AGL Energy Services (Queensland) Pty Limited v AGL Energy Services Pty Limited

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website.

For the Reconstruction of AGL Energy Services (Queensland) Pty Limited AGL Energy Services (Queensland) Pty Limited The Member of AGL Energy Services (Queensland) Pty Limited

5 Scheme binds parties and steps to perfect title 4

Background A The ESQ Member is the sole member of the Scheme Company. B The shares held by the ESQ Member in the Scheme Company are valuable property of the ESQ Member.

C The Scheme Company proposes a compromise or arrangement with the ESQ Member for the purposes of or in connection with a scheme for the reconstruction or amalgamation of the Scheme Company and the Transferee Company (Reconstruction or Amalgamation) under which:

(a) (property) The Assets of the Scheme Company will be transferred to and vested in the Transferee Company without the need for any further act or deed.

(b) (liabilities) All Liabilities of the Scheme Company will be transferred to and become Liabilities of the Transferee Company without the need for any further act or deed.

(c) (legal proceedings) All legal proceedings pending by or against the Scheme Company will be continued by or against the Transferee Company without the need for any further act or deed, other than an amendment of the record of the relevant court or tribunal.

(d) (deregistration) The Scheme Company will be deregistered by ASIC without winding up. D The Reconstruction or Amalgamation will affect the rights which the ESQ Member has as against the Scheme Company as a shareholder and diminish the value of the ESQ Members' property represented by its shareholding in the Scheme Company, and the ESQ Member consents to the Reconstruction or Amalgamation and agrees to waive those rights as more fully described in clause 0.

1. Defined terms and interpretation 1.1 Definitions in the Dictionary A term or expression starting with a capital letter:

a) which is defined in the Dictionary in Schedule 1 (Dictionary), has the meaning given to it in the Dictionary; b) which is defined in the Corporations Act, but is not defined in the Dictionary, has the meaning given to it in the Corporations Act; and c) which is defined in the GST Law, but is not defined in the Dictionary or the Corporations Act, has the meaning given to it in the GST Law.

1.2 Interpretation The interpretation clause in Schedule 1 (Dictionary) sets out rules of interpretation for this deed.

2 Scheme Company 2.1 Corporate information The Scheme Company: a) is a proprietary company limited by shares; b) was registered in Queensland on 16 May 2003; and c) has its registered office at Level 22, 101 Miller Street, North Sydney NSW 2060. The Scheme Company is, by virtue of being a 'company' registered under the Corporations Act, also a Part 5.1 body within the meaning given to that term by section 9 of the Corporations Act. The Scheme Company is a member of the AGL Energy Group.

2.2 Principal activity The principal activity of the Scheme Company is to own and manage electricity co-generation facilities in Queensland.

2.3 Current issued capital The Scheme Company's current issued capital is as follows:

Class Number Ordinary shares of $1 each (fully paid) 5,796,100

None of the issued shares in the capital of the Scheme Company are quoted on the official list of the Australian Securities Exchange.

2.4 Current members The Scheme Company's sole member is the ESQ Member, namely AGL Sales Pty Limited (ABN 88 090 538 337).

2.5 Directors The Scheme Company directors are as follows:

Director Date of appointment Paul McWilliams 1 March 2007 Stephen Mikkelsen 1 March 2007

3 Transferee Company 3.1 Corporate information The Transferee Company: a) is a proprietary company limited by shares; b) was registered in New South Wales on 11 July 1996; and c) has its registered office at Level 22, 101 Miller Street, North Sydney NSW 2060. The Transferee Company is a member of the AGL Energy Group.

3.2 Principal activities The principal activities of the Transferee Company are: a) the development of landfill gas extraction systems; and b) the operation and management of electricity co-generation facilities.

3.3 Directors The Transferee Company directors are as follows:

Director Date of appointment Michael Fraser 17 September 1997 Stephen Mikkelsen 28 August 2006 Paul McWilliams 8 March 2007

4 The Scheme From the Implementation Time and by virtue of the order of the Court pursuant to sections 411(4)(b) and 413(1) of the Corporations Act each of the steps will occur in the order set out below:

a) (property) The Assets of the Scheme Company will be transferred to and vested in the Transferee Company without the need for any further act or deed. b) (liabilities) All Liabilities of the Scheme Company will be transferred to and become Liabilities of the Transferee Company without the need for any further act or deed. c) (legal proceedings) All legal proceedings pending by or against the Scheme Company will be continued by or against the Transferee Company without the need for any further act or deed, other than an amendment of the record of the relevant court or tribunal. d) (deregistration) The Scheme Company will be deregistered by ASIC without winding up.

5 Scheme binds parties and steps to perfect title 5.1 Scheme binds parties The Scheme will bind the Scheme Company and the ESQ Member. The ESQ Member approves the Scheme and consents to the Reconstruction or Amalgamation notwithstanding the diminution in the value of its shareholding in the Scheme Company and any rights that it may have in connection with the Reconstruction or Amalgamation at law (including pursuant to the Scheme Company's Constitution) and waives any rights it may otherwise have as against the Scheme Company in connection with the Reconstruction or Amalgamation.

5.2 Steps to perfect title As from the Implementation Time, and by virtue of the order of the Court, the Transferee Company and each of its directors may sign all documents and do all things required to be done by the Scheme Company to complete or perfect the transfer of the Assets and Liabilities of the Scheme Company.

6 Effective time and Implementation Time a) The Scheme will become effective immediately upon an office copy of an order made by the Court under section 411(4)(b) of the Corporations Act approving the Scheme being lodged with ASIC in accordance with section 411(10) of the Corporations Act. b) The Scheme will be implemented at midnight on 1 May 2010 (that is, immediately after 11:59pm on 30 April 2010) (or such other time or date as the Court determines) if before that time: i) the Court makes orders under sub‑sections 411(4) and 413(1) of the Corporations Act approving and giving effect to the Scheme; and ii) an office copy of those orders is lodged with ASIC. 7 General 7.1 Constitutions The Scheme will have effect notwithstanding any provision in the constitutions of any of the parties which may be inconsistent with the Scheme.

7.2 Amendment The Scheme Company may, by its counsel or solicitor, consent on behalf of all persons bound by the Scheme to any alterations or conditions to the Scheme that the Court imposes.

7.3 Governing law The Scheme is governed by the laws of New South Wales.

Schedule 1 - Dictionary 1 Dictionary Inthe Scheme, except where the context otherwise requires: AGL Energy Groupmeans AGL Energy Limited and each of its Subsidiaries. ASICmeans the Australian Securities and Investments Commission. Assets means real and personal property (including 'property' as defined within sub‑section 413(4) of the Corporations Act) and any interest in such property, wherever located, whether tangible or intangible, and extends to: a) any part of the business or undertaking of a body corporate; b) things in action, including rights under any contract or other arrangement; c) any permit or licence; and d) any other thing capable of being owned, transferred or otherwise dealt with. Business Daymeans a day on which trading banks are open for business in New South Wales. Corporations Actmeans the Corporations Act 2001 (Cth). Courtmeans the Federal Court of Australia. ESQ Member means AGL Sales Pty Limited ABN 88 090 538 337. Implementation Time means the time at which the Scheme is implemented in accordance with clause 6. Liabilitiesmeans all liabilities however arising and whether present, unascertained, immediate, future or contingent, including any 'liabilities' within the meaning in subsection 413(4) of the Corporations Act. Reconstruction or Amalgamation has the meaning given in paragraph A of the Background. Scheme means this scheme of arrangement as it applies to the Scheme Company, in its present form or as it may be modified or amended under clause 7.2. Scheme Companymeans AGL Energy Services (Queensland) Pty Limited ABN 80 104 759 471. Transferee Companymeans AGL Energy Services Pty Limited ABN 57 074 821 720. 2 Interpretation In the Scheme, headings and holdings are for convenience only and do not affect interpretation and, unless the context otherwise requires; a) (legislation) a reference to any legislation or legislative provision includes any statutory modification or re-enactment of, or legislative provision substituted for, and any subordinate legislation issued under any legislation or legislative provision; b) (singular and plural) the singular includes the plural and vice versa; c) (entity)a reference to an individual or person includes a corporation, partnership, joint venture, association, authority, trust, state or government and vice versa; d) (clause references) a reference to a recital, clause, schedule, annexure or exhibit is to a recital, clause, schedule, annexure or exhibit of or to this Scheme; e) (schedule) a schedule, annexure or a description of the parties forms part of this Scheme; f) (reference to other documents) a reference to any agreement or document is to that agreement or document (and, where applicable, any of its provisions) as amended, novated, supplemented or replaced from time to time; g) (parties) a reference to any party includes that party's executors, administrators, substitutes, successors and permitted assigns; g) (defined terms) where an expression is defined, another part of speech or grammatical form of that expression has a corresponding meaning; i) (includes) the word 'includes' in any form is not a word of limitation; j) (currency) a reference to '$' or 'dollars' is a reference to Australian currency; k) (time) a reference to time is a reference to that time in Sydney, New South Wales

AND: AGL ENERGY SERVICES PTY LTD (ACN 074 821 720)

REASONS FOR JUDGMENT 1 On 19 April 2010, the Court ordered that the plaintiff, AGL Energy Services (Queensland) Pty Limited (the Company), convene a meeting of its sole shareholder, AGL Sales Pty Limited (the Company Member) for the purpose of considering, and if thought fit, agreeing to a proposed scheme of arrangement between the Company and the Company Member. As I indicated on 14 April 2010 and on 19 April 2010, the object of the scheme is to enliven the operation of s 413 of the Corporations Act 2001 (Cth) (the Corporations Act), whereby there can be an amalgamation of the Company and the defendant, AGL Energy Services Pty Limited (the Transferee). 2 I am satisfied from the evidence before me that the meeting of the Company Member was convened and has been held in accordance with the orders that were made on 19 April 2010. At the meeting, the resolution was, unsurprisingly, passed by the Company Member, which attended the meeting by proxy. 3 On 14 April 2010, the Court ordered that the Company place an advertisement in The Australian newspaper in the form referred to in the order. The advertisement drew attention to the proposal of the Company to make this application for approval of a scheme between the Company and the Company Member, but more importantly, of the proposed application under s 413 of the Corporations Act for orders giving effect to the proposed amalgamation between the Company and the Transferee. When the matter was called for hearing today, there was no appearance except for the Company. 4 I am satisfied from the evidence, that the Transferee is aware of this proceeding and consents to any orders that may be made by the Court to give effect to the proposed amalgamation between the Company and the Transferee. As I indicated on a previous occasion, the requirement of the Corporations Act for an explanatory memorandum to be made available to the Company Member is somewhat otiose. Nevertheless, the requirements of the Corporations Act have been satisfied, and the explanatory memorandum was registered with the Australian Securities and Investments Commission (the Commission). The Commission has also written to the solicitors for the Company, indicating that the Commission has no objection to the scheme of arrangement between the Company and the Company Member. 5 In the circumstances, I am satisfied that the application for approval of the scheme between the Company and the Company Member should be approved pursuant to s 411(4) of the Corporations Act. It is also appropriate that the Company be exempted from compliance with the requirements of s 411(11) of the Corporations Act, requiring that copies of the scheme be annexed to any copy of the constitution of the Company. Since it is proposed that the Company be deregistered, there would be no point in compliance. 6 The issue before the Court today is not so much the approval of the scheme between the Company and the Company Member which, as I have said earlier, could be effected by a private arrangement between them. The effect of the scheme is for the Company Member to consent to the amalgamation of the Company and the Transferee, in circumstances where the effect of the amalgamation is to diminish significantly the value of the Company Member's shares in the Company. The Company now seeks orders, in addition to an order approving the scheme to which I have just referred, to give effect to the proposed amalgamation. 7 In the scheme between the Company and the Company Member, implementation time is defined as the time at which that scheme is implemented in accordance with clause 6 of the scheme. Under clause 6, the scheme will become effective immediately upon an office copy of an order made under s 411(4) approving the scheme being lodged with the Commission, in accordance with s 411(10) of the Corporations Act. The scheme will be implemented at midnight on 1 May 2010 following completion on 30 April 2010. 8 At the implementation time, three steps would occur in the following order: (a) all assets of the Company will be transferred to investors and the Transferee without the need for any further act or deed; (b) all liabilities of the Company will be transferred to and become liabilities of the Transferee without the need for any further act or deed; (c) all legal proceedings pending by or against the Company will be deemed to be continued by or against the Transferee without the need for any further act or deed, other than an amendment of the record of the relevant court or tribunal; and (d) the Company will be de-registered by the Commission without winding up. Those orders sought, apart from their effect on the Company Member, would also have the potential to affect the position of the creditors of the Company as well as the creditors of the Transferee. 9 As I have said, although the intention to make this application was advertised in a national newspaper, there has been no appearance on behalf of any creditor, either of the Company or of the Transferee, and no creditor has indicated to the solicitors for the Company any opposition to the making of the orders. As I indicated in my reasons of 14 April 2010, Ernst & Young Transaction Advisory Services Limited (Ernst & Young) prepared a report concerning the possible effect of the amalgamation on the creditors of the Company. I indicated in those reasons that, as at 31 December 2009, the net asset position or total equity position of the Company was some $26,728,000. The net assets or total equity position of the Transferee as at that date was some $10,078,000. Following the amalgamation, the net assets or total equity position of the Transferee will be $36,806,000. 10 Thus, while the notional position of the creditors of the Company is theoretically worse after the amalgamation, the position of the creditors of the Transferee is improved. I am satisfied that there is no prejudice to the creditors of the Transferee by reason of the amalgamation, and in their report Ernst & Young expressed the opinion that there will be no material detriment to the creditors of the Company. 11 The Company is a party to a number of contracts that may be regarded as material to its financial position. On an earlier occasion I indicated that investigations had been carried out and steps taken to ensure that the benefit of those material contracts is unlikely to be lost. There is nothing to suggest that the material contracts were entered in to otherwise than at arm's length. Accordingly, it would be expected that they would not be treated as assets of the Company, such that, even if the contracts were terminated, it would not make any difference to the net asset or total equity position of the Company insofar as that might affect the creditors of the Company or of the Transferee. 12 The Company has also asked for an order, in addition to orders having the effect to which I have already referred, providing that the Transferee or any director of the Transferee may sign any document or do anything required to be done by the Company to complete or perfect the amalgamation intended to be effected by the orders that I have already foreshadowed. In order to ensure that there is a mechanism for completing any transfer, it is desirable to make such an order (see Legrand Pty Ltd v HPM Industries Pty Ltd [2009] FCA 1239). 13 In all the circumstances to which I have referred today and on the earlier occasions, I am satisfied that there has been a scheme of arrangement proposed between the Company and the Company Member within the meaning of s 411, such that it is open to the Court to make orders under s 413 of the Corporations Act providing for the matters referred to in s 413(1). I consider, therefore, that it is appropriate to make the orders as sought by the Company both under s 411 and under s 413. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.