F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd

Background

1. By Originating Process filed on 16 November 2021, the Plaintiffs, Aventus Holdings Ltd ("AHL") and Aventus Capital Ltd ("ACL") as responsible entity of the Aventus Retail Property Fund ("ARPF") respectively seek orders under s 411 of the Corporations Act 2001 (Cth) in respect of a proposed scheme of arrangement, and the opinion, advice and direction of the Court under s 63 of the Trustee Act 1925 (NSW) in respect of a proposed trust scheme. I made the orders sought at the first Court hearing. These are my reasons for doing so.
2. By way of background, AHL is an Australian public company limited by shares and the ARPF is registered as a managed investment scheme under Chapter 5C of the Corporations Act. Stapled securities issued by AHL and ACL (together, "Aventus") trade on the Australian Securities Exchange ("ASX") and each stapled security comprises one unit in the ARPF stapled to one share issued by AHL. Aventus is an owner and specialist fund and asset manager of large format retail centres in Australia.
3. In September 2021, Aventus received an unsolicited and confidential expression of interest from HMC Funds Management ("HDN Trustee") as the responsible entity of the Home Consortium Daily Needs REIT ("HDN Trust") and Home Consortium (currently a stapled group comprising Home Consortium Limited ("HCL") and Home Consortium Developments Limited ("HCDL")) to merge the HDN Trust with the ARPF, and Home Consortium with AHL, respectively. At the same time, Home Consortium was proposing to simplify its company structure by unstapling HCL shares from the HCDL shares and transferring the HCDL shares to HCL by way of a scheme of arrangement between HCDL and securityholders of Home Consortium ("Proposed Home Consortium Restructure") and that scheme of arrangement was recently approved in this Court. On 18 October 2021, Aventus announced to ASX that it had entered into a Scheme Implementation Deed dated 18 October 2021 ("SID") to implement a merger with the effect that units in the ARPF and ordinary shares in AHL will be unstapled; the HDN Trust will acquire all of the issued units in the ARPF by way of the trust scheme to be implemented through an amendment to ARPF's constitution; and Home Consortium will acquire all of the shares in AHL by way of the members' scheme. On 5 December 2021, the SID was amended by a letter agreement.
4. The consideration which scheme securityholders will receive is 2.20 HDN units per Aventus security ("New HDN Units") (available to scheme securityholders except Ineligible Foreign Securityholders as defined), and either $0.285 per Aventus security ("Cash Consideration") (available to all scheme securityholders) or 0.038 Home Consortium securities ("New HomeCo Securities") per Aventus security ("HomeCo Scrip Consideration") (available to all scheme securityholders except Ineligible Foreign Securityholders) ("Scheme Consideration"). Based on the HDN Trust and Home Consortium closing prices on 15 October 2021, the implied offer price is $3.82. The implementation of the schemes is subject to various conditions precedent, including Foreign Investment Review Board (FIRB) approval, as set out in cl 3.1 of the SID. The effect of implementation of the schemes would be that the ARPF would be wholly owned by the HDN Trust and AHL would be wholly owned by Home Consortium.
5. The five directors on the boards of both AHL and ACL have unanimously recommended that Aventus securityholders (other than Excluded Securityholders) vote in favour of the associated unstapling resolution and the schemes, in the absence of a superior proposal and subject to an independent expert continuing to conclude that the schemes are in the best interests of Aventus securityholders (other than Excluded Securityholders). That recommendation includes a recommendation of Mr Darren Holland, Aventus' managing director and chief executive officer. I will refer to his interests in the schemes below. In the absence of a superior proposal and subject to the independent expert continuing to conclude that the schemes are in the best interests of scheme securityholders, Aventus' directors intend to vote or procure the vote of all of their Aventus securities in favour of the schemes. They collectively have a relevant interest in approximately 6.7% of the Aventus securities.
6. Aventus' largest investor, BB Retail Capital Pty Ltd and its associated entities ("BBRC") holds a relevant interest in approximately 22.6% of Aventus securities and has advised that it intends to vote all of its Aventus securities in favour of the unstapling and the schemes, based on the disclosed terms of the schemes and in the absence of a superior proposal and subject to matters concerning FIRB approval, no "HDN Prescribed Occurrence" and no "HDN Material Adverse Change" conditions (as defined in the SID), and this intent is disclosed in section 11.2 of the scheme booklet.
7. Deloitte Corporate Finance Pty Limited ("Deloitte"), the independent expert appointed by Aventus to assess the proposed unstapling and the schemes, has prepared an independent expert's report which is contained in Annexure A to the scheme booklet. Deloitte has concluded that the proposed transaction, comprising the unstapling and the schemes, is fair and reasonable to and therefore in the best interests of Aventus securityholders (other than Excluded Securityholders) in the absence of a superior proposal.
8. I made the orders sought by Aventus at the end of the first Court hearing in respect of the matter. These are my reasons for doing so. I have drawn on the helpful submissions of Mr Jackman, who appears for Aventus in respect of the application, in this judgment.

Affidavit evidence

1. The Plaintiffs read the affidavit dated 16 November 2021 of Mr Luke Hastings, who is a partner in the firm of solicitors who act for AHL and ACL in respect of the company scheme and trust scheme. Mr Hastings refers to the announcement made by Aventus to ASX on 18 October 2021, to which I referred above, and that the directors of AHL and ACL have unanimously recommended that, absent a Superior Proposal (as defined), Aventus securityholders (other than Excluded Security Holders, as defined) should vote in favour of the transaction, subject to the independent expert concluding and continuing to conclude that it is in the best interests of Aventus securityholders (other than Excluded Securityholders).
2. The Plaintiffs also read the affidavit dated 1 December 2021 of Mr Bruce Carter, who is a non-executive director of AHL and ACL, and indicates his consent to act as chair of the virtual meetings which would be conducted in respect of the proposed company scheme and trust scheme and his intent to follow the procedures set out by Barrett J in Re Hills Motorway Ltd (2002) 43 ACSR 101; [2002] NSWSC 897 at [22] in respect of the conduct of the scheme meetings. By an affidavit dated 3 December 2021, Mr Kieran Pryke, who is also a non-executive director of AHL and ACL, indicates his consent to act as chair of the meetings if Mr Carter is unable to do so, and that he would follow the same procedure.
3. By an affidavit dated 3 December 2021, Mr Aaron Calder, who is a senior client relationship manager of Link Market Services Ltd ("LMS") notes that LMS maintains the register of Aventus securityholders and has been retained by Aventus to provide services in relation to the proposed members scheme and trust scheme, including in relation to the dispatch of materials in electronic and hard copy form and the conduct of the virtual scheme meeting. Mr Calder also outlines the operation of the "LMS Platform" which would be used to conduct that meeting.
4. By an affidavit dated 3 December 2021, Ms Mary Ellen Weaver, who is the general counsel and company secretary of AHL and ACL, refers to the structure of Aventus stapled securities and the orders sought in the application. She also outlines the background to the transaction, including the receipt of an earlier expression of interest from HDN Trustee as the responsible entity of the HDN Trust and Home Consortium to merge the HDN Trust with the ARPF and Home Consortium with ACL. She also refers to the announcement made by Aventus to ASX on 18 October 2021 that it had entered into the SID and to an announcement made by Home Consortium on the same date relating to a proposal to destaple its own securities. She addresses the proposed consideration for the scheme and the availability of an election to scheme securityholders (other than Ineligible Foreign Securityholders as defined) to elect to receive the HomeCo Scrip Consideration (as defined) rather than the Cash Consideration (as defined) of $0.285, in addition to 2.20 HDN units per Aventus security. Ms Weaver also addressed the position in respect of Ineligible Foreign Securityholders and referred to the benefit which Mr Holland would receive in respect of restricted securities if the schemes were implemented, which is disclosed in the scheme booklet, and also addressed BBRC's intention to vote in favour of the schemes, with the qualifications I noted above. Ms Weaver also set out the conditions precedent to the scheme and referred to reimbursement fees that were payable under the schemes and to proposed exclusivity provisions. She also addressed the treatment of incentives available to Aventus senior management and employees under the schemes and the process of verification of the scheme booklet. By a second affidavit dated 6 December 2021, Ms Weaver in turn addressed an update in the election time proposed in respect of the scheme, and further steps in respect of the verification of the scheme booklet.
5. By his affidavit dated 5 December 2021, Mr Andrew Selim, who is the company secretary of the Home Consortium entities, addressed the structure of the schemes and the verification of information relating to HDN Trustee contained in the scheme booklet. By a second affidavit also dated 5 December 2021, Mr Selim addressed the verification process adopted in respect of information concerning HomeCo contained in the scheme booklet, and the position in respect of reimbursement fees under the SID and the proposed HomeCo restructure. He also referred to a put and call option agreement entered into between Home Consortium, the HDN Trustee and an entity associated with BBRC, which allowed Home Consortium the right to call for, and BBRC to put, approximately 6% of the Aventus securities on issue at the date of the option agreement. By a third affidavit dated 6 December 2021, Mr Selim addressed the verification by Home Consortium of further information contained in the scheme booklet.
6. By his affidavit dated 6 December 2021, Mr Tapan Parekh, who is a partner of the Australian partnership of Deloitte Touche Tohmatsu, which wholly owns Deloitte Corporate Finance Pty Ltd, addressed the independent experts report prepared in respect of the proposed scheme and trust scheme. By an affidavit dated 6 December 2021, Mr Philip Podzebenko, who is a partner in the firm of solicitors acting for AHL and ACL in respect of the schemes, addressed correspondence with the Australian Securities & Investment Commission ("ASIC") in respect of the schemes, and the Aventus board's approval in respect of the schemes, and exhibited the draft scheme booklet to his affidavit.
7. Aventus also tendered a letter dated 6 December 2021 from ASIC in respect of the company scheme, which confirmed ASIC's view that it had had a reasonable opportunity to examine the terms of the scheme and the draft explanatory statement, and indicated that it did not currently propose to appear to make submissions or intervene to oppose the scheme at the first Court hearing, while reserving its position in respect of s 411(17)(b) of the Act to the second Court hearing in accordance with its usual practice.

Matters relevant to convening the company scheme meeting

1. Mr Jackman draws attention to the test commonly applied by Australian Courts in deciding whether to convene a members' scheme meeting is that articulated by Street CJ (with whom Hutley and Samuels JJA agreed) in F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 as follows: "The approach taken upon a summons 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 achieves the statutory majority at the Members' meeting the court would be likely to approve it on the hearing of a petition which is unopposed".
2. He also refers to my summary of the applicable principles for a first Court hearing in Re Ellerston Global Investments Ltd [2020] NSWSC 879 at [25]-[27]: "It is, of course, well-established that the Court will order the convening of a scheme meeting and approve a draft explanatory statement if it is satisfied that the plaintiff 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 members; the scheme is bona fide and properly proposed; 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 Supreme Court (Corporations) Rules 1999 (NSW) 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 Staging Connections Group Ltd [2015] FCA 1012 at [19]-[20]; Re Atlas Iron Ltd [2016] FCA 366; (2016) 112 ACSR 554 at [30]; Re Duet Finance Ltd [2017] NSWSC 415 at [15]; Re Villa World Ltd [2019] NSWSC 1207 at [15]. The Court will not ordinarily summon a meeting at the first court hearing 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, approved in Australian Securities Commissions v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485 at 504. In Re Foundation Healthcare Ltd [2002] FCA 742; (2002) 42 ACSR 252 at [36] and [44] (cited with apparent approval in Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358 at [58]), French J observed that: "... by granting leave to convene the meeting, the court does not give its imprimatur to the proposed scheme. 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 be given: Re ACM Gold Ltd (1992) 34 FCR 530; 107 ALR 359; 7 ACSR 231; 10 ACLC 573 (O'Loughlin J). The court is not required to give close consideration to the effects of the scheme upon individual members of the classes of members or creditors affected. So to do would be to "introduce burdensome and to a large extent ineffectual consideration at this interlocutory stage": Re Jax Marine Pty Ltd [1967] 1 NSWR 145 at 148 (Street J).... The court at the stage of ordering a meeting to approve a scheme does not ordinarily go very far into the question of whether the arrangement is one which warrants the approval of the court ... That question is to be answered when the scheme returns to the court for final approval. That is not to exclude the possibility that a scheme may appear on its face so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further." At the first hearing, the Court is not concerned with whether final approval should be given to the scheme, but whether the scheme is one which is adequately explained to those who have a financial interest in it, and whether there is any obvious flaw in the scheme, such that it would be inappropriate even for it to be submitted for consideration: Re Abacus Funds Management Ltd [2005] NSWSC 1309; (2006) 24 ACLC 211 at [23]; Re Villa World above at [18]. The Court is also not required to be satisfied that no better scheme could have been proposed, but with whether sensible business people might consider the arrangement proposed is of benefit to members: Centrebet International Ltd [2011] FCA 870 at [29]; Re SAI Global Ltd [2016] FCA 1312 at [18]; Re BIS Finance Pty Ltd Finance Pty Ltd [2017] NSWSC 1713 at [22]."
3. I am satisfied that AHL is a Part 5.1 body, the proposed company scheme is an arrangement within the meaning of s 411 of the Act and there is no reason to doubt that the scheme booklet provides proper disclosure to Aventus shareholders. I have referred to evidence of a verification and due diligence process above. There is no reason to doubt that the proposed scheme is bona fide and properly proposed and could be approved at the second Court hearing if it receives the requisite shareholder approvals. Although ASIC has reserved its position as to s 411(17)(b) of the Act in accordance with its usual practice, the Court can address that question at the second Court hearing. I am satisfied that the orders sought should be made in respect of the proposed scheme.

Judicial advice as to the trust scheme

1. Mr Jackman also recognises that registered managed investment schemes such as ARPF are not Part 5.1 bodies for the purposes of the scheme provisions in Part 5.1 of the Corporations Act. He notes that it is now conventional in a "trust scheme" relating to a listed registered managed investment scheme for a responsible entity to seek judicial advice in a two-stage process by analogy with schemes under Part 5.1: Re Mirvac Ltd (1999) 32 ACSR 107; [1999] NSWSC 457; Re Macquarie Communications Group [2009] NSWSC 487; Re DUET Management Company 1 Ltd [2013] NSWSC 817; Re Sydney Airport Holdings Ltd [2013] NSWSC 1665; Re Investa Listed Funds Management Ltd [2018] NSWSC 1766. He also refers to the practice for an application for judicial advice under s 63 of the Trustee Act (and its analogues in other Australian jurisdictions) in connection with a trust scheme that, at the first hearing, the responsible entity seeks judicial advice that it is justified in propounding resolutions to implement the scheme and in proceeding on the basis that proposed amendments to the constitution of the registered managed investment scheme to implement the trust scheme would be within the powers of alteration conferred by that document and s 601GC of the Corporations Act (Re Mirvac Ltd above at [47]; Re DUET Management Company 1 Ltd above at [9]); that judicial advice and the right of unitholders to appear at the second hearing and object to the trust scheme is disclosed in an explanatory statement sent to unitholders for a meeting to consider the resolutions to implement the scheme; unitholders meet to consider and vote on the resolutions; and the responsible entity can then seek judicial advice at the second hearing that, having regard to the result of voting at the scheme meeting and any other relevant circumstances, it is justified in implementing the scheme (Re Mirvac Ltd above at [48]; Re Homemaker Retail Management Ltd (2001) 40 ACSR 116; [2001] NSWSC 1058 at [6]).
2. Mr Jackman also submits and I accept that the power of alteration under s 601GC(1)(a) of the Corporations Act is very wide, unlimited in terms, and is sufficient to confer jurisdiction under s 63 of the Trustee Act in a trust scheme context: Re Mirvac Ltd above at [44]-[47]; Re DUET Management Company 1 Ltd above at [10]. There is no implied limitation on the Court's power to give advice pursuant to s 63 of the Trustee Act, nor on the discretionary factors the Court may take into account: Macedonian Orthodox Church St Petka Inc v His Eminence Petar (2008) 237 CLR 66; ; (2008) 249 ALR 250; [2008] HCA 42 at [55]-[59].
3. I will deal with several specific issues that extend to the trust scheme below. I am otherwise satisfied that ACL, as responsible entity of the ARPF, would be justified in proceeding on the basis that the making of the proposed amendments to the ARPF's constitution in connection with the trust scheme, following the requisite approval by unitholders, would be within its powers, including the power of alteration conferred by the ARPF's constitution and s 601GC of the Act.

Particular aspects of the schemes

1. Mr Jackman draws several aspects of the schemes to the Court's attention, consistent with the Court's expectations of the Court articulated by Barrett J in Re Permanent Trustee Co Ltd (2002) 43 ACSR 601 at 603; [2002] NSWSC 1177. First, he points out that the number of HDN units that will be issued as scheme consideration under the trust scheme will exceed HDN Trustee's 15% placement capacity under ASX Listing Rule 7.1 and that the exception for issues of securities as consideration under a scheme is not available, as the number of HDN units that will be issued will exceed 100% of the HDN units currently on issue. He notes that approval of unitholders in the HDN Trust ("Reverse Takeover Resolution") is required before the HDN units can be issued as scheme consideration to Aventus securityholders. The passage of such a resolution by the necessary majority of HDN Trust unitholders is a condition precedent to the schemes, and HDN Trustee will convene a meeting of HDN Trust unitholders to seek that approval on or about 24 January 2022. The need for that approval is disclosed in section 2.3.2 of the scheme booklet.
2. Second, Mr Jackman notes that the Proposed Home Consortium Restructure, if implemented, will result in Home Consortium comprising a single listed company, HCL, with only ordinary shares on issue and Home Consortium securityholders holding one ordinary share in HCL for every one stapled security that they held prior to the Proposed Home Consortium Restructure. I note that this restructure has, since the date of the first Court hearing in this matter, been approved by Home Consortium securityholders and by the Court at the second Court hearing and is proposed to be implemented by 24 December 2021. Section 11.4 of the scheme booklet draws these matters to the attention of Aventus securityholders, and discloses that, if that restructuring is implemented before the Effective Date of these schemes (expected to be 3 February 2022), Aventus securityholders who elect to receive HomeCo Scrip Consideration will receive fully paid ordinary shares in HCL which will be quoted for trading on ASX.
3. Third, Mr Jackman noted that Aventus had engaged an independent valuer to value its entire portfolio as at 31 December 2021, and expected to release a summary of the results of the valuation of its portfolio to ASX in late December 2021. This is disclosed in section 4.3 of the scheme booklet. Mr Jackman also noted that the HDN Trustee also intends to value the HDN Trust's entire portfolio as at 31 December 2021 and release to ASX a summary of the results of the valuation of its portfolio in late December 2021, and this is disclosed in section 5.2.1 of the scheme booklet. Following the release of the updated valuation, the Aventus boards will seek to obtain confirmation from Deloitte as to whether the updated valuation changes the conclusion expressed in the independent expert's report. This confirmation will be announced to ASX in advance of the scheme meetings and, if Deloitte's opinion has changed, Aventus will make supplementary disclosure, as necessary, and seek to have the matter relisted before the Court prior to the meetings. Mr Jackman submits, and I accept, that earlier cases have accepted this approach in respect of updating financial information: Re Andean Resources Ltd [2010] FCA 1190 at [26]; Re Talent2 International Ltd [2012] FCA 771 at [30] - [31]; Re Pulse Health Ltd [2017] NSWSC 140 at [28].
4. Fourth, Mr Jackman notes that Mr Holland and Lawrence Wong, the chief financial officer of Aventus, will be offered roles as the chief executive officer and chief financial officer respectively of the Merged HDN Group; several current directors of Aventus including Mr Holland will also be appointed to the HDN Trustee Board; and Mr Carter will remain on the HDN Trustee Board until December 2022 to facilitate a smooth transition. These arrangements are disclosed in the Letter from the Chairman of Aventus Group, Answers to Key Questions and elsewhere in the scheme booklet.
5. Fifth, Mr Holland will, if the schemes become effective, be entitled to receive HDN units and New HomeCo Securities with a value (determined as at the Last Practicable Date, as defined in the scheme booklet) of approximately $19.9 million in respect of his Aventus securities and Restricted Aventus Securities (as defined) and (as I noted above) will be offered a management position as Chief Executive Officer of the Merged HDN Group (as defined in the scheme booklet). The bulk of the securities received by Mr Holland relate to his existing Aventus securityholdings but some reflect the conversion of securities under incentive schemes. These interests are disclosed in sections 4.8 and 11.5 of the scheme booklet, and the letter from the Chairman of Aventus Group and sections 1.1 and 3.1 of the scheme booklet note that Aventus securityholders should have regard to these matters when considering Mr Holland's recommendation on the schemes.
6. Mr Jackman refers to the approach in the case law to the question whether it is appropriate for a director who will receive a cash payment in lieu of his or her incentive arrangements if a scheme becomes effective, to provide a recommendation in the scheme booklet, and refers to my decisions addressing this matter in Re Villa World Ltd [2019] NSWSC 1207; Re GBST Holdings Ltd [2019] NSWSC 1280; Re Windlab Ltd [2020] NSWSC 571, Re Coca-Cola Amatil Ltd [2021] NSWSC 270 and Re BINGO Industries Ltd [2021] NSWSC 798 and the decisions of Beach J in Re DWS Ltd [2020] FCA 1590 and Re RXP Services Ltd [2021] FCA 38 at [48] and of Perram J in Re Mainstream Group Holdings Ltd [2021] FCA 948 taking the same approach. I am satisfied that Mr Holland's interests arising from these matters are sufficiently disclosed in the scheme booklet and do not prevent him making a recommendation in respect of the schemes and that holders of Restricted Aventus Securities who are also Aventus securityholders are not in a separate class of Aventus securityholders: Re Cashcard Australia Ltd (2004) 48 ACSR 738; [2004] FCA 223; Re Foster's Group Ltd (No 2) [2011] VSC 547 at [38]-[43].
7. Sixth, Mr Jackman addresses the structure of the scheme consideration. He points out that all scheme securityholders (other than Ineligible Foreign Securityholders) will receive HDN units in exchange for their Aventus units pursuant to the trust scheme. The HomeCo Scrip Consideration will only be received by those scheme securityholders (other than Ineligible Foreign Securityholders) who elect to receive consideration in that form by validly completing an election form by a specified time. He also notes that the New HomeCo Securities to be issued as the HomeCo Scrip Consideration will comprise fully paid ordinary shares in HCL, where the Proposed Home Consortium Restructure is implemented before the effective date for the schemes. Mr Jackman submits and I accept that the structure of the scheme consideration is not a matter that would warrant the Court declining to convene the scheme meetings, where the scheme booklet contains detailed and prominent disclosure of the risks involved in investing in the HDN Trust and the risks involved in Aventus securityholders electing to invest in Home Consortium or HCL, including in the letter from the Chairman of Aventus Group and section 8 of the scheme booklet. Mr Jackman also addresses the treatment of Ineligible Foreign Securityholders (as defined) which is in common form.
8. Seventh, Mr Jackman addresses the question of reimbursement (or "break") fees payable by Aventus, Home Consortium and HDN Trustee under the schemes. The case law has accepted reimbursement (or "break") fees that are a genuine pre-estimate of the internal and external costs that would be incurred by an acquirer in respect of a scheme, including opportunity costs, and that are not payable if the shareholders did not vote in favour of the scheme and are unlikely to be a matter which could influence voting at the scheme meeting: Re Cytopia Ltd [2009] VSC 560; Re Webcentral Group Ltd [2020] NSWSC 1279 at [30]; Re Coca-Cola Amatil Ltd above at [24].
9. Clause 13.2 of the SID provides for ACL to pay a reimbursement fee of AUD $20.15 million (excluding GST) to HDN Trustee and AHL must pay a reimbursement fee of AUD $1.63 million (excluding GST) to Home Consortium in specified circumstances. Those fees are not triggered on the Court's declining to approve the schemes or Aventus securityholders failing to approve the schemes with the requisite majorities and are not a disincentive to Aventus securityholders in their consideration of the proposed unstapling or the schemes: Re Adelaide Bank Ltd [2007] FCA 1582 at [31]. Mr Selim addresses the components of the out of pocket and opportunity costs of HDN Trustee and Home Consortium that support the amount of the reimbursement fees in his affidavits, to which I referred above. Clause 14.2 of the SID in turn provides that HDN Trustee must pay to ACL a reverse reimbursement fee of $20.15 million (excluding GST) and Home Consortium must pay to AHL a reverse reimbursement fee of $1.63 million (excluding GST) in specified circumstances.
10. These reimbursement fees are approximately 1.00% of the equity value of Aventus based on the implied value of the scheme consideration of $3.82 per Aventus security and the 570,729,306 Aventus securities on issue as at 18 October 2021, which is in line with the guideline figure indicated by the Takeovers Panel in their Guidance Note 7: Lock-up devices.
11. Mr Jackman points out that cl 14.9 of the SID also provides that, if the HDN meeting is held and the Reverse Takeover Resolution is not approved by the required majority of HDN unitholders or HDN unitholders fail to approve the Reverse Takeover Resolution by 8 May 2022, and unless the reverse reimbursement fees are payable (as set out above), then HDN Trustee must reimburse Aventus for all external costs and expenses actually incurred and payable by any member of the Aventus Group to a third party up to the date of the HDN meeting or the date that is 5 Business Days before the End Date (as applicable) in relation to the transaction, up to a maximum of $5 million. Mr Jackman points out that this cost reimbursement is payable to Aventus, rather than by Aventus, and is not detrimental or coercive to Aventus securityholders in their consideration of the unstapling and schemes. I accept that it is not in the nature of a "naked no vote" break fee payable by a scheme company to the acquirer (rather than by the acquirer to the scheme company) which was disapproved in Re Bolnisi Gold NL (No 2) (2007) 243 ALR 545; 65 ACSR 510; [2007] FCA 2078. This fee seems to me to be a genuine reimbursement of wasted costs, and is paid in narrower circumstances than the reverse break fee that was accepted in Re Afterpay Ltd [2021] NSWSC 1435, which was payable, inter alia, on the bidder's failure to obtain shareholder approval for the transaction. The maximum reimbursement on this basis is well below 1% of the equity value of Aventus based on the implied value of the scheme consideration.
12. Eighth, Mr Jackman notes that cl 11.2 of the SID imposes "no talk", "no shop" and "no due diligence" obligations, and the "no talk" and "no due diligence" obligations are subject to a fiduciary exception as set out in cl 11.3 of the SID. Mr Jackman refers to my observation in Re TPG Telecom Ltd [2020] NSWSC 772 at [22] that: "the Court will be concerned to ensure that any exclusivity period should be for no more than a reasonable period capable of precise ascertainment; an exclusivity clause directed at dealing with an unsolicited alternative merger proposal should be subject to a fiduciary carve out; and the provisions must be clearly disclosed in the explanatory statement sent to shareholders."
13. Mr Jackman also points out that the exclusivity period is defined in the SID and capable of precise ascertainment, and continues from 18 October 2021, the date of the SID, until the earlier of specified events, including an End Date of 15 May 2022, or such other later date as agreed in writing by the parties. I accept that this is a reasonable period and is shorter than exclusivity periods in some other schemes that have previously been accepted by the Court: Re Tatts Group Ltd [2017] VSC 552 at [36]-[39]; Re Tawana Resources NL [2018] FCA 1456 at [32]; Re Vocus Group Ltd [2021] NSWSC 630 at [16]-[17]. As I noted above, the "no talk" and "no due diligence" restrictions are subject to a fiduciary exception and the exclusivity provisions are clearly disclosed in the scheme booklet. I accept that similar provisions have been accepted in the case law including Re TPG Telecom Ltd above at [22] and Re Windlab Ltd above at [18].
14. Ninth, Mr Jackman notes that neither Home Consortium nor HDN Trustee nor their related bodies corporate is an Aventus securityholder. However, section 11.3 of the scheme booklet discloses that Home Consortium has a relevant interest in 34,243,758 Aventus securities, representing 6% of the Aventus securities on issue and HDN Trustee has voting power referrable to those Aventus securities. That relevant interest arises from the put and call option agreement entered between Home Consortium and BBRC on 18 October 2021 in relation to 34,243,758 Aventus securities, which I noted above.
15. Mr Jackman submits that the BBRC Option Agreement should not prevent BBRC voting all of the Aventus securities it holds at the scheme record date for the company scheme in the same class as other Aventus securityholders. The case law indicates that, without more, option arrangements entered into by a scheme securityholder and an acquirer over securities held by a scheme securityholder do not create a separate class: Re MAC Services Group Ltd [2010] NSWSC 1316; Re Bigair Group Ltd [2016] FCA at [17]-[19]). Mr Jackman rightly recognises that, if Home Consortium exercises the call option to purchase Sale Securities (as defined) under the BBRC Option Agreement, the cash amount payable to BBRC will be determined as a function of the volume weighted average price (VWAP) of HDN units and HomeCo securities in a specified period and, if the value of HDN units or HomeCo securities changes during that period, that amount may differ from the implied offer price of $3.82 under the schemes. He submits, and on balance I accept, that the rights of BBRC are not sufficiently differently affected by the schemes such as to make it impossible for BBRC and other scheme securityholders to consider the company scheme as one class, and a similar result was reached in Re Aston Resources Ltd [2012] FCA 229. That approach seems to me to be consistent with not requiring a separate class where rights of securityholders are not so differently affected by the scheme as to make it impossible for securityholders to consider the scheme as one class: First Pacific Capital Advisors LLC v Boart Longyear Ltd [2017] NSWCA 116; Huon Aquaculture Group Ltd [2021] FCA 1170.
16. Tenth, Mr Jackman points out that, having regard to the uncertainty and potential health risks associated with large gatherings during the COVID-19 pandemic, Aventus securityholders and their authorised proxies, attorneys and corporate representatives will have the option to attend the meetings in person or online. That approach is permitted by rule 8.3(d) of AHL's constitution and rule 16.8 of AHL's Constitution and cl 20.8(b) of the ARPF Trust Deed permit meetings of unitholders of ARPF to be held in conjunction with meetings of shareholders of AHL, while Aventus units are stapled to Aventus shares, and permit the Aventus boards to make such rules for the conduct of such meetings as the Aventus boards determine. Virtual meetings are now commonplace in company and trust schemes, and give rise to no reason not to approve the schemes for the reasons noted in Re Vocus Group Ltd above at [21]. The procedures for voting and participation in the meetings are disclosed in the scheme booklet.
17. Eleventh, Mr Jackman addresses performance risk. He notes that scheme participants' ability to enforce their entitlements under a scheme is relevant to the Court's discretion whether to convene the scheme meeting and approve the scheme, and a similar consideration can arise in a trust scheme where a third party provides the consideration: Re SFE Corporation Ltd [2006] FCA 670 at [4]; Re APN News & Media Ltd (2007) 62 ACSR 400 at 405; [2007] FCA 770; Re Sydney Airport Holdings Ltd above at [17]; Re Mirvac Funds Management Ltd [2014] NSWSC 1569 at [7]; Re Villa World Ltd above at [22]. He refers to my observation in Re Ellerston Global Investments Ltd [2020] NSWSC 879 at [29] that a practice has developed to address performance risk, by which the transfer of target shares to an acquirer is conditional on the payment of the consideration to target shareholders, and there are numerous cases which have endorsed that practice. He submits and I accept that that practice has been followed in these schemes and that sufficiently addresses performance risk in respect of the cash and scrip consideration. Each of Home Consortium and HDN Trustee have also executed a deed poll in favour of scheme securityholders.
18. Twelfth, Mr Jackman points out that cl 6.1(b) of the trust scheme provides that each scheme securityholder is taken to have given warranties to ARPF and HDN Trustee including that, on the Implementation Date (as defined), all their Aventus units are free from encumbrances and interests of third parties of any kind. Clause 9.2(b) of the company scheme provides corresponding warranties to AHL and Home Consortium in respect of Aventus shares. The case law has recognised the legitimacy of deemed warranty provisions, provided that appropriate disclosure is made, since their purpose and effect is to ensure that a scheme participant whose shares are subject to an encumbrance is not unfairly advantaged: Re Ardent Leisure Ltd [2018] NSWSC 1665 at [26]; Re Villa World Ltd above at [25], Re Windlab Ltd above at [21]. The deemed warranties given by scheme securityholders are here disclosed at section 11.1.8 of the scheme booklet.
19. Thirteenth, Mr Jackman notes that s 411(17) of the Act provides that the Court must not approve a scheme unless satisfied it is not proposed for the purpose of enabling avoidance of the takeovers provisions in Chapter 6 of the Act or ASIC provides a statement that it has no objection. I accept that this matter is properly deferred to the second court hearing: Re Macquarie Private Capital A Ltd [2008] NSWSC 323 at [23]-[31]; Re Ellerston Global Investments Limited above at [25].
20. Finally, Mr Jackman addresses the means by which scheme documents will be sent to Aventus securityholders, which gives rise to no reason not to approve the schemes.

Orders

1. For these reasons, I made the orders sought by AHL and ACL at the conclusion of the first Court hearing.

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