Success Story

 

DibbsBarker was asked to assist aleading consumer goods business to restructure its operations, resulting in its conversion from a co-operative to a corporation.

Key Requirements

The key requirements for the new corporate structure were:

Proposed Solution & Process

The solution proposed involved the conversion of the co–operative into a company registered under the Corporations Act 2001 (Cth). We had gone through a similar restructure forother clients and were familiar with the legislative procedures and key issues. In essence the restructure process involved:

We worked with our client to prepare a constitution that provided for two classes of shares. "A" class shares had both dividend and voting rights, and "B" class shares had only dividend rights. "A" class shares convert to "B" class shares only when the holder ceases to be an active member in a business, thereby enabling retired members who had previously supplied product to the business to retain their shareholding in the company and removing the requirement, on the part of the company, to repay capital.

In accordance with the Corporations Act, a detailed explanatory document was prepared and provided to members in connection with their approval of the restructure at a special postal ballot. Members were also provided with an independent expert’s report.

One unusual feature of the restructure process is a requirement to offer former members of the co-operative, who have had their membership cancelled under the ‘active membership’ requirements within the last 5 years, the right to take up a shareholding in the new company. Interestingly, ASIC characterised this as an offer of shares that requires a prospectus under section 706 of the Corporations Act. Accordingly, in preparing the explanatory document to members, we had to ensure that it complied with the relevant content requirements of chapter 6D of the Corporations Act as well as the Co-operatives Act so that it could be used as an offer document for former members. A due diligence review of the explanatory document was instigated as a check for compliance and to protect directors against potential liability.

Outcome

The approval of the members was successfully achieved. The legislative provisions provide that the co-operative and the company are the same entity, so our client was able to continue with its business without disruption or the need to transfer assets or contracts.

 

Following its registration, the company has embarked on a further business growth strategy. It once again proved itself to be an organisation that is able to combine a rich history with an ability to change in response to evolving business and corporate challenges.