- Fowler v Lindholm

Judgment 1On 31 May 2013, I made orders in respect of three inter-conditional arrangements in respect of a proposed restructure of the DUET Group, involving a company scheme under s 411 of the Corporations Act 2001 (Cth) and two trust schemes under s 63 of the Trustee Act 1925 (NSW) ("Trustee Act"), for the reasons set out in my Judgment delivered on 20 June 2013 ([2013] NSWSC 817) ("Judgment"). 2The relevant meetings were convened and an overwhelming majority of members of DUET Management Company 1 Limited ("DMC 1") and unitholders of Diversified Utility and Energy Trust No 1 ("DUET 1") and Diversified Utility and Energy Trust No 2 ("DUET 2") respectively voted in favour of the scheme and the trust schemes. At the second hearing on 24 July 2013, no party appeared to oppose the scheme or the trust schemes and I made orders approving the scheme and made further orders in the nature of judicial advice in respect of the trust schemes. These are my reasons for making those orders. Approval of the scheme of arrangement 3At the first hearing, I made orders convening a first meeting in respect of a scheme of arrangement in respect of DMC 1. DMC 1 now seeks an order under s 411(4)(b), and, if necessary, s 411(6), of the Corporations Act approving the scheme of arrangement. In order to grant approval for a scheme of arrangement at the second meeting, it is necessary that the Court be satisfied that the procedural requirements imposed by the Corporations Act, DUET 1's constitution and the orders convening the scheme have been met. 4There is evidence that the relevant procedural requirements for convening the second meeting were satisfied. In particular, the Court made orders at the first hearing approving the form of the Explanatory Memorandum and proxy forms for despatch to DUET securityholders and dealing with the distribution of those documents. There is evidence establishing the despatch of the Explanatory Memorandum and proxy form to DUET securityholders in accordance with those orders, in an affidavit of a representative of Computershare, the registry services provider for the DUET Group (Smithers affidavit [8]-[17]). The meetings were held on 18 July 2013 (Pickering affidavit 24 July 2013 [6]); there is evidence as to the tallying of votes cast by proxy and by poll (Smithers affidavit [23]-[27]); the votes at those meetings were in favour of the scheme resolutions by a substantial majority (Ex NJS1 tab 10); and the outcome of the scheme meetings has been announced to the market by the DUET Group (Pickering affidavit 24 July 2013 [12]). The relevant conditions precedent to the schemes have been satisfied (Kemp affidavit 24 July 2013 [5]). The second hearing was advertised, in accordance with orders made at the first hearing, in a national newspaper on 10 July 2013 (Pickering affidavit 24 July 2013 [13]). There is evidence that the relevant conditions precedent to the scheme have been satisfied. 5At the second hearing, the Court has a discretion whether to approve the scheme and is not bound to do so because it previously made orders for the convening of meetings or because the statutory majorities were achieved, and the Court need to be satisfied that there has not been oppression and that the compromise or arrangement is one which is capable of being accepted: Re NRMA Ltd (No 2) [2000] NSWSC 408; (2000) 34 ACSR 261 at [22]; Re Seven Network Ltd (ACN 052 816 789) (No 3) [2010] FCA 400; (2010) 77 ACSR 701 at [31]. The Court will generally recognise that the members are better judges of what is in their commercial interests than the court: Re NRMA Ltd (No 2) above at [23]; Re Seven Network Ltd (ACN 052 816 789) (No 3) above at [32]. The Court will need to be satisfied that shareholders have voted in good faith and not for an improper purpose, and that the proposal is fair and reasonable so that an intelligent and honest member of the relevant class, properly informed and acting alone might approve it: Re Foundation Healthcare Ltd (No 2) [2002] FCA 973; (2002) 43 ACSR 680; Re Central Pacific Minerals NL [2002] FCA 239 at [12]-[14]; Fowler v Lindholm [2009] FCAFC 125; (2009) 74 ACSR 124 at [79]; Re Seven Network Ltd (ACN 052 816 789) (No 3) above at [35]. The Court will also consider whether there has been full and fair disclosure of all information material to the decision: Re NRMA Ltd (No 2) at [30]. In this case, the report of the independent expert concluded that it was in members' best interests and, as I noted above, an overwhelming majority of members, who appear to have received comprehensive information, have voted in favour of the scheme. 6The Australian Securities and Investments Commission has advised that it had no objection to the company scheme (Kemp affidavit 24 July 2013 [9]). While that advice does not exclude the Court's discretion, it may remove the requirement that the Court be satisfied that the arrangement had not been proposed for the purpose of avoiding the operation of Chapter 6 of the Corporations Act: Re Macquarie Private Capital A Ltd [2008] NSWSC 323 at [29]: Re United Minerals Corporation NL (No 2) [2010] FCA 47 at [9]. In any event, I am satisfied that the scheme, particularly in its relationship with the trust schemes, was not proposed for the proscribed purpose. 7I also made an order at the second hearing exempting DMC 1 from compliance with s 411(11) of the Corporations Act in relation to the DMC 1 company scheme on the basis that there would be no utility in attaching a copy of this order to every copy of the entity's constitution. I note that such exemptions are regularly granted for similar reasons: Re Foundation Health Care above; Re Coventry Resources Ltd (No 2) [2012] FCA 1473 at [23]; Re Integra Mining Ltd (No 2) [2013] FCA 220 at [17]. Orders under s 1322 of the Corporations Act 8DMC 1 now seeks an order under s 1322(4) of the Corporations Act, nunc pro tunc, that each of the resolutions made by DMC 1 at the scheme meeting held on 18 July 2013 were not invalid resolutions by reason of any contravention of the Corporations Act. DMC 1 and DUET Management Company 2 Limited ("DMC 2") also now seek orders under s 1322(4) of the Corporations Act, nunc pro tunc, that each of the resolutions purportedly made by DUET 1 unitholders and Diversified Utility and Energy Trust No 3 ("DUET 3") unitholders at the scheme meetings were not invalid resolutions by reason of any contravention of the Corporations Act. These orders relate to the manner in which information concerning the meeting were sent to three overseas securityholders of the DUET Group resident in Malaysia and Thailand, in the circumstances summarised in my earlier Judgment. There is evidence that, as foreshadowed at the first hearing, a letter was sent to those three DUET securityholders as part of an "Overseas Securityholder Package" (Smithers affidavit at [10]-[12]), in accordance with a draft of that letter tendered at the first hearing (Ex LPP1 tab 21). 9In my earlier judgment, I observed that I agreed with the view expressed by Middleton J in Nenna v Australian Securities and Investments Commission [2011] FCA 1193; (2011) 198 FCR 32; (2011) 86 ACSR 204 that an advertent act may be validated by the Court under s 1322(4) of the Corporations Act in an appropriate case, and observed that an act may be undertaken honestly, or it may be just and equitable to validate it, for the purposes of s 1322(6) of the Corporations Act notwithstanding that a technical defect is known at the time it takes place. I also observed that I considered it likely the plaintiffs' conduct in respect of communications with the three DUET securityholders in Malaysia and Thailand would be validated under s 1322 at this hearing so as to permit the Court to make the orders sought at this hearing if securityholders otherwise approved the schemes. The form of orders now sought reflects that which the Court made in Re H&P Newcastle Pty Ltd (in liq) [2013] NSWSC 778. I consider that it is appropriate to make the orders sought on the basis foreshadowed in the Judgment. Trust schemes 10At the first hearing, I also gave judicial advice under s 63 of the Trustee Act to DMC 1, as the responsible entity of DUET 1 in respect of a proposed meeting of unitholders of DUET 1 to consider a proposed trust scheme ("DUET 1 Trust Scheme") and proposed amendments to DUET 1's constitution. I gave broadly corresponding judicial advice under s 63 of the Trustee Act to DMC 2 as responsible entity of the DUET 3 in respect of a meeting of unitholders of DUET 3 to consider a proposed trust scheme ("DUET 3 Trust Scheme") and proposed amendments to DUET 3's constitution. 11DMC 1, as responsible entity of DUET 1, now seeks the opinion, advice and direction of the Court, under s 63 of the Trustee Act, that it would be justified in implementing the DUET 1 Trust Scheme, giving effect to the amendments to DUET 1's constitution contemplated in the resolutions passed at the DUET 1 Trust Scheme Meeting on 18 July 2013 and doing all things necessary to implement the DUET 1 Trust Scheme. DMC 2, as responsible entity of DUET 3, seeks the opinion, advice and direction of the Court, under s 63 of the Trustee Act, that it would be justified in implementing the DUET 3 Trust Scheme, giving effect to the amendments to DUET 3's constitution contemplated in the resolutions passed at the DUET 3 Trust Scheme Meeting and doing all things necessary to implement the DUET 3 Trust Scheme. I am satisfied, having regard to the information provided to unitholders and the result of the meetings of untitholders, that such opinion, advice and direction should be given. Outcome 12For these reasons, I made the orders sought by the Plaintiffs at the second hearing on 24 July 2013.