Fiducian Portfolio Services Limited v Fiducian Investment Management Services Limited

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1172 of 2014

IN THE MATTER OF FIDUCIAN PORTFOLIO SERVICES LIMITED ABN 13 073 854 931 BETWEEN: FIDUCIAN PORTFOLIO SERVICES LIMITED

AND: FIDUCIAN INVESTMENT MANAGEMENT SERVICES LIMITED ACN 602 441 814

JUDGE: YATES J DATE: 22 DECEMBER 2014 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 The plaintiff seeks an order pursuant to s 411(1) of the Corporations Act 2001 (Cth) (the Act) that a meeting of its members be convened to consider and, if thought fit, approve a scheme of arrangement (the scheme) in connection with which the plaintiff proposes to reorganise the structure of a group of companies of which it is currently the holding company (the Fiducian Group).

Background 2 The Fiducian Group provides: superannuation trustee services (the Fiducian Superannuation Service); funds management and investment services, including wrap platforms, and information technology solutions and administrative services for financial planners and their clients. 3 The Fiducian Group relevantly includes the following companies, each of which is wholly-owned by the plaintiff: Fiducian Financial Services Pty Ltd (FFS), which offers wealth management and financial planning services under Australian Financial Services Licence No. 231103; Fiducian Business Services Pty Ltd (FBS), which offers accounting and accountancy resourcing to clients including year end accounting and income tax reconciliation services, self-managed superannuation fund administration, and bookkeeping services, and Harold Bodinnar & Associates Pty Limited (HBA) and Money & Advice Pty Ltd (MAA), which are non-operating companies. 4 The plaintiff provides a range of administrative services for the Fiducian Group, such as platform administration, legal, financial accounting, marketing and distribution support services. 5 At the present time, the plaintiff has 30,883,397 fully-paid ordinary shares on issue and 100,000 options to subscribe for unissued shares. All the options are held by Inderjit Singh, the plaintiff's managing director. 6 Stripped to its essentials, the restructure will involve: interposing or "top-hatting" a new company, Fiducian Group Limited (NewCo) as the new holding company of the Fiducian Group; the members of the plaintiff exchanging each of their shares in the plaintiff for shares in NewCo, by means of the scheme of arrangement; various assets and liabilities of the plaintiff being transferred to two other new group companies, Fiducian Investment Management Services Limited (FIM) and Fiducian Services Pty Limited (FSL), each of which is presently a wholly-owned subsidiary of NewCo that has been joined as a party to the proceeding; the plaintiff transferring its shares in FFS, FBS, HBA and MAA to NewCo; Mr Singh's options being cancelled and NewCo granting an equivalent number of options to Mr Singh to subscribe for shares in NewCo, on substantially the same terms as the (to be) cancelled options; the listing of NewCo on the ASX, and the de-listing of the plaintiff from the ASX. 7 The purpose of the restructure is to isolate the Fiducian Superannuation Service with the plaintiff and to transfer the plaintiff's other businesses into dedicated corporate entities. Other than in relation to the transfer of the plaintiff's shares in its presently wholly-owned subsidiaries, it is proposed that the transfer of assets and liabilities from the plaintiff to FIM and FSL, respectively, be effected using the powers under s 413 of the Act. 8 The reason for the restructure lies in changes to the regulatory landscape affecting the plaintiff's businesses. It is considered that the structural separation of the Fiducian Superannuation Service from the Fiducian Group's other businesses will assist with managing potential and actual conflicts that may arise from the distinct capacities in which the plaintiff currently operates. Of particular note in this regard are the requirements of Prudential Standard SPS 521 Conflicts of Interest issued by the Australian Prudential Regulatory Authority. 9 The plaintiff's directors have made clear their view that, to date, the plaintiff has not failed to comply with any of its obligations or failed to appropriately manage any potential or actual conflicts. To this extent, they see the restructure as a means to ensure that the plaintiff adheres to "best practice". 10 However, if the restructure is not implemented, the directors currently consider that the most appropriate alternative means of procuring the structural separation of the Fiducian Superannuation Service from the Fiducian Group's other capacities would involve the individual novation of most of the plaintiff's existing contractual arrangements (which are significant in number) as well as the assignment of rights and the transfer of assets and other liabilities from the plaintiff to FIM or FSL, as applicable, excluding the contractual arrangements, assets and liabilities relating to the Fiducian Superannuation Service. This would likely incur additional administrative and compliance costs and would likely be less time and cost efficient than proceeding with the restructure.

The scheme 11 The scheme provides for members of the plaintiff at the Scheme Record Date, as defined (the scheme shareholders), to exchange their shares in the plaintiff for shares in NewCo, on a one-for-one basis. The transfer of shares from the scheme shareholders to NewCo is subject to NewCo having procured the issue of shares in its capital to the scheme shareholders. In the case of Ineligible Foreign Shareholders, as defined, provision is made for the sale of shares in NewCo that would otherwise be required to be issued to them, and the payment to them of the sale proceeds, subject to certain deductions. 12 The scheme contains warranties on the part of each scheme shareholder that the shares of that shareholder to be transferred will be fully-paid and free from encumbrances, and that the scheme shareholder has full power and capacity to transfer them. Each scheme shareholder also warrants that the shareholder has no existing right to be issued other shares, rights or securities in the plaintiff. These warranties are brought to the attention of members in a sufficiently prominent way in the scheme booklet, which will stand as the explanatory statement required to be issued under s 412(1) of the Act. 13 NewCo's obligations under the scheme are supported by a deed poll given in favour of each scheme shareholder. The executed deed poll has been tendered on the present application and marked as an exhibit. 14 The plaintiff's directors unanimously recommend that the members vote in favour of the scheme. Each director has declared his intention to vote in favour of the scheme. 15 An independent expert's report has been prepared by Pitcher Partners NSW Corporate Pty Limited (Pitcher Partners), which has expressed the view that the scheme is in the best interests of members. The report is included in the scheme booklet. The author of the report, Ms Cartwright, who is a director of Pitcher Partners, has verified the opinions expressed in the report. 16 As to the proposed scheme meeting, the plaintiff's current Chairman, Mr Bucknell, has signified his willingness to act as chairperson of the meeting. Another director, Mr Khouri, has signified his willingness to act as an alternate for Mr Bucknell in that regard. Each has made an affidavit in compliance with r 3.2 of the Federal Court (Corporations) Rules 2000 (Cth) (The FCC Rules).

Scheme booklet 17 At the hearing, I was carefully taken through the draft scheme booklet. There is evidence before the Court of the verification process that was undertaken in respect of statements made in it. The plaintiff's General Counsel, Mr O'Reilly, who was also a member of the plaintiff's due diligence committee, has deposed that, to his satisfaction, all material statements in the scheme booklet (other than in the expert's report and in relation to information provided by HLB Mann Judd in relation to Australian and New Zealand income tax considerations) are true and correct, are not misleading or deceptive, and do not omit information that would be material to members in deciding whether or not to vote in favour of the proposed scheme.

ASIC's position 18 The Australian Securities and Investments Commission (ASIC) has signified that it has been given the required notice of the hearing of this application (see s 411(2)(a) of the Act) and that, as required by s 411(2)(b), it has had a reasonable opportunity to examine the terms of the proposed scheme and draft scheme booklet, and to make submissions in relation thereto. ASIC has also advised that it does not propose to appear or to make submissions or otherwise intervene, at this hearing.

Other matters 19 In the course of the present hearing, the plaintiff made submissions in relation to certain aspects of the power conferred on the Court by s 413 of the Act with reference to the orders that the plaintiff would seek at a second court hearing, assuming that the proposed scheme receives the requisite approval of the members. It is not necessary for me to set those matters out now. 20 The Court was also informed that the securities to be issued pursuant to the scheme will not be registered under the United States Securities Act of 1933, in reliance on the exemption provided by s 3(a)(10) thereof. The plaintiff expressed the desirability of the Court formally noting that matter. 21 The plaintiff seeks relief from the operation of r 2.15 of the FCC Rules in relation to the proposed scheme meeting, save for the application of reg 5.6.13 of the Corporations Regulations 2001 (Cth). It is appropriate to grant that relief. The plaintiff also seeks relief from r 3.4 of the FCC Rules provided that an approved notice of the proposed second court hearing is advertised in The Australian newspaper on or before 29 January 2015. Once again, it is appropriate to grant that relief.

Consideration 22 I am satisfied that the plaintiff is a Part 5.1 body and that the proposed scheme is an "arrangement" for the purposes of s 411(1) of the Act. I am also satisfied that the formal requirements that are preliminary to a Court order for convening a meeting under s 411(1) of the Act have been satisfied. 23 Further, I am satisfied that the proposed scheme is of such a nature and cast in such terms that, if it receives the requisite statutory majority, the Court would be likely to approve it on the hearing of an unopposed application, subject to being satisfied that the shares in the plaintiff's wholly-owned subsidiaries have been or will be transferred as contemplated (see [6]) above. This transfer is being handled transactionally between the plaintiff and NewCo and, although contemplated as an important step in the restructure, it is outside the scheme itself and is not secured by it. The Court must be satisfied that there is no undue risk imposed on the scheme shareholders in that regard.

Disposition 24 Orders, as sought, will be made. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.