In the recent NSW Supreme Court decision concerning an application by Australian Co-operative Foods Ltd to consider the holding of a special postal ballot of members to vote on a members' scheme of arrangement, the Court held that it was entitled to hear from inactive members by way of a separate plebiscite when considering an order approving of the scheme. The fact that inactive members did not have voting rights under the Co-operatives Act (NSW) (the Act), did not affect any other entitlements which inactive members had under the Act. Nor did it preclude the Court from being informed of the level of support or opposition to the scheme by inactive members when making orders to approve of a members' scheme.

The scheme of arrangement, if approved by the Court, would have required all members to relinquish 75% of their shares in ACF for the issue of similar shares in a new supplier co-operative. The members would retain 25% shareholding in the restructured ACF, which would become a public company with the option of being listed on the Australian Stock Exchange within three years of the restructure of ACF.

In approving of a members scheme of arrangement, the Court held that it was required under the Act to consider the fairness of the scheme to members of the co-operative, including the inactive members. The Court further indicated that it had power under the Act to require a plebiscite of inactive members to be conducted and to take into account the results of the plebiscite when making its decision to approve of the scheme. However, the weight to be accorded to the results of the plebiscite would depend upon all the circumstances at the time of the Court's deliberation, with primary consideration being given to the vote of the active members.

The decision does raise some concerns about the effectiveness of the active membership provisions under the Act in preserving active member control. Moreover, it appears to have provided an avenue for inactive members to disrupt restructuring proposals, which are focused upon the economic needs of the active members. This is likely to be the case where the inactive members outnumber the active members and a substantial majority of the inactive members' vote against the proposal.

Clearly there is a need to have the legislation amended to preserve the active membership provisions to ensure that issues concerning the restructure of a co-operative lie in the hands of those members who use its services.

The Court decision can be read at http://www.austlii.edu.au/cgi-bin/disp.pl/au/cases/nsw/supreme%5fct/2001/382.rtf.