Armitage v Nurse

Judgment 1Reasons just published ( In the matter of Centro Properties Ltd and CPT Manager Ltd [2011] NSWSC 1171) concerned one aspect of a complex restructure proposal affecting the Centro Group. 2These reasons concern another aspect of the same overall plan. They are related to an application under s 63 of the Trustee Act 1925 by Centro MCS Manager Ltd for the opinion, advice or direction of the court on a question relevant to its participation in that complex restructure proposal. 3Centro MCS Manager Ltd (which I shall call "the applicant") is the "responsible entity" of the Centro Retail Trust ("CRT"), a managed investment scheme registered as such under the Corporations Act 2001 (Cth). Because of the operation of s 601FC(2) of that Act, the applicant is a "trustee" within the meaning of the Trustee Act. The jurisdiction created by s 63 is therefore available to the applicant: Re Mirvac Ltd [1999] NSWSC 457; (1999) 32 ACSR 107. 4Units of this managed investment scheme are "stapled" to shares in the capital of Centro Retail Ltd ("CRL") to form "stapled securities" each of which consists of one CRT unit and one CRL share. 5As outlined in the earlier reasons, the overall plan is directed towards aggregation in a single entity of assets of a number of Centro entities. Among the elements of the overall plan are a scheme of arrangement under Part 5.1 of the Corporations Act between CRL and its members and new provisions of the constitution of CRT adopted by the statutory mechanism for altering the constitution of a registered managed investment scheme. 6The aggregation process envisages the issue by the applicant of new CRT units to the responsible entities of two other registered managed investment schemes or their members at a fixed price. To that end, it is proposed that the constitution of CRT be altered to include a new provision as follows: "Units may be issued in such number at the Aggregation Issue Price, and to such persons, as is contemplated by the Steps Plan." 7It is also proposed to insert a definition of "Steps Plan' which cross-refers to an implementation agreement dealing with other aspects of the overall proposal. 8The proposed definition of "Aggregation Issue Price" is as follows: " Aggregation Issue Price of a Unit at any time on the Aggregation Implementation Date (in relation to an Aggregation Step which involves the issue of Units) is the amount determined in accordance with the following formula: AIP = NEV + IAA TUI___ Where: AIP means, in respect of a Unit, the Aggregation Issue Price of that Unit; NEV means at any time, the net equity value of the Assets of the Trust determined in accordance with Schedule 5 of the constitution (as certified by the Auditor or an Independent Adviser); IAA at any time, is the total of the adjustments to the NEV up to and including that time calculated in accordance with Schedule 5 of this Constitution (as certified by the Auditor or an Independent Adviser). For the removal of doubt IAA may be a negative number; and TUI means in relation to a proposal issue of Units on the Aggregation Implementation Date, the number of Units on issue at the point in time immediately prior to that issue of Units." 9The complexities of this definition need not be addressed. Its important feature, for present purposes, is that the main component of "Aggregation Issue Price", at a particular time, is "net equity value of the Assets of the Trust" at that time, determined in accordance with Schedule 5, a schedule which will itself be added to the constitution as part of the amendments under consideration. It is unnecessary to go into the complexities of the Schedule 5 valuation process. It is sufficient to note that the "net equity value of the Assets of the Trust" at a particular time reflects, in general terms, the then value of the trust assets. This, plus the fact that "Aggregation Issue Price" of a unit is the "net equity value" figure, adjusted in certain ways and divided by the number of units on issue immediately before the issue of new units pursuant to the new clause allowing issue at the "Aggregation Issue Price", means, in essence, that units issued under the new clause will be priced by direct reference to the value of the trust assets. 10This proposed new pricing basis contrasts sharply with the pricing basis permitted by the constitution as it stands. The general rule under the existing provisions is that, where existing units are, either alone or as part of a stapled security, listed for quotation on Australian Securities Exchange (as they now are), new units are to be issued at the "Market Price of the Units" or, if a unit is a component of a stapled security, at the "Market Price of Stapled Securities less the issue price of the Attached Securities". 11A number of definitions inject meaning into the quoted phrases but it is unnecessary to go to them. The underlying concepts is sufficiently clear from the words themselves: while a unit, either alone or as part of a stapled security, is traded on the stock market operated by ASX, it is the price established by activity on that market that sets the issue price for new units. 12The new provisions now proposed will sit side by side with the existing geared to market value. The new provisions will allow a single issue, for the purposes of the aggregation involved in the Centro restructure plan, which is at an issue price geared to the value of the fund assets rather then the market value of existing units; and issues, if any, after that single issue has been completed will again have to be at the price dictated by the market value of existing units. 13The question on which the applicant seeks judicial advice goes to the permissible methods of amending the constitution of CRT by adding the several provisions allowing the single issue of units at an assets value price for the purposes of the proposed aggregation. It is accepted that the matter of alteration of the constitution of the managed investment scheme is governed by s 601GC(1) of the Corporations Act: "The constitution of a registered scheme may be modified, or repealed and replaced with a new constitution: (a) by special resolution of the members of the scheme; or (b) by the responsible entity if the responsible entity reasonably considers the change will not adversely affect members' rights". 14The applicant asks the court whether it would be justified in acting unilaterally (that is, in the absence of a special resolution of the members of the scheme) to make the envisaged modification of the scheme's constitution - in other words, whether the power conferred by s 601GC(1)(b) is available to effect the modification in question or whether the proposal for modification must be put to members at a meeting for adoption by special resolution. 15Mr Santamaria QC, who appeared with Mr Zappia of counsel for the applicant, canvassed arguments both for and against and ultimately submitted that a positive answer should be given. Mr Izzo of counsel appeared for Australian Securities and Investments Commission ("ASIC") which had leave to assist the court as amicus curiae . Mr Izzo submitted that the question must be answered in the negative. 16Both counsel referred to my decision in ING Funds Management Ltd v ANZ Nominees Ltd [2009] NSWSC 243; (2009) 228 FLR 444 (" ING case") and that of Gordon J in Premium Income Fund Action Group Inc v Wellington Capital Ltd [2011] FCA 698 (" Premium case"). ASIC submitted that the reasoning in the latter case points clearly to the unavailability of s 601GC(1)(b) in the present case where a different pricing basis for the new units is proposed to be adopted. The applicant's position is that conclusion to that effect reached by Gordon J is not warranted by the terms of the statutory provision and that s 601GC(1)(b) is available. 17Both counsel agreed that the approach under s 601GC(1)(b) is as stated in the ING case (at [100] and [102]): "The task of a responsible entity under s 601GC(1)(b) ... is to assess members' rights as they exist before the modification and members' rights as they will exist after the modification and, if the rights afterwards are different from the rights beforehand, to decide whether the difference in the rights will be, from a member's perspective, unfavourable. To put this another way, the responsible entity must decide whether the change will remove, curtail or impair existing rights in a way that is disadvantageous to the persons whose holdings of units cause them to possess and enjoy the rights. No particular degree of affectation is contemplated by the legislation. Any adverse affectation at all, however slight, is sufficient to deny the responsible entity the modification power." "The s 601GC(1)(b) power is available to a responsible entity only if it 'reasonably considers' that the modification will not adversely affect members' rights. This form of words has the same meaning as 'considers on reasonable grounds' or 'believes on reasonable grounds'. The requirement is twofold: first, that the relevant belief or opinion be actually held by the responsible entity; and, second, that facts exist that are sufficient to induce the belief or opinion in a reasonable person." 18A threshold question is whether it is, in the abstract, possible to conclude that the proposed modification now under consideration would not "affect members' rights". Only if "members' rights" are affected does it become necessary for a responsible entity to address the question whether the effect on those rights will be "adverse" and to conclude on reasonable grounds that it will not. 19The question of adverse affectation of members' "rights" posed by s 601GC(1)(b) was said in the ING case (at [101]) not to be ". . . a general question whether members will be 'worse off' if the change is made (to use language found in the judgment of J D Phillips J in Eagle Star Trustees Ltd v Heine Management Ltd [(1990) 3 ACSR 232]. Nor is it a general question of prejudice or disadvantage. It is a specific question that goes wholly and exclusively to the much narrower matter of members' rights. Their interests are, as stated, another thing altogether. So is the value of their rights." 20The Premium case concerned the availability of s 601GC(1)(b) to effect a modification of the constitution by which the issue price of new units would be changed. The pre-existing position (laid down by clause 3.2 of the constitution) was stated by Gordon J as follows (at [35]): "For the first quarter of the PIF Scheme, the Issue Price would be $1.00 per Unit and thereafter $1.00 per Unit unless Wellington considered that the total value of all Scheme Property, divided by the number of issued Units ('Variable Price') was less than one dollar and Wellington was unable to access further funds under the MFS Support Mechanism to increase the total net value of Scheme Property, in which case the Issue Price of the Units would be the Variable Price. The Variable Price reflected the net asset backing of the Units at the time any further Units were to be issued." 21The effect of the amendment was described by her Honour as follows (at [39]): "No longer would Units be issued at $1.00 or the Variable Price but instead, relevantly: