Justice Ray Finkelstein also found it inappropriate to refuse the scheme on merely theoretical fears. The judges' comments on the demerger's merits were mixed, noting some uncertainty about New CSR's ability to meet asbestos liabilities.
Who opposed CSR's demerger in court proceedings?
The demerger was opposed by the New South Wales government, the Asbestos Injuries Compensation Fund, and James Hardie. The Asbestos Injuries Compensation Fund is funded by James Hardie and has a government line of credit and often shares liability for compensation with CSR.
What are the next steps for CSR after the Federal Court's decision?
CSR can now convene a shareholder vote on the demerger as part of the scheme of arrangement process. After the shareholder meeting, the scheme must return to the Federal Court for approval under the Corporations Act, where opponents could raise further legal challenges.
Did the court say Sucrogen should guarantee New CSR's asbestos liabilities?
No. The judges noted CSR rejected a suggestion from the NSW government that Sucrogen guarantee New CSR's liabilities. They said requiring such a guarantee might be inconsistent with the commercial reasons for the demerger, but also observed that CSR's attitude does little to remove concerns that the risk of non-payment by New CSR could be material rather than merely theoretical.
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