Fiducian Portfolio Services Ltd v Fiducian Investment Management Services Ltd

Background and affidavit evidence

1. By orders made on 6 November 2018, I gave judicial advice that Investa Listed Funds Management Ltd ("ILFML") as responsible entity for the Armstrong Jones Office Fund ("AJO Fund") and the Prime Credit Property Trust ("PCP Trust") (together, "Investa Office Fund") was justified in convening extraordinary general meetings of unitholders to consider proposed trust schemes and proceeding on the basis that amendments to be made to the constitutions of the AJO Fund and the PCP Trust were within the powers of alternation conferred by those constitutions and s 601GC of the Corporations Act 2001 (Cth). I delivered reasons for making those orders in my judgment delivered on 16 November 2018 ([2018] NSWSC 1766) ("Earlier Judgment").
2. After the first court hearing, on 6 November 2018, the explanatory memorandum in respect of the schemes was released to the market (Cugati 4.12.18, Ex VC3, tab 2) and despatched to unitholders (Cugati 4.12.18, Ex VC3, tab 4). An advertisement for the second court hearing was subsequently published in accordance with the Court's orders (Cugati 4.12.18, Ex VC3, tab 5). The scheme meetings were subsequently held on 4 December 2018 and resolutions giving effect to the schemes were passed by the requisite majorities.
3. At a second hearing on 5 December 2018, ILFML sought advice under s 63 of the Trustee Act 1925 (NSW) that it would be justified in implementing the proposed trust schemes following their approval at meetings of unitholders held on 4 December 2018. I made further orders in the form proposed by ILFML on that date and indicated that I would deliver reasons for my judgment. These are the reasons for that judgment. I have drawn on the helpful submissions of Mr Wood, who appears with Mr Bender for ILFML, in these reasons for judgment.
4. ILFML relied on a Supplementary Statement of Facts (Ex A1) at this second hearing. ILFML also relied on the affidavit dated 4 December 2018 of its company secretary, Mr Andrew Murray, which referred to his attendance at the scheme meetings on 4 December 2018 and the conduct of those scheme meetings and set out the results of the poll for each proposed resolution at those meetings. Each of those resolutions passed by overwhelming majority. Mr Murray also referred to the position in respect of conditions precedent to the schemes, all of which have been satisfied, other than for the Court giving judicial advice at this second hearing and for lodgement of supplemental deeds with the Australian Securities and Investments Commission ("ASIC"), which would occur after such judicial advice was given. A conditions precedent deed executed by ILFML and the acquiring entities was also tendered at the hearing.
5. ILFML also relied on the affidavit dated 4 December 2018 of its solicitor, Mr Vijay Cugati, which set out steps that had been taken for distribution of the scheme booklet following the earlier hearing. Mr Cugati also referred to steps that had been taken to advertise this hearing and indicated that Mr Cugati had received no notice of opposition to this application. No unitholder in IOF appeared at this hearing to oppose the application. Mr Cugati also set out, on information provided by ILFML, the votes in respect of the relevant resolutions at unitholder meetings. Mr Cugati noted that ASIC had been advised of this hearing and had not indicated that it would seek to appear at this hearing or oppose the judicial advice that was sought. ASIC did not appear at this hearing.
6. ILFML also relied on the affidavit dated 4 December 2018 of Mr Sumit Singh, who is a client relationship manager at Link Market Services Limited, which provides registry and other services to IOF. That affidavit addressed the steps taken to send the scheme booklet and other documents to unitholders, to provide the scheme booklet and other documents to persons who joined IOF's register of unitholders up to the voting record date, the receipt and recording of proxy votes and the conduct of voting at the scheme meeting.
7. An affidavit dated 5 December 2018 of Gawain Smart, the Head of Legal and Managing Director - Europe and Asia Pacific for the acquiring entities, was also read at the second hearing, and confirmed the execution of the conditions precedent deed by the acquiring entities and the satisfaction of conditions precedent to the scheme, with the two exceptions to which I have referred above.

Applicable legal principles and determination

1. Mr Wood and Mr Bender rightly submit that the procedure that has been adopted in respect of second court hearings for trust schemes affecting registered managed investment schemes, after approval by a meeting of unitholders, is that the responsible entity of the scheme generally seeks judicial advice under s 63 of the Trustee Act that it is justified in implementing the trust scheme having regard to what occurred at the meeting and any objections to the scheme that may be raised: Re Mirvac Ltd [1999] NSWSC 457; (1999) 32 ACSR 107 at [48]; Re Homemaker Retail Management Ltd [2001] NSWSC 1058; (2001) 40 ACSR 116 at [6]. This practice has developed by analogy to the procedure in an application for approval of a scheme of arrangement under s 411(4)(b) of the Corporations Act.
2. Mr Wood and Mr Bender rightly point out that, in considering whether to grant judicial advice at a second court hearing in respect of trust schemes, the Court has regard to analogous considerations to those which arise at a second hearing for a company scheme of arrangement under s 411 of the Corporations Act: Re Australand Holdings Limited [2005] NSWSC 835; (2005) 219 ALR 728 at [28]-[29]; Re The Hills Motorway Ltd [2002] NSWSC 897; (2002) 43 ACSR 101 at [24]. The Court will generally have regard to a range of matters in determining whether to approve a scheme of arrangement at a second court hearing under that section: Re Permanent Trustee Co Ltd [2002] NSWSC 1177; (2002) 43 ACSR 601 at [8]-[10]; Re Seven Network Limited (No 3) [2010] FCA 400; (2010) 77 ACSR 701 at [35]-[39]. Mr Wood and Mr Bender also rightly submit that, although the Court must be satisfied that the proposed arrangement is fair and reasonable and that the majority has voted in good faith for proper purposes, it will recognise that properly informed members are generally the best judges of their own commercial interests and the Court will give substantial weight to their views expressed at a scheme meeting: Re Boart Longyear Ltd (No 2) [2017] NSWSC 1105; (2017) 323 FLR 241 at [61].
3. By analogy with the approach adopted in a company scheme, the Court will generally need to be satisfied that relevant documents were despatched to unitholders and a meeting of unitholders has approved a trust scheme with the requisite majority. I am satisfied that ILMFL complied with the Court's orders in respect of despatch of the scheme booklet, proxy form and 'Relevant Foreign Resident Declaration Form' (as applicable) to unitholders and in respect of publication of the relevant advertisement and conduct of the scheme meetings. Each of the resolutions was approved by greater than 75% of the votes cast by unitholders and were duly passed. As Mr Bender and Mr Wood point out, those resolutions authorise the relevant acquisition of units in IOF by the acquiring parties for the purposes of item 7 of s 611 of the Corporations Act and the steps to be taken by ILMFL to give effect to it; the amendments to the constitution of each trust; and the de-stapling of the units of the two trusts.
4. The Court will generally need to be satisfied that all other statutory requirements have been satisfied. ASIC has granted the necessary relief to the acquiring parties in respect of item 7 of s 611 of the Corporations Act (Cugati 4.12.18, Ex VC-3, tab 2) and has not indicated any objection to the schemes (Cugati 4.12.18 [14]). No other issue has emerged as to any non-compliance with any relevant statutory requirement in this application.
5. By analogy with the approach adopted in a company scheme, the Court will have regard to whether the scheme is fair and reasonable so that an intelligent and honest person who was a unitholder, properly informed and acting alone, might approve it. Mr Wood and Mr Bender submit that these schemes are the culmination of a competitive bidding process that caused an earlier bid by a third party to be improved and then exceeded by the acquiring entities. The independent expert's report expresses the views that the present scheme is in the best interests of IOF unitholders in the absence of a superior proposal, concludes that the scheme is fair and reasonable, for the purposes of ASIC's Regulatory Guide 111, and notes that the consideration payable exceeds the independent expert's assessed value range for an IOF unit. That independent expert's report also indicates that the price offered under the schemes represents a substantial premium to the trading price of IOF units over a one month and three month period prior to the announcement of the earlier third party proposal; the scheme will allow IOF unitholders to realise value immediately from their investment with certainty as to the pre-tax amount that they will receive; and the IOF unit price is likely to fall in the absence of the acquiring entities' proposal or a superior alternative proposal. There is no reason to think that, in these circumstances, intelligent and honest persons who were IOF unitholders, properly informed and acting alone, would not approve the trust schemes and, as I noted above, they were in fact approved by unitholders by substantial majorities. I am satisfied that the trusts schemes are fair and reasonable in the relevant sense.
6. Mr Wood and Mr Bender point out that the trust schemes are to be effected by the addition of a new cl 23 to each of the constitutions of the AJO Fund and PCP Trust, pursuant to clause 7 of Schedule 1 to each of the Supplemental Deeds Poll, which authorises ILFML to take the necessary steps to implement the schemes including by the transfer of IOF units to the acquiring entities. As I noted above, there is affidavit evidence that the conditions precedent to the schemes have been satisfied or waived, except for those conditions related to Court approval of the schemes and the coming into effect of amendments to be made to the constitutions of the AJO Fund and PCP Trust by lodgement of the corresponding supplemental deeds with ASIC, which will occur after the relevant judicial advice is given. I have also referred above to the tender of the conditions precedent deed between ILFML and the acquiring entities confirming that position. Satisfaction of conditions precedent of a scheme of arrangement can be proved in these ways: Fiducian Portfolio Services Ltd v Fiducian Investment Management Services Ltd (No 2) [2015] FCA 95; (2015) 228 FCR 587 at [44] - [49]; Re BIS Finance Pty Ltd [2018] NSWSC 3 at [9].
7. The Court will also consider whether the plaintiff has brought to all matters that could be considered relevant to the exercise of the Court's discretion to its attention and there was full and fair disclosure to members of all information material to the decision whether to vote for or against the applicable scheme. There is no reason to doubt these matters.
8. For the reasons given above, I gave the advice sought by ILFML pursuant to s 63 of the Trustee Act and made the orders it proposed at the second hearing in respect of the trust schemes on 5 December 2018.

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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: 23 December 2018