12 The principal question now is whether the proposed schemes should be approved. In my reasons for decision on the convening hearing, I referred to some troubling aspects of the proposed schemes. I should mention two aspects. First, the schemes provide that a sum of $11.5 million will be distributed otherwise than to the unsecured creditors. That amount is to be distributed as follows: (a) $1 million to CLF, a litigation funder who is funding the class action commenced by Imobilari Pty Ltd; (b) $2.5 million to IMF, a litigation funder who is funding several proceedings which have been brought against an Opes company or the banks; and (c) $8 million to be placed in a plaintiffs' costs fund to cover, at least proportionately, the legal costs incurred by Opes clients in other actions brought against Opes companies or the banks.
13 The second troubling aspect concerns the release and indemnity deed, which forms part of the proposed schemes of arrangement. It is the deed which it is proposed the liquidators will execute on behalf of creditors for purposes of releasing all claims against the released parties. Not only does this deed operate as a release, but there is an indemnity provision contained in it. Clause 6.5 provides that each creditor must indemnify the released parties against any loss or liability resulting from an Opes related claim brought by any person. Clause 6.6 provides for a cap on that liability. That cap is to be limited to: (a) the amount actually received by a creditor under the scheme; plus (b) the proceeds received by a creditor in respect of any third party claims (for example, a claim brought by a creditor against a financial adviser) (the second limb of cl 6.6).
14 Those aspects of the proposed schemes were the subject of discussion at the meetings of creditors. Resolutions were proposed at the OPSL meeting and the Leveraged Capital meeting that, in effect, the following amendments be put to the court at the approval hearing: (a) the deletion of the second limb of cl 6.6; and (b) the deletion of the clauses providing for payment to the litigation funder and the establishment of the plaintiffs' costs fund.
15 The resolutions were defeated by substantial majority. In the case of the Leveraged Capital meetings, the resolutions were defeated by the same number that voted in favour of the schemes. At the OPSL meetings, the resolutions were defeated on majorities representing approximately 82 per cent by number and somewhere between 87 and 90 per cent of the value of voting claims. Importantly for present purposes, when one dissects the votes and excludes the votes of those creditors who take a benefit from the provisions (that is, those creditors whose legal costs might be paid or who might otherwise be under an obligation to pay a litigation funder something out of the proceeds they would otherwise receive from the schemes) there is still a significant majority of creditors who oppose the resolutions. Nevertheless, Mr Sweeney QC, who appeared for a group of more than 80 former clients, submitted that the court should make the amendments.
16 Section 411(6) permits the court to approve a scheme of arrangement subject to such alterations as it thinks just. The section does not circumscribe the extent of the power. No doubt, it is available in many circumstances. In Re Matine Ltd (1998) 28 ACSR 268, 284 Santow J said:
The discretion of the court under s 411(6) is at large, but the court would obviously have regard to whether the proposed variation was so novel or substantial as to take the varied scheme beyond the reasonable contemplation of shareholders at the time they agreed to it.
In Independent Practitioner Network Ltd, in the matter of Independent Practitioner Network Ltd (No 2) [2008] FCA 1593 at [17] Lindgren J said:
At least one thing is clear: the Court will not approve subject to alterations unless it is satisfied that the scheme as proposed to be altered would still have been agreed to by the requisite statutory majorities.
A more circumscribed approach is evident in the judgment of Gyles J in Re Investorinfo Limited (2006) 24 ACLC 44. He said (at 45) if "the alteration is of a minor kind which does not really affect the details of the scheme, then the Court has power to approve the scheme as amended".
17 It is not presently necessary to determine the outer limit of the court's power to amend a scheme of arrangement, assuming it is possible to describe the limit. But whatever be the limit, there is no doubt that the court could remove an unreasonable or unfair provision in a scheme if the inclusion of that provision might warrant withholding approval, provided what remains is, substantially speaking, the scheme to which the members or creditors, as the case may be, agreed.
18 It was submitted by a number of creditors that if the amendments proposed in the resolutions were made, there is a risk the schemes may have been defeated. I agree with that submission. I am, therefore, not in a position to make the amendments.
19 The resultant position is that I must decide whether the impugned provisions are such as to render the schemes so unfair that they should not be approved: a sort of "winner takes all" approach.
20 In my earlier reasons, I expressed concern about approving a scheme that involves a departure from a pari passu rule. It is true, as the liquidators point out, that departure from the pari passu rule may, in certain circumstances, be justified. Section 556 contains a growing list of debts which are accorded priority over other debts of an insolvent company. Some are given priority for sound policy reasons while others exist for purely political purposes. Nonetheless, Parliament has chosen what debts are to be preferred and then leaves the general body of unsecured creditors to be treated equally. According to Mr Sweeney, what these schemes propose, at least in part, is a departure from that statutory regime. Such a departure is not generally justified. As to when a departure may be permitted see Re HIH Casualty and General Insurance Ltd (2005) 53 ACSR 12 and Commonwealth v Rocklea Spinning Mills Pty Ltd (2005) 145 FCR 220 (a deed of company arrangement case).
21 In the case of the instant schemes, there is not a true departure from the statutory regime for the distribution of assets in a winding up. The reason is that the money which is to be distributed between creditors has been put up by the banks. It is true that the liquidators believe there are potential causes of action against the banks which would get in a like amount, but the liquidators' claim has never been tested and, in any event, the liquidators' view is only one possible view. For their part, the banks contend that they are under no liability to the liquidators or the companies in liquidation. So, in real terms, the money that is to be distributed belongs to the banks and, at the risk of over-precision, does not form part of the liquidators' assets.
22 In any event, the liquidators seek to justify the departure, if there be a departure, from the pari passu rule on the basis that under the proposed schemes all creditors who have commenced litigation must discontinue the proceedings without any order as to costs; hence reimbursement of those costs is not unfair. To the contrary, the liquidators say that not to provide compensation would be unfair.
23 As regards the proposed payments to the litigation funders, the liquidators say it is fair that those creditors who have entered into funding arrangements should be relieved of the expense they may have incurred in commencing and conducting proceedings. Specifically, the liquidators say that the spate of litigation which was issued against the banks is likely to have made a contribution to the decision by the banks to compromise the dispute and put up a very large sum of money which will go to all creditors.
24 In my view, what is proposed is reasonable in all the circumstances. While the amount involved ($11.5 million) is not small, it is, in reality, only a very small proportion of the funds available for distribution among creditors. If the amount were to be divided between creditors, each creditor would receive an additional 1.9 cents in the dollar.
25 As regards the indemnity in favour of the banks, the provision will, in a practical sense, only have application if a creditor is contemplating bringing a claim against an adviser. Perhaps some creditors will pursue such claims. I doubt many will; but for those who do I do not think the indemnity will be a bar. The liquidators point out, and I agree, that the most likely claim a client will bring against a former adviser will be for negligence, breach of a contractual duty of care, or, possibly, misleading or deceptive conduct. Many of those claims are subject to proportionate liability regimes. If an adviser is sued he would most likely raise a proportionate liability defence without the need to join a bank. The position in Victoria is different, but I would not refuse approval of the schemes to deal with what might only be one or two actions brought in this State.
26 Another point of potential unfairness is that the values of the releases have not been brought to account for purposes of determining how the fund should be distributed between creditors. In my earlier reasons, I suggested this may amount to a confiscation of the client creditors' money in favour of the trade creditors. There are two reasons why this no longer troubles me. First, what the trade creditors will receive by way of additional payment is minimal. Second, the notion that it is possible to value the client creditors' claims is largely theoretical. The process of valuation, if one were to be undertaken, would be so complex and costly that I do not imagine any real benefit being achieved from undertaking the task.
27 Finally, a large number of creditors, by a large majority, supported the schemes after having had explained to them in some detail the effect of the impugned provisions. While I would not defer to the views of creditors in a clear case of unfairness or if a scheme were patently unreasonable, it would be wrong to disregard the creditors' views here. Many are sophisticated investors and most, at least for the purposes of the scheme meetings, had legal advice available to them. This is a very good example of a scheme the reasonableness of which is best judged by the creditors. It is clear from the voting that the creditors prefer to take what they will get out of the schemes rather than face the uncertain risks and hazards of litigation.
28 I propose to approve the schemes and will make orders in the form of the short minutes that were provided by the liquidators.
29 The only thing that remains outstanding is whether I should keep secret the names, addresses and votes of creditors. Section 50 of the Federal Court of Australia Act 1976 (Cth) provides that the court can forbid or restrict the publication of evidence or the name of a party or witness "as appears to the Court to be necessary in order to prevent prejudice to the administration of justice or the security of the Commonwealth". Although creditors may wish to keep their details confidential, the publication of that information will certainly not prejudice the security of the Commonwealth and there is no evidence to suggest that the publication could prejudice the administration of justice. I decline to make a secrecy order.
I certify that the preceding twenty nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.