Australian Executor Trustees Ltd v Provident Capital Ltd [2012] FCA 1506 | Case summary

Judgment (5 paragraphs)

[1]

THE COURT ORDERS THAT:

Pursuant to section 283HB(1)(g) and section 424 of the Corporations Act 2001 (Cth) the defendant, by its receivers, Marcus William Ayres, Philip Patrick Carter and Anthony Milton Sims (the Receivers), would be justified in amending clause 11.5 of the Debenture Trust Deed dated 11 December 1998 (as amended from time to time) (the Deed) so that it reads as follows: (with the amendments underlined only for the purpose of identifying them in these orders): Notwithstanding clause 2.3, subject always to the rights of persons whose claims to payment are preferred by law, all money received by the Trustee or any receiver from the Company, as a consequence of enforcement of the Trustee's rights against the Company, must be applied in the following order: 11.5.1 first, in payment of the Trustee's remuneration and other expenses under this deed; 11.5.2 second, in payment of the receiver's remuneration and expenses; 11.5.3 third, in payment to the Trustee for the account of debenture holders in respect of interest accrued but unpaid on current debentures up to (and including) 3 July 2012; 11.5.4 fourth, in payment to the Trustee for the account of debenture holders in respect of the face value of current debentures; 11.5.4A fifth, when the face value of current debentures has been repaid in full, in or towards payment to the Trustee for the account of debenture holders in respect of interest accrued but unpaid on current debentures after 3 July 2012 (such interest to accrue after 3 July 2012 at a flat rate of 10% per annum on each current debenture on the daily balance of the face value remaining unpaid of that debenture despite any provision to the contrary in this deed or in the Terms of Issue of any debenture); and 11.5.5 sixth, when the amounts referred to in clause 11.5.4A have been paid in full, any balance to the Company. (the Amendment).

REASONS FOR JUDGMENT 1 On 12 November 2012, I made orders that enabled the receivers of Provident Capital Limited to amend the debenture trust deed so as to provide for a quorum at meetings of debenture holders and then to call a meeting of debenture holders to vote on a proposal to affect the way in which they would be repaid principal and interest having regard to the interposition of the receivership: Australian Executor Trustees Limited v Provident Capital Ltd (No 3) (2012) FCA 1253. 2 The receivers sent a notice dated 15 November 2012 convening a meeting of debenture holders on 13 December 2012 that was held simultaneously in Sydney, Melbourne, Brisbane, Adelaide and Perth. When the matter was listed today, it was called outside the Court and no person appeared in opposition to the orders sought by the receivers. 3 The notice sent to debenture holders informed them that the proceedings would be listed today for the Court either to make orders or deal with any opposition to the making of the application for those orders. That information was repeated during the course of a slide presentation made by the receivers at the meeting on 13 December 2012. 4 On 6 December 2012, the liquidator of Provident wrote to the receivers saying that he was concerned that, in the unlikely circumstances that debenture holders received full repayment of their principal, the then proposed resolution would entail they be paid interest at the rate of 10% per annum regardless of whether they were entitled to interest at that rate under the terms of the debentures as originally issued. The liquidator stated that he reserved his right to challenge that approach should the debenture holders receive full repayment of their principal claims. However no appearance this morning was made on behalf of the liquidators. Whether any such challenge would be possible once the order I propose to make under s 283HB(1)(g) is entered is a question I need not address. 5 Mr Ayres' affidavit of 14 December 2012 demonstrated that notice was given to all debenture holders at their last known addresses. Large numbers of proxies were submitted for the purposes of the poll. The proxies and ballot papers were coded so that the various potential classes of debenture holders discussed in Provident (No 3) [2012] FCA 1253 at [31]-[37] could be identified and their voting preferences collated. The debenture holders of 56% of the debentures on issue voted at the meeting in person or by proxy or attorney, and these comprised 66% of debentures on issue by value. In gross terms, the outcome of the resolution was that 96.4% of debenture holders by value, holding $79,831,586.35 worth of debentures, voted in favour of the resolution, 2.29% against and 1.31% abstained. The breakdown of the eight potentially identified classes indicated that at least 93.5% of debenture holders by value and 94.5% by number voted in favour of the resolutions in all potential classes. The following table summarises the percentages of voting outcomes in respect of each of the potential classes: Voting Outcomes by Percentage CATEGORY % FOR % AGAINST % ABSTAIN BY BY BY BY BY BY VALUE VOTES VALUE VOTES VALUE VOTES (a) Terms that expire after 1 September 2013 94.17% 95.54% 4.74% 3.16% 1.09% 1.31% (b) Interest rates above 8.4% 95.11% 95.30% 3.72% 3.27% 1.16% 1.44% (c) Interest rates above 8.4% and with terms that expire after 93.50% 94.97% 5.32% 3.64% 1.18% 1.38% 1 September 2013 (d) Interest on a periodic basis 97.76% 96.96% 1.62% 2.11% 0.62% 0.94% before 3 July 2012 (e) Terms that have expired 100.00% 100.00% 0.00% 0.00% 0.00% 0.00% (f) Terms that expire before 97.49% 96.22% 1.08% 1.94% 1.42% 1.84% 1 September 2013 (g) Interest at a rate below 8.4% 97.59% 96.56% 0.96% 1.59% 1.45% 1.84% (h) Interest on maturity 93.59% 94.54% 3.67% 2.68% 2.74% 2.77%

6 The Australian Security and Investments Commission has appeared again today in its capacity as an amicus curiae. The Commission's position is that it does not object to the orders sought by the receivers giving effect to the resolution. The Commission said that it is satisfied that there has been adequate disclosure made to the debenture holders and that, having regard to the convincing majority in favour of the proposal, the Commission would see no reason why the resolution passed at the meeting should not be given effect. 7 The slide presentation made at the meeting on 13 December 2012 updated Provident's financial position. The receivers noted that Provident was hopelessly insolvent and that the debentures were unlikely to be repaid in full. Indeed, the receivers said that the debentures were likely to realise only between 25% to 35% of the principal amount due as at 3 July 2012. Those circumstances reinforce the desirability of altering the payment waterfall provided for in cl 11.5 of the trust deed. 8 For these reasons, I make the orders in the form proposed by the receivers. The payment waterfall in cl 11.5 will be amended in the terms approved by the debenture holders at the meeting. I will also order that the receivers would be justified in acting on the amendment and in making payments to the debenture holders in accordance with its terms as and when funds are realised and in their judgment ought be made available for payment of claims by debenture holders. I certify that the preceding eight (8) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares.

Australian Executor Trustees Ltd v Provident Capital Ltd

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