Fiducian Portfolio Services Ltd v Fiducian Investment Management Services Ltd

Background

1. By my judgment delivered on 17 November 2017 ([2017] NSWSC 1713), I made orders in proceedings no. 2017/00333466 that BIS Finance Pty Ltd ("BIS Finance") convene a meeting of its creditors to consider and, if thought fit, approve a proposed scheme of arrangement ("Senior Scheme") between BIS Finance and those persons who are "Facility A2 Lenders", "Facility B Lenders" and "Facility C1 Lenders" for the purposes of the Syndicated Facility Agreement dated 12 December 2012 (as amended and acceded to from time to time) ("SFA") between, amongst others, BIS Finance, Thornberry Finance Pty Ltd ("Thornberry Finance"), AMAL Management Services Pty Ltd, and AMAL Security Services Pty Ltd ("Senior Scheme Lenders"); and "Hedge Counterparties" for the purposes of the deed entitled "Intercreditor Deed" dated 16 May 2007 (as amended from time to time) between BIS Finance and certain of its creditors, other than Australia and New Zealand Banking Group Limited as hedge counterparty under a particular agreement ("Hedge Counterparties"). I will refer to the Senior Scheme Lenders and the Hedge Counterparties as "Senior Scheme Creditors".
2. Broadly, the Senior Scheme provides (Mechineau [54(a)]) that all of the issued share capital in BIS Finance will be transferred to the Senior Scheme Creditors pro rata to their respective debt holding; Thornberry Finance will be released from its guarantee of the Senior Debt and associated securities; Senior Scheme Creditors will transfer all of their allotted shares in BIS Finance to a new entity ("NewCo") in consideration for shares in NewCo to be issued to them in the same proportions; any mandatory pre-payment obligation triggered under the SFA as a result of the Senior Scheme will be waived; the Security Trust Deed in respect of the Senior Debt will be amended to reduce the consent threshold required to take certain actions in relation to the Senior Debt, including assigning all or part of the Senior Debt to NewCo, extending any applicable payment date, reducing any applicable margin (or equivalent concept) and introducing an additional tranche or facility ranking in priority to some of the existing debt under the SFA, to 80%; the SFA will be amended to defer the due date for all interest payable in respect of Facilities A2, B and C1; and a standstill on enforcement or transfer of the Senior Debt and transfer of the NewCo shares will operate from the date when the Senior Scheme becomes effective to the earlier of 30 June 2018 or completion of the proposed recapitalisation.
3. By the same judgment, I also made orders in proceedings no. 2017/00333478 that Artsonig Pty Ltd ("Artsonig") convene a meetings of its creditors to consider and, if thought fit, approve a proposed scheme of arrangement ("PIK Scheme") between Artsonig and the beneficial owners of notes ("PIK Noteholders") issued by Artsonig under a US$250,000,000 11.50% / 12.00% Senior PIK Toggle Notes indenture dated 27 March 2014 as amended or amended and restated from time to time ("PIK Indenture"), the Depository Trust Company and, as the case requires, its nominees ("PIK Scheme Creditors"). The PIK Scheme provides (Mechineau 54]) that PIK Scheme Creditors will consent to and permit Thornberry Finance to transfer all of the issued share capital in BIS Finance to the Senior Scheme Creditors; various parties (including Artsonig and the PIK Scheme Creditors) will be released from all claims and obligations against Artsonig other than claims under the PIK Indenture and the PIK Notes; PIK Scheme Creditors will agree to a standstill period of three years following implementation of the PIK Scheme on any enforcement action against a member of the BIS Group in relation to the PIK Debt; the consent level required from PIK Noteholders under the PIK Indenture in certain circumstances will be amended from unanimous consent to 75%; the terms of the PIK Debt will be amended and restated into an amended and restated indenture; and PIK Scheme Creditors will, in consideration for the giving of their consent to the transfer of the shares in BIS Finance and each release to be given under the PIK Scheme, be entitled to elect to receive shares in NewCo (in their relevant proportions up to 4%).
4. At the second court hearing on 15 December 2017, BIS Finance and Artsonig sought orders under s 411(4)(b) of the Corporations Act 2001 (Cth) that the schemes be approved. I adopted the common practice of making orders on that date with more detailed reasons to follow. These are my more detailed reasons for making those orders.

Role of the Court at the second hearing and satisfaction of procedural requirements

1. Mr Sheahan, who appears with Ms Wong for BIS Finance and Artsonig, submits that, in order to approve the relevant schemes, the Court must be satisfied at the second court hearing that relevant procedural requirements have been met and that it is appropriate for the Court to exercise its discretion in favour of approving the schemes. Mr Sheahan submits that the relevant procedural requirements include that the scheme materials (including the explanatory statements) have been properly despatched in accordance with the Court's orders at the first hearing; the resolutions agreeing to the schemes have been passed by the statutory majorities as stated in s 411(4)(a)(i) of the Corporations Act; and the conditions precedent to the schemes' implementation have been satisfied or waived.
2. As Mr Sheahan points out, the steps which were required, by the orders convening the scheme meeting, to distribute scheme material to creditors have been taken. The versions of the explanatory statements approved by the Court on 17 November 2017 were subsequently amended to reflect minor amendments including typographical and formatting changes, the addition of specific dates and the removal of square brackets and other placeholder information (Clee 15.12.17 [6]). Documents relating to the scheme meetings were despatched in accordance with the orders made at the first hearing (Grant 13.12.17 [7], [12]; Sullivan 13.12.17 [12]-[21]. The Information Agent for the PIK Scheme published an electronic copy of the scheme documents and other relevant documents on its website, as required by order 4 made at the first hearing in respect of the PIK Scheme (Sullivan 13.12.17 [18]). The necessary notices were published in the Australian newspaper on 7 December 2017 in accordance with the orders made at the first hearing (Clee 15.12.17 [9]).
3. The relevant scheme meetings were held on 12 December 2017 (Eagle 13.12.17 [6], [27]). A resolution approving the Senior Scheme was passed by all of the creditors voting (in person or by proxy) on the scheme and five of the six Senior Scheme Creditors voted on the Senior Scheme (Eagle 13.12.17 [23]; Clee 17.11.17; Ex DC5, p 341). A resolution approving the PIK Scheme was also passed by all of the creditors voting on the scheme (in person or by proxy) and PIK Noteholders with interests totalling $303,701,160, constituting approximately 80% by value of the amounts owing under the PIK Indenture, voted on that resolution (Eagle 13.12.17 [44]; Sullivan 13.12.17, Ex JS2, pp 50, 54). Both schemes were therefore passed by the requisite statutory majority in number of creditors present and voting (in person or by proxy) and by more than 75% by value of the votes cast (in person or by proxy). The schemes were also supported at the second hearing by AMAL, as representative of the senior creditors, and by a number of participating PIK Noteholders who were represented at the hearing.
4. There is evidence of satisfaction of the conditions precedent in respect of the schemes, other than those which are connected with the approval given by the Court (Howes 15.12.17 [13]-[25]). The Plaintiffs also rely upon certificates prepared under cl 2.3 of the Senior Scheme and cl 2.2 of the PIK Scheme, confirming that all of the relevant conditions precedent to the schemes have been satisfied or waived, other than the conditions relating to Court approval of the schemes (Howes 15.12.17 [12], [25]). Those certificates are proof of the satisfaction or waiver of the conditions precedent: Fiducian Portfolio Services Ltd v Fiducian Investment Management Services Ltd (No 2) [2015] FCA 95; (2015) 228 FCR 587 at [48].

Exercise of the Court's discretion

1. Mr Sheahan refers to the principles applicable to the exercise of the Court's discretion as stated by Barrett J in Re Permanent Trustee Co Ltd [2002] NSWSC 1177; (2002) 43 ACSR 601 at [8]-[10], where his Honour noted that there was "no exhaustive statement of the matters as to which the court must be satisfied before granting approval", but that it was "nevertheless clear that the court must form a favourable view as to the reasonableness of the compromise or arrangement". His Honour also cited the observation of R D Nicholson J in Re Challenge Bank Ltd (1995) 19 ACSR 421 at 422 that: "… the court is required to consider and to be satisfied whether the proposals in the schemes are at least fair and reasonable from the viewpoint of an intelligent and honest person, that is, a person who might approve of it." Barrett J concluded (at [10]) that "[i]t is, of course, the scheme as a whole - the totality of the give and take that is the compromise or arrangement between the company and its members - that falls to be assessed in this way."
2. Mr Sheahan also draws attention to the well-established principle that the Court will recognise that properly informed creditors are generally the best judges of their own commercial interests and will give substantial weight to their views expressed at a scheme meeting, although the Court must nonetheless be satisfied that the proposed arrangement is fair and reasonable and that the creditors have voted in good faith and for proper purposes: Re Seven Network Ltd (No 3) [2010] FCA 400; (2010) 267 ALR 583; 77 ACSR 701 at [35]-[36]; Re Centro Properties Ltd (in its capacity as responsible entity of Centro Property Trust) [2011] NSWSC 1465; (2011) 86 ACSR 584 at [35]-[37]; Re Boart Longyear (No 2) [2017] NSWSC 1105 (2017) 323 FLR 241. Mr Sheahan also refers to other relevant matters in determining whether to exercise its discretion to approve a scheme including whether the plaintiff has brought all matters that could be considered relevant to the exercise of the Court's discretion to the Court's attention; whether there has been full and fair disclosure of all information material to the decision; whether the scheme of arrangement has a compulsive or oppressive effect upon minority shareholders and creditors; whether the scheme offends public policy; and whether the interests of other groups who are not parties to, but are affected by the scheme are dealt with appropriately: Re Seven Network Ltd (No 3) above at [37]-[40]; Re Boart Longyear Ltd (No 2) above at [57]-[61]. Mr Sheahan also submits, and I accept, that proof that the statutory majority of creditors have agreed to the scheme is prima facie evidence of its fairness: Re Boart Longyear Ltd (No 2) above at [62].
3. Mr Sheahan submits that the creditors of BIS Finance and Artsonig who attended the meeting, either in person or by proxy, voted unanimously in favour of the schemes and there is no suggestion of any bad faith motivation or improper purpose. He points out that no creditor has opposed the schemes at the second hearing and no regulator has raised an objection to the schemes. He notes that the independent expert reports suggest that creditors will be in a better position if the schemes are implemented than if that does not occur and the BIS Group is ultimately wound up in insolvency (Madden 17.11.17, Ex MM1; Tucker 17.11.17, Ex RTS1). He also submits that the Explanatory Statements for the Senior Scheme and PIK Scheme were detailed and comprehensive, providing full and fair disclosure to creditors of all information material to their decision to approve or reject the schemes; there is no apparent oppression to creditors who hold minority interests in either BIS Finance or Artsonig, as all creditors of the same type are receiving the same treatment; the schemes do not adversely affect any groups who are not parties to the schemes whose interests could require separate consideration; and the Plaintiffs have endeavoured to bring all relevant matters concerning the approval of the schemes to the Court's attention.
4. I am satisfied as to the reasonableness of the compromise or arrangement reflected in the creditors' schemes, which finds strong support in the majorities that approved them and there is no reason to doubt that creditors have been adequately informed of the relevant matters. No issues of oppression or public policy arise in respect of the schemes such that the Court should not approve them.
5. The Australian Securities and Investments Commission ("ASIC") has been notified of this hearing, and served with relevant information. ASIC had indicated that it would not provide a statement under s 411(17)(b) of the Corporations Act, consistent with its usual practice where no question of the avoidance of Ch 6 of the Corporations Act arises in a creditors' scheme. ASIC has confirmed that it does not intend to appear or make submissions to the Court at this hearing, and it necessarily follows that there is no matter that ASIC wishes to draw to the Court's attention that is adverse to the schemes.

Section 411(1) of the Corporations Act and the Securities Act 1933 (US)

1. Mr Sheahan submits, and I accept, that no useful purpose would be served with compliance with s 411(11) of the Corporations Act in the present circumstances and, in accordance with the common practice, I will exempt the Plaintiffs from compliance with that requirement.
2. My attention has also been drawn to the fact that the scheme proponents will rely on the Court's approval of the senior scheme for the purposes of qualifying for exemption from the registration requirements of the Securities Act 1933 (US), provided for by s 3(a)(10) of that Act, in connection with the implementation of, and provision of consideration under the Senior Scheme. I will note that matter in the orders that I make, consistent with the approach taken in the case law: Re Atlantic Gold NL (No 2) [2014] FCA 869; Re Atlassian Corporation Pty Ltd [2013] FCA 1451. The Plaintiffs ask that the Court's orders note the plaintiffs' reliance on the Court's approval of the schemes for this purpose: Re Nine Entertainment Group Ltd (No 2) [2013] FCA 40 at [10]-[12]; Re Recall Holdings Ltd (No 2) [2016] FCA 419.

Orders

1. For these reasons, in each of the proceedings brought by BIS Finance and Artsonig, I made orders in accordance with the short minutes of order initialled by me and placed in the respective files.

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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: 19 January 2018