Australian Securities Commission v Marlborough Gold Mines Ltd

Judgment 1Centro Properties Ltd ("CPL") and CPT Manager Ltd ("CPTRE") have on issue stapled securities each of which consists of a share in the capital of CPL and a unit of a registered managed investment scheme of which CPTRE is the responsible entity. The two companies together are designated "CNP". 2The stapled securities are listed for quotation on the stock market operated by Australian Securities Exchange Ltd ("ASX"). Holders of the stapled securities are referred to below as "equity holders". 3Each of CPL and CPTRE seeks orders of the court under s 411(4)(b) of the Corporations Act 2001 (Cth) approving schemes of arrangement between itself and classes of its creditors. The companies are jointly and severally liable to the creditors in question, being creditors designated "senior lenders" and creditors designated "hybrid lenders". Indeed, the way in which the two companies operate as issuers of stapled securities causes them to be jointly and severally liable for all debts and obligations incurred in the course of their operations.

Factual background 4There are, in relation to both companies, schemes in relation to senior lenders and schemes in relation to hybrid lenders. 5At meetings convened in accordance with orders of 5 October 2011 (see Re Centro Properties Ltd [2011] NSWSC 1171) and held on 22 November 2011, senior lenders and hybrid lenders agreed to the schemes. I shall say more about the outcome of the meetings presently. 6CNP's total indebtedness to the senior lenders exceeds $3.2 billion. Under the senior lender schemes, CNP's indebtedness to each senior lender (and security for it) will be released upon and in return for that lender's receiving a transfer of stapled securities that need not be described beyond referring to them as "Centro Retail Australia securities" and noting that they confer interests in an enlarged Centro group resulting from an aggregation of the assets of several pre-existing Centro entities. The schemes of arrangement form part of an overall plan and series of transactions referred to, for convenience, as "the aggregation". 7CNP does not currently hold the Centro Retail Australia securities thus to be transferred by it to the senior lenders. CNP will receive those securities, by allotment, as consideration for the transfer of virtually the whole of CNP's assets (excluding sums of $100 million and $70 million to be mentioned presently) to the entities by which the Centro Retail Australia stapled securities are to be issued. 8At a meeting held on 22 November 2011, CNP equity holders passed a resolution approving this transfer of assets by CNP to the Centro Retail Australia entities. CNP took the view, which was confirmed by ASX, that the transfer would contravene a provision of the ASX listing rules unless approved by resolution of the CNP equity holders. The provision in question is listing rule 11.2. That rule is concerned with a "significant change" to a listed entity's activities which "involves the entity disposing of its main undertaking". The rule says that the entity must, among other things, "get the approval of holders of its ordinary securities" by way of resolution passed at a meeting of the holders. 9The assets to be transferred by CNP to the issuers of the Centro Retail Australia stapled securities have a value roughly in the range of $2.7 billion to $3 billion. 10CNP's total indebtedness to hybrid lenders is about $1.1 billion. Under the hybrid lender schemes, each hybrid lender's debt (and security for it) will be released upon that lender's receiving the lender's proportionate share of $20 million. Many of the hybrid lenders are also senior lenders. A transaction under which some senior debt became hybrid debt was undertaken in 2009 (aspects of the 2009 transactions are referred to in J P Morgan Chase Bank NA v Australia and New Zealand Bank Ltd [2011] NSWSC 1359). 11CNP also has on issue certain convertible bonds. They are unsecured debt obligations with an aggregate face amount of somewhat more than $440 million. By virtue of amendments to the terms of the convertible bonds resulting from a resolution passed by holders of the bonds at a meeting held on 22 November 2011, all the bonds are to be redeemed by payment of $21,074,918 to those holders in proportion to their holdings (representing 5 cents in the dollar). 12Crystallisation of rights and obligations under each of the above transactions and arrangements (as well as implementation) depends on satisfaction of a number of conditions. The conditions now unsatisfied concern approval by the court of the schemes of arrangement and the grant of other relief in these and other concurrent proceedings. If those conditions are satisfied, a particular fund of money will be applied in satisfying the payments to be made to hybrid lenders and convertible bondholders. The fund amounts to $100 million and is referred to as the "Junior Stakeholder Amount". The amounts for hybrid lenders and convertible bondholders are, as already noted, $20 million and $21,074,918 respectively. 13After allowing for those two amounts, the residue of the $100 million Junior Stakeholder Amount will be $58,925,082. A sum of $48,925,082 will be applied out of that residue in making payments to the equity holders, that is, the holders of the stapled securities each of which consists of a share in the capital of Centro Properties Ltd and a unit of registered managed investment scheme of which CPT Manager Ltd is the responsible entity. There are some 26,000 such holders. The sum of $48,925,082 represents 5.03 cents per stapled security. 14Following the transfer of the vast bulk of CNP's assets (see paragraph [7] above) and application of the Junior Stakeholder Amount in the ways referred to in paragraphs [10] and [11] above, the remaining balance, being $10 million, will be effectively the sole asset of CNP and the sole resource available to meet the claims of CNP's "contingent creditors". These do not include established unsecured creditors. There is a separate fund of $70 million held back in the same way as the Junior Stakeholder Amount and earmarked to cover the claims of established unsecured creditors (with any ultimately unexpended balance passing to the senior lenders). The "contingent creditors" are, in concept, persons with claims not yet established. 15The directors of CNP have stated that, if the various transactions and arrangements are not completed, they will re-assess CNP's solvency and "in all likelihood appoint an external administrator, which would likely be followed by the CNP senior lenders appointing a receiver to CNP" (these are words attributed to the CNP directors in documents sent to senior lenders, hybrid lenders, holders of convertible bonds and equity holders for the purposes of the meetings of 22 November 2011). CNP does not have the capacity to pay in full the amounts that will become due to the senior lenders upon maturity of facilities on 15 December 2011; nor will it have, in the absence of the restructure, enough cash to fund interest, overheads and ongoing expenses beyond 15 December 2011. Much less does CNP have the capacity to pay secured debts ranking, in point of security, after the senior lenders' debts or, of course, unsecured obligations.

The outcome of the scheme meetings 16Each of the four schemes of arrangement (that is, the scheme between CPL and the senior lenders, the scheme between CPTRE and the senior lenders, the scheme between CPL and the hybrid lenders and the scheme between CPTRE and the hybrid lenders) was duly placed before a meeting of creditors convened and held in accordance with the orders of 5 October 2011. I need not give details of the voting results beyond saying that, in some cases, there was no dissent and that in all others such dissent as was registered was negligible. 17Each scheme was thus agreed to in the manner contemplated by s 411(4)(a)(i). In that and all other respects, procedural steps relevant to the grant of approval by the court under s 411(4)(b) were duly and properly taken so that, at the level of procedure and process, there is no obstacle to the grant of that approval.

The parties and the positions they take 18The parties to these proceedings are CPL and CPTRE (which, as I have said, are together referred to as "CNP") as plaintiffs and PricewaterhouseCoopers ("PwC") which, on its own application, was made a defendant. Mr Richard Kirby had leave to be heard in the proceedings without becoming a party, as did certain of the senior lenders. 19Mr F Gleeson SC and Mr J R Williams of counsel appeared for CPL and CPTRE upon the hearing of their application for approving orders under s 411(4)(b). Mr P D Crutchfield SC and Mr R M Foreman of counsel appeared for senior lenders and supported the submissions made by Mr Gleeson. Mr R G McHugh SC and Mr D F C Thomas of counsel appeared for PwC and made submissions against the grant of approval under s 411(4)(b). Mr W A D Edwards of counsel appeared for Mr Kirby and, while aligning himself somewhat with Mr McHugh's submissions, took an essentially neutral stance. 20Mr Kirby and PwC are, it is accepted, within the "contingent creditor" category to which the balance of $10 million referred to at paragraph [14] above is relevant. Mr Kirby is the representative of several class action claimants who have brought proceedings against CNP in the Federal Court of Australia for what might be described, in broad terms, as statutory misconduct in relation to the content of financial statements. They also sue PwC (which was Centro's auditor at the time); and PwC in turn cross- claims against CNP. 21The claims of both the class action claimants and PwC against CPL and CPTRE are claims for unliquidated damages which at this stage have not been litigated and are undetermined, it is for this reason that Mr Kirby and PwC are regarded as "contingent creditors".

The relevance of interests of persons not bound by the schemes 22PwC will not be bound by any of the schemes if and when the court approves them. It is not a senior lender; nor is it a hybrid lender. Approval of the schemes, if forthcoming, will not alter the rights of PwC. It is, however, an obviously interested bystander. 23Counsel for CNP accepted that it is appropriate for the court to take into account the position of PwC and the objections raised by it. Counsel referred to a passage in the judgment of Finkelstein J in Re CSR Ltd [2010] FCAFC 34; (2010) 77 ACSR 592. After referring to the need to consider whether the scheme is for the benefit of the class to be bound by it ( Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 213 at 248; Re English Scottish and Australian Chartered Bank [1893] 3 Ch 385; Re Dorman Long and Co Ltd [1934] 1 Ch 635), Finkelstein J said (at [81]): "The interests to be taken into account in considering the merits of a scheme are not, as these cases might suggest, confined to those of the "contracting" parties, that is, the members or creditors who are to be bound by the scheme. In Re National Bank Ltd [1966] 1 WLR 819, 829 Plowman J said that it is not only the interests of the class which is to be bound that must be considered but the court also must look to see if "some [other] blot is found in the scheme". In Re BAT Industries Pic (unreported, 1998 WL 1076712), Neuberger J (as the Master of the Rolls then was), said that it is open to the court to take into account the legitimate interests of third parties in relation to a proposed scheme even if not members of the company. In that case a scheme was propounded between one of the world's largest tobacco manufacturers and its members which had the potential, so it was said, of adversely affecting persons who had potential claims against the company of in aggregate amounts of several billions of dollars. Neuberger J said it was proper to take the interests of these potential claimants into account." 24In Re BAT Industries pic (unreported, EWHC Ch, 3 September 1998), the last of the cases mentioned by Finkelstein J, it was held by Neuberger J that the power of the court upon a hearing such as this is not fettered as to whom it can hear and what it must take into account. In particular, where the court has jurisdiction to grant or withhold approval of a particular scheme involving, in a direct sense, part only of a company's total constituency, it is appropriate to pay attention to the position of other parts of that constituency which might be adversely affected. 25Neuberger J quoted a principle stated in Mills v Northern Railway of Buenos Ayres Co (1870) LR 5 Ch App 621 and recorded in the headnote in these terms: "A simple contract creditor of a company cannot sustain a bill to restrain the company from dealing with their assets as they please, on the ground that they are diminishing the fund for payment of his debt." 26Denial of any such right of a creditor or contingent creditor to intervene directly in the conduct of a company's business does not mean, however, that a court charged with the duty of deciding whether to approve a particular compromise or arrangement must confine itself to impacts upon persons whose rights will be changed by the compromise or arrangement and ignore impacts upon others with a legitimate interest in the deployment of the company's assets.

Considering matters beyond the direct results of the schemes 27In the same way, the court's consideration is not confined to the direct results of the relevant schemes' operation. If a scheme is proposed and will take effect in a wider and inseparable context - particularly a contractual context - involving indirect consequences, it is appropriate for those consequences to be taken into account. In Re BAT Industries pic (above), Neuberger J put the matter thus: "To my mind the fact that the objectors object to a consequence of the scheme does not prevent them from being heard and does not, at any rate without more, prevent them from having their interests taken into account... there is no reason why the court should be required to take such a blinkered, narrow and uncommercial approach as to ignore the fact that the scheme which is sought to be sanctioned is the first and necessary stage of a larger process. It is fair to say that the observations of Harman J in Re MB Group pic are not really in point, as in that case it was the very scheme which breached the rights of the warrant holders, whereas in the present case (as I have mentioned) it is not the scheme, but what will happen following sanctioning of the scheme and its implementation if the court grants its sanction, which the objectors challenge."

The relevance of possible alternative schemes 28Another threshold question concerning the court's role should be addressed. Submissions made on behalf of PwC proceeded on the footing that CNP could have propounded other schemes not exhibiting the features of the present schemes considered objectionable by PwC; and that it is not sufficient to regard the status quo - that is, the position that will prevail in the absence of the schemes actually proposed - as the only alternative to those schemes. 29I accept the submission made on behalf of CNP that it is no part of the court's function, upon the hearing of a s 411(4)(b) application, to speculate what other compromises or arrangements might have been devised and to take into account the fact that the particular proposal was propounded rather than any of those others. 30The court's statutory jurisdiction arises only where a compromise or arrangement is "proposed between" a Part 5.1 body and its creditors or members (or a class of either), with the result that there is no warrant to consider any scheme that is not put forward by or acquiesced in by the Part 5.1 body: Re Savoy Hotel Ltd [1981] Ch 351. The court can only work on the basis that, if the particular scheme does not take effect, there will be no scheme and the situation will be one in which the rights and obligations that would have been affected by the scheme are not affected at all. 31That this is the correct approach is confirmed by observations of Santow J in Re NRMA Ltd [2000] NSWSC 82; (2000) 33 ACSR 595 at [29], French J in Re Foundation Healthcare Ltd [2002] FCA 742; (2002) 42 ACSR 252 at [44] and Jacobson J in Re Seven Network Ltd [2010] FCA 400; (2010) 77 ACSR 701 at [33]. In the first of the cases just mentioned, Santow J quoted a passage in the judgment of Hoffman J in Re London Life Association Ltd (unreported, EWHC Ch, 21 February 1989), a case arising under statutory provisions enabling the court to approve an amalgamation between life insurance companies. A somewhat longer passage drawn from that judgment might usefully be quoted in the present connection: "Although the statutory discretion is unfettered, it must be exercised according to principles which give due recognition to the commercial judgment entrusted by the company's constitution to its board. The court in my judgment is concerned in the first place with whether a policyholder, employee or other person would be 'adversely affected' by the scheme in the sense that it appears likely to leave him worse off than if there had been no scheme. It does not however follow that any scheme which leaves someone adversely affected must be rejected. For example, as we shall see, one scheme which might have [been] adopted in this case would have adversely affected many of London Life's employees because they would have been made redundant. But such a scheme might nevertheless have been confirmed by the court. In the end the question is whether the scheme as a whole is fair as between the interests of the different classes of person affected. But the court does not have to be satisfied that no better scheme could have been devised. A board might have a choice of several possible schemes, none of which, taken as a whole, could be regarded as unfair. Some policyholders might prefer one such scheme and some might think they would be better off with another. But the choice is in my judgment a matter for the board. Of course one might imagine an extreme case in which the choice made by the board was so irrational that a court could only conclude that it had been actuated by some improper motive and [that the board] had therefore abused its fiduciary powers. (Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821, 835). In such a case a member would be entitled to restrain the board from proceeding. But that would be an exercise of the court's ordinary jurisdiction to restrain breaches of fiduciary duty; not an exercise of the statutory jurisdiction under section 49 of the Insurance Companies Act 1982."

The approach the court should take 32The matters discussed at paragraphs [22] to [31] above may, I think, be summarised by saying that the court, in deciding whether to grant approval under s 411(4)(b), will properly take into account not only the direct effects of the schemes upon the persons who will be bound by them but also consequential effects upon other persons having an interest in the broader context in which the schemes will operate, but with the effects, both direct and consequential, being judged by comparing circumstances as they will exist if the schemes take effect (and, therefore, pre-ordained steps dependent on approval of the schemes are taken) with circumstances as they will exist if the schemes do not take effect (and pre-ordained steps dependent on approval are not taken) and leaving out of consideration questions of what the position would, could or might have been if some different scheme had taken effect. 33There is no exhaustive statement of the matters as to which the court must be satisfied before granting approval under s 411(4)(b). Indeed, courts have been reluctant to attempt any comprehensive or compendious statement of relevant criteria. I refer to the judgment of MacFarlan J in Re A W Allen Ltd [1930] VLR 251: "In my opinion nothing can be more dangerous than to attempt to determine the conferring or withholding of the Court's sanction by the application of any formula ... The authorities relied on are all useful as directing the attention of the Court which is asked for sanction to considerations which have occurred to, or have been brought to the minds of, other judges and which they have properly held to be of importance. Considerations which are of the greatest weight in one class of case may be... outweighed by circumstances not present in the former. If the Legislature had desired to say that the Court should sanction an arrangement if the necessary majorities were obtained and the conditions of reasonableness and absence of oppression (or any others definable in advance) existed, it would have been easy to say so. It has chosen not to do so." 34It is nevertheless clear that the court must form a favourable view as to the reasonableness of the compromise or arrangement. This was established in Re Alabama, New Orleans, Texas and Pacific Junction Railway Co (above). Fry LJ said in that case at 247: "Under what circumstances is the Court to sanction a resolution which has been passed approving of a compromise of arrangement? 1 shall not attempt to define what elements may enter into the consideration of the Court beyond this, that I do not doubt for a moment that the Court is bound to ascertain that all the conditions required by the statute have been complied with; it is bound to be satisfied that the proposition was made in good faith, and, further, it must be satisfied that the proposal was at least so fair and reasonable, as that an intelligent and honest man, who is a member of that class, and acting alone in respect of his interest as such a member, might approve of it. What other circumstances the Court may take into consideration I will not attempt to forecast. 35Lindley LJ said (at 238-9): "... what the Court has to do is to see, first of all, that the provisions of that statute have been complied with; and, secondly, that the majority has been acting bona fide. The Court also has to see that the minority is not being overridden by a majority having interest of its own clashing with those of the minority whom they seek to coerce. Further than that, the Court has to look at the scheme and see whether it is one as to which persons acting honestly, and viewing the scheme laid before them in the interests of those whom they represent, take a view which can be reasonably taken by business men. The Court must look at the scheme, and see whether the Act has been complied with, whether the majority are acting bona fide, and whether they are coercing the minority in order to promote interests adverse to those of the class whom they purport to represent; and then see whether the scheme is a reasonable one or whether there is any reasonable objection to it, or such an objection to it as that any reasonable man might say that he could not approve of it. 36Bowen LJ said (at 243): "I do not think myself that the point of jurisdiction is worth discussing at much length, because everybody will agree that a compromise or agreement which has to be sanctioned by the Court must be reasonable, and that no arrangement or compromise can be said to be reasonable in which you can get nothing and give up everything. A reasonable compromise must be a compromise which can, by reasonable people conversant with the subject, be regarded as beneficial to those on both sides who are making it. 37These observations have been accepted for over a century by courts exercising this jurisdiction. A modern expression of the relevant principle will be found in the judgment of R D Nicholson J in Re Challenge Bank Ltd (1995) 19 ACSR 421 at 422: "... the court is required to consider and to be satisfied whether the proposals in the schemes are at least fair and reasonable from the viewpoint of an intelligent and honest person, that is a person who might approve of it.

Illegality and public policy 38PwC relies on the general principle that the court should not approve a scheme if it involves some statutory contravention or other illegality. In Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485, the High Court held that s 411 provides no authority for approving an arrangement containing a provision which is inconsistent with the express or implied provisions of the corporations legislation. The court quoted with apparent approval an observation of Smith J in Re International Harvester Co of Australia Pty Ltd [1953] VLR 669: "But however widely the language of s 153 may be construed, it cannot, of course, operate to enable a company to escape from compliance with those provisions of the Act which, either expressly or by implication, lay down a special and exclusive procedure for effecting certain kinds of alterations to the memorandum." 39Citing Re Australian Mutual Investment & Building Co Ltd (1899) 9 BC (NSW) 62 and Re Northumberland Insurance Co Ltd (No 3) (1977) 3 ACLR 15, Young J said in Re Theatre Freeholds Ltd (1996) 20 ACSR 729: "No scheme of arrangement can be confirmed unless the scheme is lawful." 40These principles may be accepted, not only as relating to the scheme itself and its immediate operation and effect but also as extending to any necessarily connected or incidental steps - aspects of a wider and inseparable context in which the scheme is proposed and will take effect. 41PwC also relies on considerations of "public policy" and "commercial morality". In relation to that, it is necessary to bear in mind other observations of Finkelstein J, as a member of the Full Federal Court, in Re CSR Ltd (above) at [82] - [84]; "82 There has crept into Australian jurisprudence the view that a court will not confirm a scheme if it is contrary to "public policy" or is not consistent with "commercial morality". A consideration of what is contrary to "public policy" cannot extend beyond considering the interests of members, creditors and persons who in the future might deal with the scheme company or invest in its shares. Their interests are, however, adequately protected by an inquiry whether the scheme is fair or reasonable. So, considerations of public policy seem to add nothing to existing principles. 83 The concept of commercial morality was raised in a scheme case in Re Mascot Home Furnishings Pty Ltd (in liquidation) [1970] VR 593. Two companies were in liquidation. Schemes of arrangement were proposed the effect of which were that for a pecuniary consideration the creditors of the companies would assign their debts and the members would transfer their shares to a third party. The third party would then be able to divert part of its income to each so-called "loss company", thereby reducing the incidence of income tax on that income. The objective was not illegal. Gillard J refused to approve the schemes. He did so because the schemes were not conducive to commercial morality nor in the interest of the public at large. Other judges soon followed suit. 84 There is a real problem with "commercial morality" being applied to discretionary decision-making. It suggests the existence of a fixed set of standards by which the community assesses conduct to be legitimate or acceptable. Putting to one side the obvious difficulty which confronts a judge in attempting to discover what are the relevant community standards, the fact is that many so-called standards, when they exist, are not fixed. They are constantly changing." 42The other members of the court (Keane CJ and Jacobson J) did not join in these strong reservations about the relevance (or, rather, irrelevance) of "public policy" and "commercial morality" as criteria to be applied by the court when deciding whether to approve a scheme. They were content to adopt a description of the court's role found in the judgment of Emmett J in Re Centrol Pacific Minerals NL [2002] FCA 33 at [35]-[36] in the course of which "questions of public policy as well as commercial morality" were said to be matters to be taken into account. 43There is nevertheless force in the observations of Finkelstein J. "Public policy" is "a very unruly horse and once you get astride it you never know where it will carry you" (Richardson v Mellish (1824) 2 Bing 229 at 252; 130 ER 294 at 303 per Burrough J); while "commercial morality" is often no more than a label used to describe the basis for a discretionary decision founded on particular objective criteria: see, for example, Re Charterarm Investments Pty Ltd [2011] VSC 577 where "commercial morality" terminology was employed in deciding not to terminate a winding up that would have left the company in the hands of a sole director who had been shown to be habitually inattentive to his duties and responsibilities. 44The majority in Re CSR Ltd recognised that a real risk of inability to pay debts, if produced by a scheme, could found a valid "public policy" objection. Here too, it seems to me, that "public policy" is in the nature of a label attached to some independently existing ground for adverse exercise of discretion.

The objections raised by PwC 45The objections raised by PwC may now be addressed. They are all directed at the aspect of the overall aggregation plan that sees $48,925,082 of the Junior Stakeholder Amount paid to the equity holders. The central thesis, briefly stated, is that the $48,925,082 should be preserved for contingent creditors and that equity holders should receive nothing. Refusal of approval under s 411(4)(b) will, it is said, secure that result since, having regard to the terms of the schemes and of the various contracts in the context of which they have been developed and proposed, money will not flow (and, in particular, the Junior Stakeholder Amount will not be deployed) unless and until the schemes are approved. 46The contentions of PwC in relation to part of the Junior Stakeholder Amount proposed to be paid to the equity holders are, in substance, as follows:

1. Payment of the $48,925,082 to the equity holders entails an application of "scheme property" of the managed investment scheme of which CPTRE is the responsible entity that entails (a) breach of trust; and (b) contravention of the Corporations Act .
2. Payment of the $48,925,082 to the equity holders is contrary to public policy because it is inconsistent with (a) the policy underpinning the capital reduction provisions applicable to companies; and (b) the order of priorities that would prevail in the winding up of a company.
3. Payment of the $48,925,082 to equity holders will be the effectuation of a purpose of directors which is impermissible because it fails to accord to the interests of creditors the predominant consideration that they deserve in circumstances of insolvency or impending insolvency.

The source of the Junior Stakeholder Amount 47Central to PwC's case in relation to these matters at items 1, 2 and 3 above is the contention that the whole of not only the Junior Stakeholder Amount of $100 million but also the amount of $70 million earmarked for unsecured creditors (see paragraph [14] above) had its origins in money received by CPTRE, as distinct from CPL. 48The following steps are identified:

1. In June 2011, entities in which CNP had an indirect interest received some US$1.38 billion from the sale of certain real estate assets in the United States.
2. In September 2011, CPTRE received trust distributions from three distinct sources. The amounts were $121,979,787, $27,054,591 and $42,602,532. The distributions represented part of the proceeds of the sales of United States assets.
3. The immediate recipient of the distributions was a company called Centro (CPL) Ltd. it received the funds on behalf of CPTRE and later transferred $170 million of the received funds to Australia and New Zealand Banking Group Ltd ("ANZ") as "escrow agent" under an escrow deed the parties to which were CPL and CPTRE (together referred to therein as "CPL") and ANZ. The $170 million was referred to in the escrow deed as the "Escrow Amount".
4. The balance of the receipts of September 2011, together with certain other like receipts, was paid to the Senior Agent in compliance with clause 7.4(a) of the Senior Facilities Continuation Agreement. That clause required most receipts obtained by CNP to be paid to the Senior Agent by way of reduction of indebtedness to the senior lenders.
5. There was an exception for the $170 million. The transfer of that sum to the escrow agent was in accordance with a provision of the Escrow Deed dealing with "amounts that would otherwise have been payable by CNP to the Senior Agent under the SFCA" (Senior Facilities Continuation Agreement).
6. The $170 million was thus money retained by CPTRE out of the proceeds derived by it in consequence of the sale of United States assets. While the bulk of those proceeds went to the senior lenders in reduction of indebtedness to them, they were content for the $170 million to be retained by CPTRE on the terms on which it was retained, that is, deposit into the escrow account to be held as the "escrow amount" in accordance with the escrow deed.
7. Senior lenders who became party to a Junior Stakeholder Allowance Agreement consented to the agent for the senior lenders "retaining moneys received from the Finance Parties [ie, Centro parties] up to an aggregate amount equal to the Escrow Amount". There was a forbearance by senior lenders to take those moneys in reduction of their debts. They allowed the moneys to be subjected to the escrow arrangement.
8. Under the escrow deed, the escrow amount is held by the escrow agent "on behalf of CNP" and remains subject to the so-called headstock charges, being the charges held by the senior lenders as security of the indebtedness of CPL and CPTRE.
9. The headstock charges are, for relevant purposes, floating charges. No action has been taken by the chargees to convert the charges into fixed charges or otherwise to exercise secured creditor remedies in respect of the escrow amount.
10. The escrow deed provides for part of the escrow amount - being the Junior Stakeholder Amount - to be released by the escrow agent "to CNP to be held on trust to be applied in accordance with clause 12.3 of the implementation agreement", that is, the implementation agreement in relation to the schemes of arrangement. This release, however, can only occur on implementation of the schemes of arrangement and the other transactions making up the aggregation.
11. Clause 12.3 of the implementation agreement in its original form was cast as an acknowledgment of the signing senior lenders. They acknowledged a proposal of CNP that, subject to satisfaction of the various conditions necessary to allow aggregation to occur, the Junior Stakeholder Amount should be applied in the way to which I have referred. The senior lenders further acknowledged that they have no objection to that application.
12. The implementation agreement was modified on 17 November 2011. The following provision was added to clause 12.3: "For the avoidance of doubt, nothing in this clause 12.3 permits CNP to vary downward, and CNP will not vary downward, an allocation which CNP has disclosed in meeting documentation issued to a category of CNP Junior Stakeholders, in connection with obtaining the relevant CNP Junior Stakeholder Approval, as the portion of the Junior Stakeholder Amount the CNP Board has determined will be allocated to that category of CNP Junior Stakeholders." 49The foregoing analysis is propounded by PwC. Except in one respect, counsel for CNP did not question it. It is accepted that the funds represented by the escrow account, having been received by CPTRE in fulfilment of entitlements of CPTRE in consequence of the sale of United States assets, have remained throughout the property of CPTRE and, when the Junior Stakeholder Amount is released from the escrow account "to CNP to be held on trust to be applied in accordance with clause 12.3 of the implementation agreement", it will be CPTRE that comes to hold the Junior Stakeholder Amount. 50The difference between the position taken by PwC and the position taken by CNP comes at the point immediately after release from the escrow account "to CNP to be held on trust to be applied in accordance with clause 12.3 of the implementation agreement". PwC contends that the money in the escrow account has always been "scheme property" of the managed investment scheme of which CPTRE is the responsible entity and that the Junior Stakeholder Amount, when released, will continue to be "scheme property". CNP's position is that, after release, the Junior Stakeholder Amount will no longer be "scheme property". 51The definition of "scheme property" in s 9 of the Corporations Act is as follows: "scheme property" of a registered scheme means: (a) contributions of money or money's worth to the scheme; and (b) money that forms part of the scheme property under provisions of this Act or the ASIC Act; and (c) money borrowed or raised by the responsible entity for the purposes of the scheme; and (d) property acquired, directly or indirectly, with, or with the proceeds of, contributions or money referred to in paragraph (a), (b) or (c); and (e) income and property derived, directly or indirectly, from contributions, money or property referred to in paragraph (a),(b),(c)or(d). Note 1: Paragraph (a)-if what a member contributes to a scheme is rights over property, the rights in the property that the member retains do not form part of the scheme property. Note 2: For provisions that are relevant to paragraph (b), see subsections 177(4), 1317HA(1A), 1317HB(3) and 1317HD(3) of this Act and subsection 93A(5) of the ASIC Act." 52There is, as I have said, no dispute that the money in the escrow account will be "scheme property" up to the point at which it is released. That status must be, in the circumstances, a product of paragraph (d) or paragraph (e) of the definition. The fact that the money will, upon release, be committed in the way emerging from the "to be held on trust to be applied" language does not change its source. If it was acquired or derived directly or indirectly from a paragraph (d) or paragraph (e) source, its subjection to that commitment does not somehow cause it to be regarded as derived from some other source foreign to the definition of "scheme property". A responsible entity cannot, by some contractual acknowledgement that scheme property is held by it upon some trust (and I purposely refrain from any attempt to analyse the type of trust, if any, that clause 12.3 might create), deprive that scheme property of its character as scheme property. 53I proceed therefore, on the footing that the Junior Stakeholder Amount, having been released from the escrow account to CPTRE to be held "on trust" in the specified way will continue to be "scheme property" of the registered managed investment scheme of which CPTRE is the responsible entity.

Public policy and the postulated analogy with companies 54Bearing in mind the observations of Finkelstein J quoted at paragraph [41] above, the second contention at paragraph [46] may be dealt with briefly. 55It is sufficient to point to the fundamental difference between companies and trusts. Since virtually the beginning of modern company law, it has been recognised that a company's capital may be diminished by expenditure in the course of its business operations and on incidental matters but that no part of it can be returned to the members so as to diminish the fund to which creditors are entitled to look for satisfaction; and, as a corollary, dividends can be paid only out of profits: see, for example, Guinness v Land Corporation of Ireland (1882) 22 Ch D 349 at 375 per Cotton LJ; Trevor v Whitworth (1887) 12 App Cas 409 at 415 per Lord Herschell. There has never been any like principle applicable to the trusts of settlements, deceased estates and the like. There is, in those cases, no such thing as subscribed capital and no such concept as a return of capital to members. 56The statutory rules with respect to the payment of dividends by companies have recently changed. Section 254T of the Corporations Act was put into a new and quite different form by the Corporations Amendment (Corporate Reporting Reform) Act 2010. Constraints on dividend payments and on reduction of capital nevertheless remain. A very important distinction, in relevant respects, between companies and registered managed investment schemes that are trusts was noticed by Robson J in Re Australian Style Investments Pty Ltd [2009] VSC 128 at [182]: "Unlike a company, there does not appear to be any provision in the Corporations Act 2001 relating to managed investment schemes providing that 'dividends' may only be paid out of profits and proscribing capital reductions. The nature of a trust is that the trust property is held on trust for the unit holders and if the constitution of the trust makes provision for payment to the beneficiaries' of their property, then, in my opinion, there is nothing improper or unlawful in such a provision, save to the extent that the trustee's right of indemnity should be protected and preserved or that with the authority of the constitution the trustee has already pledged, charged or otherwise alienated the property." 57Nor is there any process of "winding up" of a trust akin to the winding up of a company (see Westfield Qld No 1 Pty Ltd v Lend Lease Real Estate Investments Ltd [2008] NSWSC 516) - although there is a statutory concept of the "winding up" of the species of trust that is a registered managed investment scheme. But that statutory concept, in contradistinction to the winding up of a company, does not entail any statutory order of priority in which assets are to be applied towards the proved claims of creditors. Rather, the mode of winding up is to be mainly as fixed by the constitution of the registered scheme, with the possibility of supplementation by orders of the court: Corporations Act, s 601NE(1), s 601NF(1), s 601NF(2). In the present case, the constitution of CPTRE contains winding up provisions (clause 19.2) the general effect of which is to require, in the first instance, reimbursement of the trustee in satisfaction of its right of indemnity and the payment of the trustee's costs, followed by distribution of any balance to unit holders. 58I am therefore not persuaded by the argument that some "in principle" parallel must be drawn with rules about maintenance of a company's capital and the application of assets in the winding up of a company so as to call into question, on grounds of "public policy", steps in relation to registered managed investment scheme trusts that, because of those rules, would be unlawful if taken in relation to a company. 59In short, I do not accept the second matter put forward by PwC (ie, item 2 at paragraph [46] above) as a basis for withholding the court's approval of the schemes of arrangement.

Contentions on other consequences of "scheme property" status 60As "scheme property" of the managed investment scheme of which CPTRE is the responsible entity, the Junior Stakeholder Amount will be property held on trust by CPTRE for the holders of the units of the managed investment scheme (that is, the holders of the stapled securities) so that CPTRE continues to have fiduciary responsibilities regarding its application pursuant to the scheme's constitution. This is the effect of s 601FC(2) of the Corporations Act, reinforced by the provisions of the scheme's constitution. The status of the money as trust property is said by PwC to produce several consequences, leaving entirely to one side for the moment such consequences as are produced by the Corporations Act. 61In the first place, CPTRE, as trustee, has both a right to be indemnified out of the trust (or scheme) property against debts incurred in the due and proper performance of the trust and a beneficial interest in the property to the extent of that right. The interest is a proprietary interest. So much was recognised in the judgment of Shelter JA in Chief Commissioner of Stamp Duties v Buckle (1995) 38 NSWLR 574 at 586 in a passage expressly approved by the members of the High Court when the matter went on appeal: see Chief Commissioner of Stamp Duties v Buckle [1998] HCA 4; (1998) 192 CLR 226 at CLR 247. 62CPTRE therefore enjoys a beneficial interest in the trust property commensurate with its right of indemnity out of that property and until satisfaction of the trustee's right of indemnity, it will not be possible to say what the trust fund is: CPT" Custodian Pty Ltd v Commissioner of State Revenue [2005] HCA 53; (2005) 224 CLR 98 at [51]. 63In the event of an insolvency administration of CPTRE, its creditors will be subrogated to the beneficial interest enjoyed by CPTRE as trustee and that beneficial interest will be available for application as property of CPTRE towards the claims of those creditors: Octavo Investments Pty Ltd v Knight [1979] HCA 61; (1979) 144 CLR 360. 64In the present case, the indebtedness incurred by CPTRE as trustee exceeds the value of the totality of the trust property. CPTRE's preferred proprietary interest will therefore attach to the whole of the trust property, including the Junior Stakeholder Amount, in such a way and to such an extent as to deny the existence of any trust fund to which the equity holders, as beneficiaries of the trust not entitled to that proprietary interest, can lay claim. It would therefore be a breach of trust, PwC says, for CPTRE, as trustee, to transfer any part of the trust property (and, in particular, the earmarked part of the Junior Stakeholder Amount) to the equity holders. 65PwC also refers to provisions of the constitution of the registered managed investment scheme of which CPTRE is the responsible entity. These confer on equity holders a "Distribution Entitlement" which extends to the trust's net taxable income for a period subject to certain adjustments including any "additional amount (including capital) that the Trustee has determined is distributable". Clause 12.8 provides: "The Trustee may distribute to Unit Holders any amount of capital of the Trust." 66PwC argues that, leaving to one side winding up of the managed investment scheme, these are the only provisions under which assets of the scheme may be put into the hands of its members (being the equity holders). Furthermore, PwC says, the "capital" that clause 12.8 allows to be distributed must, on a proper construction of the constitution, be non existent where trust liabilities exceed trust assets. "Capital" is thus regarded as the remaining fund out of which the trustee may satisfy the trustee's right to be indemnified out of trust assets. 67PwC relies on s 601FC(1)(k) of the Corporations Act: "In exercising its powers and carrying out its duties, the responsible entity of a registered scheme must... ensure that all payments out of the scheme property are made in accordance with the scheme's constitution and this Act." 68Given the provisions of the constitution concerning distributions to members (including capital distributions), PwC says, it will be inconsistent with s 601FC(1)(k) for CPTRE to pay the $48,925,082 to the equity holders. 69CNP's response is that this is not a simple distribution by trustee to beneficiaries conceptually akin, in company law terms, to a dividend. It is not a payment in satisfaction of beneficiaries' entitlements or rights as beneficiaries; it is a necessary payment in order to secure an advantage to the trust estate and to everyone interested in it, including PwC. The advantage that is to be, as it were, "bought" by means of the outlay of the $48,925,082 is the advantage of having a component of the overall aggregation plan of which the schemes of arrangement form part which, if absent, would deprive all relevant constituencies of the benefits of the plan. 70In the absence of the schemes and the wider aggregation plan that will be implemented if they take effect, CPTRE will be in a position where the whole of its assets is susceptible to the exercise of secured creditor rights by the senior lenders; and if those rights are exercised, the assets will be exhausted but there will remain outstanding not only a balance of indebtedness due to the senior lenders but also the whole of the indebtedness due to the hybrid lenders and the whole of the indebtedness due to the unsecured creditors (including the convertible bondholders). The class action claimants and PwC would have a right to prove for their unliquidated claims and it would be for the liquidator to come to a view about those claims and to admit the claim for a particular amount or reject it. 71It is in that context of looming insolvency, CNP says, that it has engaged in negotiations with secured creditors, recognising that those creditors are the only persons with any economic interest in CNP. Transfer of the vast bulk of CNP's assets to the entities which are to issue the Centro Retail Australia securities is one of the things to be done to implement the aggregation plan that has resulted from that negotiation. The transfer is to the benefit of the senior lenders as it will put CNP into possession of the Centro Retail Australia securities that CNP is to transfer to the senior lenders under the senior lender schemes and which they will take in full satisfaction of their secured debts. 72CNP emphasises that the transfer of the CNP assets is an essential part of the plan negotiated by the senior lenders and CNP itself. The plan is a compromise, in the sense that the senior lenders will accept an outcome (in the form of ownership of the Centro Retail Australia securities) that is arguably less favourable to them than repayment of their loans; and CNP, for its part, will give up the assets as part of the price to be paid to obtain freedom from indebtedness to the senior lenders and others. 73CNP argues, therefore, that the application of the $48,925,082 in order to induce the equity holders to pass the necessary resolution under listing rule 11.2 is no more than an element of a legitimate compromise. It points out that there can be no objection to a compromise under which a creditor agrees to release its debt in return for the payments which include both payments to the creditor and payments to other persons. There is likewise no objection to a compromise under which moneys that might otherwise have come to the creditor are, with the creditor's approval, expended in obtaining some consent necessary to achieve the compromise. 74CNP also points out that, under the constitution of the managed investment scheme (clause 9.1), CPTRE, as responsible entity, has, subject to the constitution itself, "all the powers in respect of the Trust that it is possible under the law to confer on a trustee and as though it were the absolute owner of the Assets and acting in its personal capacity". 75The schemes and the wider aggregation plan will cause the secured debts owed to the senior lenders and the hybrid lenders to be extinguished, along with the debts owed to the convertible bondholders. This will be achieved by application of the whole of CNP's assets except for $128,925,082 (being the Junior Stakeholder Amount and the separate $70 million).

Contentions on directors' duties 76PwC's objection based on breach of directors' duties concentrates on the proposition that the inclusion in the overall plan of the element involving payment of the $48,925,082 to the equity holders operated as an inducement to equity holders to vote in favour of the resolution approving the disposal of the assets of CNP to effect the aggregation but this was in circumstances, PwC says, where CNP could have avoided the need for the approving resolution and therefore the outlay of the money paid to induce equity holders to pass it. 77Put simply, the proposition on which PwC relies is that where, as here, a company is approaching insolvency, the interests of creditors must take a predominant place in the minds of its directors as they consider the content of the duties they owe to the company itself (Walker v Wimborne [1976] HCA 7; (1976) 137 CLR 1 at 7; Spies v The Queen [2000] HCA 43; (2000) 201 CLR 603) and that the course consistent with creditors' interests in the present case would have been to avoid the expenditure of the $48,925,082 in the form of payments to equity holders by taking action to avoid the need for a resolution of equity holders. 78The need for that resolution comes, as I have said, from ASX listing rule 11.2 (see paragraph [8] above). PwC points out that ASX, in connection with the administering of its listing rules, not only has a power to waive compliance but also reserves a discretion whether to require compliance with the listing rules in a particular case (ie, apart from waiving the rules). ASX states in the foreword to the listing rules that it takes into account the principles on which the listing rules are based. There is also a statement that, while the listing rules "necessarily cast a wide net", ASX "does not want to inhibit legitimate commercial transactions that do not undermine the principles on which the listing rules are based". 79It is common ground that CNP did not seek from ASX any waiver of or other relaxation of listing rule 11.2 as it applied to the transfer of CNP's assets and that, in the absence of a waiver or other relaxation, the rule prohibits the transfer except with the approval of a resolution of equity holders. It is also common ground that CNP did not seek de-listing so as to free itself altogether from the constraints of the listing rules. 80PwC points to evidence of the policies and practices of ASX. Attention was directed to several particular instances in which waiver of listing rule 11.2 has been granted. In every such case, the company concerned has been under Part 5.3A voluntary administration or some other insolvency regime. In relation to de-listing, the evidence makes it clear that ASX will not delist without an approving resolution of securityholders. 81PwC accepts that no instance has been identified in which ASX has granted waiver of listing rule 11.2 in the absence some form of insolvency administration affecting the particular listed company. It points out, however, that CNP acknowledges itself to be facing insolvency and that, if the schemes and the wider aggregation plan are not brought to fruition, an insolvency administration appears to be inevitable. That, according to PwC, provides a ground on which CNP could have argued by close analogy for grant of a waiver by ASX. 82In relation to the waiver possibility, CNP not only regards its own situation as different, in the way just mentioned, from the situation of each other company that has obtained a waiver, but also points to the fact that, from the earliest public announcements in relation to the possible aggregation proposal, it had recognised the need to obtain equity holders' approval under listing rule 11.2. Reference is made to an announcement of as long ago as 6 May 2011. At that early point and at all subsequent stages, CNP accepted and made generally known its acceptance of the constraint arising from listing rule 11.2 and the need to comply with the rule by submitting the matter for approval at a meeting of equity holders. 83In relation to the de-listing possibility, CNP points to three matters. The first is the firm ASX policy requiring an approving resolution of securityholders for delisting. The second is that, under the securities held by the senior lenders, de-listing would be an event of default entitling the senior lenders to call up their debts and to exercise secured creditor rights - things that CNP has striven to avoid over a considerable period and which the aggregation proposal is intended to make unnecessary. Third, the constitution of the registered managed investment scheme of which CPTRE is the responsible entity imposes on it an obligation to use every endeavour to procure that the stapled securities are listed on ASX as "one joint security" - an obligation that CNP says would be breached by an application for de-listing of the kind that PwC says the directors are duty-bound to make and pursue.

Assessment 84PwC's contentions regarding listing rule 11.2 play a central part under each of the arguments 1 and 3 at paragraph [46] above. 85If, as PwC says, the operation of listing rule 11.2 could have been be side stepped by obtaining a waiver or de-listing, CNP's characterisation of $48,925,082 as a payment to induce an approving resolution of equity holders would not be valid and the architects of the aggregation plan would be seen to have responded to what is, in reality, a non-existent need to pay $48,925,082 for that purpose. 86The starting point on this aspect is the reality that a listed entity must obey the listing rules. This is not just a matter of contract, it is also a statutory matter. As the listing rules themselves say: "The Listing Rules are not just binding contractually. They are enforceable against listed entities and their associates under the Corporations Act. See sections 793C and 1101B of the Corporations Act. The Listing Rules create obligations that are additional, and complementary, to common law obligations and statutory obligations." 87In the ordinary course of events, therefore, a listed entity is expected to comply, not to seek to extricate itself from compliance. 88Mr Lewis, ASX's chief compliance officer, gave evidence. He confirmed that CNP had discussed with ASX the applicability of listing rule 11.2 to the transfer of CNP's assets to the issuers of the Centro Retail Australia securities and that ASX had confirmed its view that the rule would apply and that an approving resolution of equity holders would be necessary. Mr Lewis further gave evidence that ASX had informed CNP that, on ASX's current policy, any request by CNP to de-list would be conditional on the de-listing being approved by ordinary resolution of members. He confirmed that, to the best of his knowledge, CNP had not sought from ASX either dispensation from listing rule 11.2 or de-listing. 89I do not accept that CNP and its directors were under any duty to do either of those things. A meeting to obtain an approving resolution of equity holders had been, since 6 May 2011, a publicised element of the developing aggregation plan. Some equity holders believed that an earlier element of the aggregation plan (the sale of United States assets that yielded the proceeds referred to at paragraph [48.1] above) should have been put to equity holders for approval under listing rule 11.2: see Smartec Capital Pty Ltd v Centro Properties Ltd [2011] NSWSC 495; (2011) 83 ACSR 461; Smartec Capital Pty Ltd v Centro Properties Ltd [2011] FCA 716. Those holders' efforts to force a meeting of unit holders in that connection were unsuccessful. There is every reason to think that they would have redoubled their efforts had CNP, contrary to its announced intention of calling a meeting in connection with the transfer of the vast bulk of the Australian assets as part of the aggregation, taken steps calculated to prevent such a meeting. 90In short, the equity holders (or some of them) were vocal proponents of the view that they should be given a vote on the aggregation proposal. Listing rule 11.2 is accepted on all hands as a rule that required such a vote. In the face of the expressed attitude of vocal equity holders and the clear provisions of the rule, on what basis, one asks rhetorically, might ASX have granted a waiver or effected de-listing? 91The holding of the meeting of equity holders and the payment of the $48,925,082 to them by way of inducement was an integral part of the plan to which CNP and the senior lenders became parties. The Junior Stakeholder Amount was, in a very real sense, made available by the senior lenders. I say this because the senior lenders permitted both the Junior Stakeholder Amount and the associated $70 million to be kept apart from the balance of the proceeds of the United States assets sale paid to them in reduction of their loans. Had they demanded that those two sums also pass to them, CNP could not, in any realistic sense, have resisted the demand and the aggregation plan of which the schemes of arrangement are components would never have come into being. 92In agreeing to the excision and retention of the Junior Stakeholder Amount and the $70 million, the senior lenders must be taken to have been acting in what they saw to be their own best interests. They were obviously not inclined to be kind or generous to CNP or to any of the potential recipients of the Junior Stakeholder Amount and the $70 million except to the extent that what might have seemed to be kindness or generosity served their own commercial purposes. 93The signing senior lenders who became parties to the Junior Stakeholder Allowance Agreement, the implementation agreement and the amending agreement of 17 November 2011 (as well as the senior lenders' agent by which the escrow deed was executed) subjected CNP to contractual restraints in respect of the Junior Stakeholder Amount. The money cannot b e outlaid unless and until aggregation is achieved; and the only permitted application, at that point, is payment in the specified amounts to the hybrid lenders, the convertible bondholders and the equity holders, with the balance remaining with CNP against the possibility that claims of contingent creditors may mature into liabilities. Since execution of the Junior Stakeholder Allowance Agreement and the implementation agreement, CNP has had no ability of its own to vary this regime so as to reduce amounts earmarked for the hybrid lenders, the convertible bondholders and the equity holders. 94Given, in particular, the earlier agitation by equity holders for a say, by way of voting, on steps in CNP's overall restructure and CNP's assurances to the market as early as May 2011 that an opportunity to vote would be extended to equity holders in connection with the transfer of the Australian assets, the senior lenders must be taken to have decided that foregoing of the Junior Stakeholder Amount and the associated $70 million and application of those sums in the ways contemplated were to their own advantage. They were prepared to allow those sums to perform particular functions of a facilitating kind in order to assure the outcome they sought. 95Let it be assumed that CNP had sought and obtained either dispensation from listing rule 11.2 or de-listing and had become free from the listing rule 11.2 constraint. Let it be further assumed that there was accordingly no resolution of equity holders approving the relevant disposal. In those circumstances, one of the essential elements of the documented plan would be lacking and aggregation simply would not take place, with the result that the Junior Stakeholder Amount would not be released from the escrow account for the benefit of, among others, the equity holders and the whole of the $100 million would pass to the senior lenders in the same way as the balance of the proceeds of sale from which it was, for a special and limited purpose, separated. 96It is an incorrect assessment of the position to regard the directors of CPTRE as having possessed any free-ranging discretion in relation to the Junior Stakeholder Amount and its application. The money is technically the property of CPTRE and "scheme property" of the managed investment schemes but it is predominantly, as I have said, money made available by the senior lenders for purposes serving the interests of the senior lenders, including the purpose of facilitating compliance with the ASX listing rules in a manner judged necessary to the achieving of the aggregation accepted by the senior lenders as a resolution of their financial interest in CNP. 97Payment of the $48,925,082 to the equity holders will not be an unlawful or improper application of "scheme property" by CPTRE. The provisions of the managed investment scheme's constitution dealing with distributions (see paragraph [65]) are not an exclusive code concerning the passing of scheme property to members. This is made clear by clause 10.5(c) of the constitution which empowers the responsible entity to "enter into a contract or transaction with any Holder". The responsible entity could therefore, for example, expend money forming part of the "scheme property" as the purchase price of land purchased from a member for the purposes of the managed investment scheme. 98There are also, as CNP points out, the comprehensive powers of the responsible entity under clause 9.1 (see paragraph [74] above). Those powers are fiduciary in nature but there can be no doubt that action by the responsible entity calculated to free the trust estate from otherwise crippling debt was a proper exercise of those powers. 99I accept CNP's characterisation of the overall aggregation plan as a legitimate compromise. I also accept that there can be no objection to a compromise under which payments are made (or other value is transferred) to both the creditor and a third party. If a trustee's creditor agreed to take a leasehold estate in satisfaction of the debt, the debtor, as trustee, could properly apply trust assets in making a payment to the lessor in return for the lessor's consent to assignment.

Conclusion on PwC's objections 100I have already said (paragraph [59] above) that I do not accept the second matter put forward by PwC (ie, item 2 at paragraph [46] above) as a basis for withholding the court's approval of the schemes of arrangement. 101I have also said (paragraph [84] above) that both of the other objections (items 1 and 3 at paragraph [46]) centre upon PwC's contentions regarding listing rule 11.2. On that, I am satisfied that neither CNP nor its directors became subject to any duty to attempt to obtain either dispensation from listing rule 11.2 or de-listing and thereby to eliminate from the wider aggregation proposal the element involving payment of $48,925,082 to the equity holders. 102It was consistent with the duties of the directors that they should accept the requirement of listing rule 11.2. It was consistent with the duties of CPTRE as responsible entity and a proper exercise of the responsible entity's powers for the Junior Stakeholder Amount as a whole and the $48,925,082 in particular to be applied as required by the various contracts by which the compromise with CNP's senior lenders was achieved. 103The contentions of PwC at items 1 and 3 of paragraph [46] above therefore cannot be accepted and those matters do not constitute any basis for withholding approval of the schemes of arrangement. No matter of illegality will be involved in the effectuation of the schemes and the wider aggregation plan of which they form part.

Other unfairness to PwC? 104PwC and the class action claimants occupy the position already described: they maintain claims for unliquidated damages which, at this stage, have not been litigated and are undetermined. They are, in that respect, unlike established unsecured creditors. It is for that reason that they are referred to as "contingent creditors". Their claims are, in a general sense, akin to the "long-tail liabilities" that have arisen for consideration in cases involving companies with asbestos exposure - although with the important difference that those companies are virtually certain to become subject to liabilities, the only questions being as to amount and timing. Here, liability itself may never materialise. 105It is pertinent to quote, in this connection, the following passage from the chapter contributed by Mr M B Oakes SC to "Schemes of Arrangement", Federation Press, 2010, edited by K Dharmananda, A Papamatheos and J Khoshy at 133-134: "The issue of long-tail liabilities and their interaction with schemes of arrangement and reductions of capital has been an unspoken matter of deep sensitivity in the New South Wales courts since the James Hardie scheme and the subsequent Jackson inquiry. Asbestos long-tail liabilities featured in Re Stork ICM Australia Pty Ltd (2006) 25 ACLC 208, where Lindgren J approached the matter on the basis that he 'should not make the orders sought unless ... [he was] clearly satisfied that the potential claimants would be no worse off if the order were made than they would be otherwise." 106The approach thus taken by Lindgren J in Re Stork ICM Australia Pty Ltd [2006] FCA 1849; (2006) 25 ACLC 208 is also appropriate here in relation to PwC and the class action claimants, particularly in light of the fact that, for reasons I have stated, the only comparison the court can properly make is that between the position as it will exist after the schemes and the associated elements making up the aggregation are implemented and the position that will exist if they are not implemented. 107If the schemes do not take effect and the aggregation is not achieved, CNP will be in a position where its assets of the order of $3 billion are greatly exceeded by secured liabilities of some $4.3 billion ($3.2 for senior lenders and $1.1 for hybrid lenders). The logical outcome is that, whatever form of insolvent administration eventuates, the available assets will be exhausted without the debts of these secured creditors having been paid in full. There will be a deficit apparently in excess of $1 billion for secured creditors and nothing at all for unsecured creditors, including the convertible bondholders who are owed principal of some $440 million. 108PwC and the class action claimants would, of course, be free to assert their claims in such an insolvent administration by lodging their proofs and, if those proofs were rejected, appealing to the court. But to what end? PwC and the class action claimants could ultimately occupy a position no more favourable than that of the unsecured creditors including the convertible bondholders. And like those unsecured creditors, PwC and the class action claimants would receive nothing in respect of whatever claims they succeeded in establishing. 109That, then, is one of the outcomes to be considered in making the comparison indicated by Lindgren J. The other outcome is that the schemes take affect together with the other elements of the aggregation. 110In that eventuality, the claims of the senior lenders, the hybrid lenders and the convertible bondholders will be extinguished and the asset base will be reduced so that it consists of two components only: first, so much of the $70 million referred to at paragraph [14] above as is needed to meet the debts of established unsecured creditors (and with any residue of that $70 million being paid to the senior lenders); and, second, the $10 million balance of the Junior Stakeholder Amount. PwC and the class action claimants will then be in a position where they can, if they choose, continue their litigation against CNP in the knowledge that they and any other contingent creditors, in the event that they obtain a judgment, can expect to participate in what may then be left of the $10 million. 111Can the court be, in Lindgren J's words, "clearly satisfied that the potential claimants would be no worse off if the order were made than they would be otherwise"? The answer is an emphatic "yes". If the orders are not made and the aggregation is not accomplished, PwC and the class action claimants are assured of receiving nothing, even if they successfully establish liability of CNP. If the orders are made and the aggregation is accomplished and PwC and the class action claimants establish liability of CNP, they have a real prospect of obtaining some return from the $10 million. 112This leads to a wider question of the weight the court should give to the interests of PwC and the class action claimants in exercising its discretion. There is, for reasons stated, a need to consider the interests of all affected persons (see paragraphs [22] to [26] above); and there can be no doubt that the interest of PwC and the class action claimants must be considered. But, for the reasons just stated, their interests - based as they are solely on money claims that could never produce more than unsecured payment obligations - are merely academic. The persons concerned are, in that respect, akin to the shareholders in Re City of Melbourne Bank Ltd (1897) 19 ALT 80. The burden of debt was so great compared with the value of the assets that it was said that they had "long since ceased to have any real interest in the liquidations". 113There is, in the circumstances, no unfairness to PwC inherent in the schemes of arrangement.

Disposition 114T here will be approving orders under s 411(4)(b) of the Corporations Act in respect of all four schemes of arrangement as sought by CNP. All other orders for which CNP applies will also be made. 115If the parties can agree the appropriate outcome on costs, they should submit short minutes of order. Otherwise, the question of costs will be reserved for future argument.

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