Australian Securities Commission v Marlborough Gold Mines Ltd

The proposed scheme

1. Mr Lockhart and Mr McMeniman point out that the Junior Scheme is being proposed to enhance WICET's prospects of refinancing the Senior Debt and the Junior Debt, before the Senior Debt matures on 30 September 2026. They point out that, in 2018, WICET restructured its Senior Debt by a previous scheme of arrangement ("2018 Restructuring") that resulted in, among other things (Allard 27.5.19 [14]), extending the maturity date for the Senior Debt from 30 September 2018 to 30 September 2026 ("Senior Maturity Date"); WICET no longer having to pay interest on the principal amount outstanding on the GiLTS ("GiLTS Principal") to the Junior Financiers prior to the Senior Maturity Date, except in limited circumstances; an extension of the restrictions on the Junior Financiers' enforcement rights to 31 March 2027 (being six months after the Senior Maturity Date); and WICET undertaking to the Senior Financiers to negotiate in good faith with the Junior Financiers for up to 6 months after the completion of the 2018 Restructuring to obtain either a consensual agreement with the Junior Financiers or an agreement with a majority in number of Junior Financiers who hold at least 75% of the GiLTS to extend the maturity date of the GiLTS to a date that falls six months after 30 September 2026 and reduce the coupon rate on the GiLTS during the term of the term facility to the Senior SFA.
2. Mr Lockhart and Mr McMeniman also point out that, under the GiLTS Note Trust Deed and the GiLTS Subscription Agreement, WICET issued (Allard 27.5.19 [10(a)]) 45,000 GiLTS, priced in Australian Dollars, with an aggregate face value of AUD 450 million currently bearing interest at the rate of BBSY + 9% and also issued 5,000 GiLTS, priced in US Dollars, with an aggregate face value of USD 50 million currently bearing interest at the rate of LIBOR + 9% per annum.
3. The Junior Scheme proposes (Allard 27.5.19 at [17]-[23]) the extension of the maturity date under the GiLTS Note Trust Deed from 30 September 2020 to 31 March 2027 ("Amended Junior Maturity Date"), being six months after the Senior Maturity Date; the payment of interest on the GiLTS Principal is to be replaced with two amounts in the form of "payment in kind", namely a "Tranche 1 PIK Amount", to be paid by WICET to the Junior Financiers by the Amended Junior Maturity Date and a "Tranche 2 PIK Amount", to be paid to the Junior Financiers either from proceeds raised on a refinancing of the Senior Debt and the GiLTS (including GiLTS Principal, the Tranche 1 PIK Amount and Tranche 2 PIK Amount) or by the twelfth anniversary of the Amended Junior Maturity Date ("Trailing Period End Date"), if it is not paid on or before that date.
4. Mr Lockhart and Mr McMeniman point out that the extension of the maturity date under the GiLTS Note Trust Deed combined with the changes to the current interest payable on the Junior Debt to the Tranche 1 PIK Amount and Tranche 2 PIK Amount will reduce the total amount owing by WICET to the Junior Financiers on the Amended Junior Maturity Date (as compared to the amount which would be outstanding on the Amended Junior Maturity Date should the Junior Scheme not be implemented), and those amendments are expected to provide WICET and any potential refinancer with additional refinancing options including refinancing the Senior Debt with the GiLTS Principal and the Tranche 1 PIK Amount and the Tranche 2 PIK Amount (or part of it); or refinancing the Senior Debt with the GiLTS Principal and the Tranche 1 PIK Amount, leaving the Tranche 2 PIK Amount (or part of it) to be repaid by the Trailing Period End Date. The amendments also require WICET to conduct market soundings on or about the fourth and sixth anniversaries after the Junior Scheme takes effect to try to refinance the Senior Debt, GiLTS Principal, Tranche 1 PIK Amount and Tranche 2 PIK Amount; and align the terms and conditions of the GiLTS and pricing supplements and the current Intercreditor Terms with the terms of the Senior SFA, as amended under WICET's 2018 Restructuring.
5. Mr Lockhart and Mr McMeniman also note that the Junior Scheme contemplates amendments (Allard 27.5.19 [16]) to the current terms and conditions and current pricing supplements, by way of an amendment deed ("Amendment Deed (GiLTS)") (Ex AA-1, 110-196) and to the current Intercreditor Terms pursuant to the terms of an amendment deed ("Second Amendment Deed (STID)"), the execution and delivery which is a condition to the Junior Scheme taking effect. Their submissions address, but I need not set out, the detail of those amendments.
6. Thirteen of the fourteen Junior Financiers, representing over 86.5% in value of the Junior Debt, have executed a Restructuring Support Deed ("Junior RSD"), by which they undertook to attend the scheme meeting and vote in favour of the scheme (Allard 27.5.19 [74]-[76]). One Junior Financier, Korea Development Bank, which is also a Senior Financier, has not executed or acceded to the Junior RSD (Allard 27.5.19 [76]).

Proposed explanatory statement and independent expert's report

1. The proposed explanatory statement for the Junior Scheme provides an overview of the structure of the explanatory statement and the Junior Scheme in section 3 and provides an overview of WICET's operations and its capital structure in sections 4 and 5. Section 6 summarises the outcome of the restructuring negotiations with the Junior Financiers and section 7 outlines the Junior Scheme and its key steps. Section 8 provides a summary of an independent expert's report, to which I refer below; sections 9 and 10 indicate reasons why Junior Financiers may consider voting for or against the scheme; and sections 11-13 deal with voting procedures and additional information, including information required to be disclosed under s 412(1)(a) of the Corporations Act and reg 5.1.01 (including Schedule 8) of the Corporations Regulations 2001 (Cth).
2. An independent expert's report dated 27 May 2019 has been prepared by Mr Vaughan Strawbridge of Deloitte and will be included in the proposed explanatory statement for the Junior Scheme (Ex VS-1). That report compares the position if there is no Junior Scheme and the position if the Junior Scheme proceeds and expressed the view that, under both scenarios, Junior Financiers would recover all that is due to them under the GiLTS (Ex VS-1, 39-40, 45). Mr Strawbridge also expresses the view that, if the Junior Scheme is put into effect, the GiLTS Principal, the Tranche 1 PIK Amount and Tranche 2 PIK Amount would be repaid in full within 8 years, being by 28 September 2026, assuming that the Senior Debt, GiLTS Principal, the Tranche 1 PIK Amount and the Tranche 2 PIK Amount would be successfully refinanced on or by 28 September 2026 due to the lower quantum of debt requiring refinance as a result of the implementation of the Junior Scheme (Ex VS-1, 39-40). He also expresses the opinion (Ex VS-1, 45) that, if the Junior Scheme is implemented, the amount owed to Junior Financiers would be paid in full over those 8 years at an average rate of return over the period of 8.65%; if the Junior Scheme is not implemented, the amount owed to Junior Financiers would be paid in full over 18.9 years at an average rate of return over the period of 13.02%; and WICET will have a greater prospect of refinancing the amounts owing under the GiLTS and Senior SFA by the Senior Maturity Date, 28 September 2026, if the Junior Scheme is implemented, since the total Senior Debt and GiLTS requiring refinancing, if the Junior Scheme is implemented, would be AUD 442 million less than if the Junior Scheme is not implemented (Ex VS-1, 47). Mr Strawbridge also notes that the refinance of the amounts owing under the Tranche 2 PIK Amount may be deferred for a period of up to 12 years following the Amended Junior Maturity Date if the Junior Scheme is implemented and, if this occurred, the quantum of debt required to be refinanced on or before the Senior Maturity Date is expected to be reduced as set out in his report (Ex VS-1, 47).

The applicable principles

1. The Court will order the convening of the scheme meeting and approve the proposed explanatory statement if it is satisfied that WICET is a Part 5.1 body; the proposed scheme is an arrangement within the meaning of s 411 of the Corporations Act; the scheme booklet will provide proper disclosure to creditors; the scheme is bona fide and properly proposed; the Australian Securities and Investments Commission ("ASIC") has had a reasonable opportunity to examine the terms of the scheme and the scheme booklet and make submissions and has had 14 days' notice of the proposed hearing date; the procedural requirements of the Corporations Rules have been met; and there is no apparent reason why the scheme should not, in due course, receive the Court's approval if the necessary majority of votes is achieved: Re Atlas Iron Ltd (2016) 112 ACSR 554 at [30]; Re DUET Finance Ltd [2017] NSWSC 415 at [15]; Re BIS Finance Pty Ltd [2017] NSWSC 1713 at [20]; Re Wiggins Island Coal Export Terminal Pty Ltd [2018] NSWSC 1342 at [17].
2. The Court's approach at a first Court hearing is that "the court will not ordinarily summon a meeting unless the scheme is of such a nature and cast in such terms that, if it receives the statutory majority at the … meeting the court would be likely to approve it on the hearing of a petition which is unopposed": F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72; Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485 at 504. If the arrangement is one that seems fit for consideration by the meeting of members or creditors and is a commercial proposition likely to gain the Court's approval if passed by the necessary majorities, then leave should ordinarily be given: Re ACM Gold Ltd (1992) 34 FCR 530; 107 ALR 359; 7 ACSR 231; 10 ACLC 573; Re Foundation Healthcare Ltd [2002] FCA 742; (2002) 42 ACSR 252 at [36] and [44]; Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358 at [58]. The Court is not required to be satisfied that no better scheme could have been proposed, and will give attention at a first hearing to whether it is reasonable to suppose that sensible businesspeople might consider the arrangement proposed to be of benefit to members or creditors: Re Centrebet International Ltd [2011] FCA 870 at [29]; Re SAI Global Ltd [2016] FCA 1312 at [18]; Re DUET Finance Ltd above at [14]; Re Wiggins Island Coal Export Terminal Pty Ltd above at [19]. The Court's function under s 411 of the Corporations Act is to consider only the scheme put forward to it and not to speculate what other compromises or arrangements might have been devised, and it will proceed on the basis that, if the proposed 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 altered; and the Court will not seek to prompt an applicant to take some other course by declining to convene a scheme meeting or approve a scheme on discretionary grounds: Nicron Resources Ltd v Catto (1992) 8 ACSR 219 at 236; Re Centro Properties Ltd [2011] NSWSC 1465; (2011) 86 ACSR 584 at [28]-[31]; Re BIS Finance Pty Ltd above at [22].

Relevant features of the proposed scheme

1. It is uncontroversial that WICET is a Part 5.1 body. I am satisfied that the nature of the scheme involves an element of compromise between WICET and its Junior Financiers and provides prima facie evidence that there is an "arrangement" within s 411 of the Corporations Act: Re Atlas Iron Ltd above at [48]. I am also satisfied that WICET has committed itself to propounding the scheme and that the scheme is bona fide and has been properly proposed. Mr Darryl McDonough and Ms Alana Allard consent to act as chairperson and alternative chairperson of the scheme meeting, in accordance with r 3.2 of the Supreme Court (Corporations) Rules 1999 (NSW). There is evidence of verification of factual information in the proposed scheme booklet and of notification to ASIC.
2. As Mr Lockhart and Mr McMeniman point out, ss 411(3) and 412(1) of the Corporations Act require the disclosure of information explaining the "effect" of the scheme and information that is "material" to a creditor's decision whether or not to agree to it. That information should be presented in a form that is intelligible to reasonable members of the class to whom it is directed, and contain information that is realistically useful having regard to the complexity of the proposal: Re HIH Casualty and General Insurance Ltd [2006] NSWSC 485; (2006) 200 FLR 243 at [81]-[83]; Re BIS Finance Pty Ltd above at [28]. I am satisfied that the proposed explanatory statement, to which I have referred above, meets these requirements.
3. Mr Lockhart and Mr McMeniman also address the question whether creditors would need to vote in different classes at the scheme meeting. In Sovereign Life Assurance Co v Dodd [1892] 2 QB 573 at 583, Bowen LJ set out the well-established formulation of when separate classes of creditors were required for a scheme of arrangement as follows: It seems plain that we must give such a meaning to the term "class" as will prevent the section being so worked as to result in confiscation and injustice, and that it must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest.
4. In First Pacific Advisors LLC v Boart Longyear Ltd [2017] NSWCA 116; (2017) 121 ACSR 136 at [80], Bathurst CJ (with whom Beazley P and Leeming JA agreed) observed that that formulation involved three questions: First, what are the rights which existing creditors (or members) have against the company and to what extent are they different. Second, to what extent are those rights differently affected by the scheme. Third, does the difference in rights or different treatment of rights make it impossible for the creditors (or members) in question to consider the scheme as one class.
5. In this case, one Junior Financier, Korea Development Bank, is also a Senior Financier, and four Junior Financiers or affiliates of Junior Financiers, are A Class Shareholders and holders of Wiggins Island Preference Securities ("WIPS"). Mr Lockhart and Mr McMeniman submit, and I accept, that this does not give rise to any class issues, where the Junior Scheme does not affect the rights of Senior Financiers or WIPS.

Other relevant matters at the first Court hearing

1. Mr Lockhart and Mr M McMeniman also drew attention to several matters that may be relevant to the exercise of the Court's discretion under s 411 of the Corporations Act, although they submit, and I accept, that these matters are potentially relevant at the second rather than the first Court hearing and are not such that the Court would not approve the scheme if it secured the applicable majorities at a scheme meeting.
2. Mr Lockhart and Mr M McGleniman submit, and I accept, that the potential benefits of the Junior Scheme to the Junior Financiers, including potentially accelerating repayment of their debt and improving the prospects of refinancing, are such that the Court can be satisfied that there is no apparent reason why the Junior Scheme should not, in due course, receive the Court's approval if the necessary majority of votes is achieved. They submit, and I accept, that it is not an obstacle to the scheme that it effects amendments to the terms of the current terms and conditions and the current pricing supplements by each of the Intercreditor Agent, Security Trustee, Junior Financier Debt Representative and WICET executing and delivering the Second Amendment Deed (STID), some of which could otherwise be effected only by all Junior Financiers' consent, since there are several cases where amendments to the terms of finance documents have been made by schemes of arrangements agreed to by the requisite majorities of creditors and approved by the Court: see the examples cited in Re BIS Finance Pty Ltd above at [38].
3. Mr Lockhart and Mr M McMeniman also submit, and I accept, that the fact that the Junior RSD requires the parties to it, including a large majority of the Junior Financiers to take all reasonable steps to implement the restructuring contemplated in it, including attending the scheme meeting and voting in favour of the scheme (Allard 27.5.19 [77]) is not a reason not to convene the scheme meeting, where support agreements are relatively common in the context of creditors' schemes: Re Boart Longyear Ltd [2017] NSWSC 567 at [9], [88]; Re Atlas Iron Ltd above at [16].
4. Mr Lockhart and Mr McMeniman also recognise that WICET has agreed to pay a one-off consent fee equal to USD 1 million, subject to the Junior Scheme being implemented, to several Junior Financiers who executed the Junior RSD to reimburse them for costs incurred by them in relation to considering the proposed amendments to the current terms and conditions and the Current Intercreditor Terms. The remainder of the consent fee will be paid to participating Junior Financiers (Other than ToP Shippers) who executed the Junior RSD in proportion to their respective holdings of Junior Debt or in such proportions as may otherwise be agreed (Allard 27.5.19 [78]-[80]). They note that all Junior Financiers had the opportunity to enter into the Junior RSD and all Junior Financiers (including ToP Shippers) other than Korea Development Bank agreed to the consent fee by executing the Junior RSD and associated correspondence (Allard 27.5.19 [76]), although those Junior Financiers that are also ToP Shippers and the Korea Development Bank (which did not execute the Junior RSD) will not receive that fee. They submit, and I accept, that the English case law has accepted consent fees and not treated them as raising class issues where they are relatively small compared to the size of the outstanding debt, as is the case here, and it is not likely that a creditor with substantial objections on commercial grounds would be swayed in their view by such a fee: Re Wiggins Island Coal Export Terminal Pty Ltd above at [33].
5. Mr Lockhart and Mr McMeniman refer to ongoing litigation in respect of the WIPS holders, where two WIPS holders have alleged, inter alia, that HoldCo failed to pay the WIPS dividend entitlements on several dates; that WICET did not properly apply the Cashflow Waterfall (as defined) to certain funds and HoldCo failed to enforce certain rights to receive interest payments; and that WICET failed to correctly set or vary the Terminal Handling Charge (Allard 27.5.19 [91]). I addressed the fact of that litigation in a previous scheme in Re Wiggins Island Coal Export Terminal Pty Ltd above and accept that it also provides no reason not to convene the scheme meeting in respect of the Junior Scheme. Mr Lockhart and Mr McMeniman also point out that the scheme does not effect changes to several transaction documents in respect of the Senior Financiers and WIPS holders; the changes made to the Intercreditor Terms do not require a scheme; and the present scheme does not involve either Senior Financiers or WIPS holders. They fairly recognise that the Court may take into account any objection made by any Senior Financiers or WIPS holders to the scheme at the second court hearing: Re Centro Properties Ltd above at [22]-[27].

Orders at first Court hearing

1. The orders proposed by WICET modify the operation of r 2.15 of the Corporations Rules in several respects. That rule provides that, subject to any direction to the contrary, regs 5.6.11-5.6.36A of the Corporations Regulations apply to meetings ordered by the Court. I will make orders dispensing with the corresponding provisions of the Insolvency Practice Rules (Corporations), adopting the same course as was adopted in Re Viralytics Ltd [2018] FCA 637 at [37]-[40] and in Re Wiggins Island Coal Export Terminal Pty Ltd above. I will also make directions permitting service of notice of the scheme booklet on Junior Financiers by serving it in electronic form to specified email addresses, consistent with a now common practice: Re Viralytics Ltd above at [35].
2. For these reasons, I made orders in the form initialled by me and placed in the file at the conclusion of the first Court hearing on 30 May 2019.

Application for approval of scheme at second court hearing

1. The scheme meeting was held on 12 June 2019 and the statutory majorities in favour of the scheme were achieved. At the second Court hearing, WICET sought orders under s 411(4)(b) of the Corporations Act approving the scheme of arrangement between it and the Junior Financiers. I made those orders at the conclusion of the second Court hearing on 14 June 2019. These are my reasons for making those orders, and I have drawn on the helpful submissions of Mr Lockhart and Mr McMeniman in these reasons.
2. The principles applicable to the exercise of the Court's discretion to approve a scheme at the second Court hearing are well established. In determining whether to approve a scheme at a second Court hearing, the Court will have regard to matters including whether the Court's orders convening the scheme meeting were complied with; whether the resolution to approve the scheme was passed by the requisite majority and whether other statutory requirements have been satisfied; whether all conditions to which the scheme is subject have been met or waived, other than in respect of Court approval and lodgement of the Court's orders with ASIC; whether the scheme is fair and reasonable so that an intelligent and honest member of the relevant class, properly informed and acting alone, might approve it; whether the proponent has brought to the Court's attention all matters that could be considered relevant to the exercise of the Court's discretion; and whether there was full and fair disclosure to creditors of all information material to the decision whether to vote for or against the scheme: Re David Jones Ltd (No 3) [2014] FCA 753 at [3]; Re Atlas Iron Ltd (No 2) [2016] FCA 481 at [6]. The Court has a discretion to approve a scheme and is not bound to approve it merely because it has made orders for the convening of meetings or because the statutory majorities have been achieved: Re Seven Network Ltd (No 3) [2010] FCA 400; (2010) 267 ALR 583 at [31]; Re Atlas Iron Ltd (No 2) above. The Court will recognise that creditors are generally the best judges of their own commercial interests in that regard: Re Seven Network Ltd (No 3) above at [33]; Re BIS Finance Pty Ltd [2018] NSWSC 3 at [10].

Compliance with orders convening the scheme meeting

1. As I noted above, in determining whether to approve a scheme, the Court will have regard to whether the Court's orders convening the scheme meeting were complied with. There is evidence that the explanatory materials for the scheme meeting were dispatched, in accordance with orders made at the first Court hearing, to email addresses for the Junior Financiers (Doumani 13.6.19 [5], [8]-[9]). The scheme meeting was held and conducted in accordance with the Court's orders (McDonough 12.6.19 [7]-[9]) and there is evidence as to receipt and collation of proxy forms and proofs of debt and the admission of proofs of debt (McDonough 12.6.19 [13]). I am satisfied that the process adopted in respect of proxies was consistent with that ordered by the Court, for the reasons set out in Mr Lockhart's and McMeniman's further submissions made on 14 June 2019.

Requisite majority and other statutory requirements

1. The Court will also have regard to whether the resolution to approve the scheme was passed by the requisite majority and whether other statutory requirements have been satisfied. The resolution to approve the scheme was passed by the necessary majorities, where 92.9% of the Junior Financiers by number voted in favour of the Junior Scheme and 86.2% of Junior Financiers by value voted in favour of the Junior Scheme (McDonough 12.6.19 [24]-[25]). The votes of Junior Financiers who held Senior Debt (or had some interest directly or through an affiliate or as a trust party) were tagged (Ex DDM-1, p 1) but do not undermine that result.
2. The other statutory requirements in respect of the scheme were also satisfied. No issue under s 411(17) arises where a scheme could not be effected as a takeover under Chapter 6 of the Corporations Act. ASIC has had a reasonable opportunity to examine the explanatory statement and make submissions to the Court in relation to it. WICET published a notice of this hearing in a national newspaper in the form required by r 3.4 of the Corporations Rules, with a minor modification which was necessary by reason of a shorter period between the scheme meeting and the second Court hearing and caused no difficulty (Allard 13.6.19 [8]; Ex AA-3, 1).

Satisfaction of conditions

1. As I noted above, the Court will have regard to whether all conditions to which a scheme is subject have been met or waived, other than in respect of Court approval and lodgement of the Court's orders with ASIC. There is evidence that each of the necessary conditions precedent to the scheme has been satisfied (Allard 27.5.19 [82]; Allard 13.6.19 [9]-[13]; Ex AA-3).

Whether the scheme is fair and reasonable

1. The Court will have regard to whether the scheme is fair and reasonable so that an intelligent and honest member of the relevant class, properly informed and acting alone, might approve it. Several considerations support a conclusion that the scheme is fair and reasonable. First, as I have noted above, the scheme received the support of the requisite majority by number and value of Junior Financiers although one Junior Financier voted against it. Second, WICET did not receive any notice of appearance from any person seeking to object to the scheme at the second Court hearing and no-one appeared at this hearing to oppose the scheme. Third, the independent expert report of Deloitte (which I reviewed above) identified the potential advantages of the Junior Scheme for Junior Financiers.
2. Mr Lockhart and Mr McMeniman fairly drew attention, at the second Court hearing, to amendments to the Amendment Deed (GiLTS) and the Second Amendment Deed (STID) that were requested by the GiLTS Note trustee, several days after the first Court hearing and shortly before the meeting of Junior Financiers, to confirm the capacity in which it entered the relevant documents and included limitation of liability clauses in the same form as in other associated transaction documents. Those amendments were notified to the Junior Financiers after the scheme meeting; no Junior Financier has objected to them; and they have been accepted by the several parties to the Amendment Deed (GiLTS) and the Second Amendment Deed (STID).
3. Mr Lockhart and Mr McMeniman submitted, and I accepted for the reasons indicated in the course of oral submissions at the second Court hearing, that the amended documents fall within the definition of the "Amendment Deed (GiLTS)" and the "Second Amendment Deed (STID)" in the Junior Scheme as documents "substantially" in specified forms. It seems to me that those amendments had no substantive legal impact, having regard to the existence of the corresponding provisions in the other transaction documents, and did no more than restate the existing legal role and limitations on liability of the GiLTS Note trustee. There is no need to exercise the Court's power under s 411(6) of the Act to grant its approval to a compromise or arrangement subject to such alterations or conditions as it thinks just arises in this situation, although I would have approved the Junior Scheme including the relevant amendments to the Amendment Deed (GiLTS) and the Second Amendment Deed (STID) under s 411(6) of the Act had it been necessary to do so.

Orders at the second Court hearing

1. For these reasons, I made orders as proposed by WICET approving the Junior Scheme at the second Court hearing on 14 June 2019.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 04 July 2019