Solicitors:
Herbert Smith Freehills (plaintiffs)
File Number(s): 2016/68063
[2]
Judgment (ex tempore)
HIS HONOUR: On 18 December 2015, the plaintiff Investa Listed Funds Management Ltd, in its capacity as responsible entity for two managed investment schemes registered with ASIC - the Armstrong Jones Office Fund ("AJO Fund") and the Prime Credit Property Trust ("PCP Trust"), which together comprise the Investa Office Fund ("IOF") - announced to the ASX that it had entered into an implementation agreement with Dexus Funds Management Ltd as responsible entity of four Dexus entities in relation to a proposed trust scheme. The IOF is the owner of investment grade office buildings in major Australian cities. The securities in the two schemes are stapled, with each stapled security comprising one unit in each of the AJO Fund and the PCP Trust.
In late 2015, those units were trading on the ASX at a price of $3.80. If the proposal is approved by the members of the scheme and the Court, and implemented, then Dexus - as responsible entity of various Dexus entities - would acquire all the units in the IOF from the current unitholders; and in consideration thereof, the current unitholders - other than certain ineligible overseas unitholders, and holders of small parcels who elect to participate in a sale facility - will receive at their election a standard consideration of $0.82 cash and 0.424 Dexus securities per unit, or maximum cash consideration of $4.11 per unit, or maximum script consideration of 0.53 Dexus securities per unit. However, because the total pool of cash and the total pool of Dexus securities is limited, the maximum cash consideration and maximum script consideration is subject to a scale back in the event that more members of the scheme elect for one of those forms of consideration than the total pool will accommodate.
In the matter of Investa Listed Funds Management Limited (as responsible... [2016] NSWSC 341 | Case summary | Zoe
The ineligible overseas unitholders to whom I have referred, being unitholders whose address is outside Australia and its external territories and New Zealand, have the same election as to consideration; however, new Dexus securities will not be issued to them, but will instead be sold on their behalf under a sale facility. Small unitholders - being those who would acquire Dexus securities to a value of less than $500 - may also elect to participate in the sale facility. Under the sale facility, the Dexus securities will be sold, and the net proceeds will be distributed pro rata to the relevant unitholders.
As responsible entity, Investa filed a summons on 3 March 2016 to seek the Court's advice pursuant to (NSW) Trustee Act 1925, s 63, that it would be justified in convening concurrent extraordinary general meetings of the security holders of the AJO Fund and the PCP Trust, to consider and approve certain resolutions in relation to the proposed scheme distributing an explanatory memorandum - a draft of which is in evidence - to all registered security holders; and in proceeding on the basis that the proposed amendments to the constitutions of the AJO Fund and PCP Trust respectively would be within in the powers of alteration conferred by the constitution of the funds and/or (CTH) Corporations Act, 2001, s 601GC.
Although the present application is not one in respect of a company scheme, it is commonplace in respect of managed investment schemes in the nature of trusts for applications to be made to the court for judicial advice of this kind. In such a case, the court proceeds by analogy with the approach it adopts for company schemes under Corporations Act, s 411(1). On the so-called "first hearing" of such an application - as the present hearing is - the court considers whether there is any obvious defect in or objection to the scheme, such that it should not even be submitted for consideration by the members, and whether the scheme is adequately and fairly explained to those who have an interest in it - essentially, the members of the managed investment scheme. If there are arguable objections to or defects in the scheme, which are nonetheless not such as would preclude the scheme from even being considered by members, the proper forum for their resolution is at the second hearing, when any interested person may appear to advance those objections.
The draft explanatory memorandum contains an independent expert's report prepared by KPMG, which expresses the conclusion that the proposal is both fair and reasonable. That conclusion is reached having regard to a number of considerations, but fundamentally on a net tangible assets based valuation of the Investa funds, and a comparison of that valuation with the value of the consideration. In KPMG's opinion, the cash consideration of approximately $4.11 is somewhat higher than the assessed value of the standard or mixed consideration or the script consideration. The cash consideration itself provides a useful indication of the potential benefit of the scheme for members. The cash value of $4.11 represents a significant premium - between 5 and 10% - on the price at which the stapled securities traded at various times over the last 3 months of 2015, and a small premium on net tangible assets. In other words, the cash consideration is likely to provide members of the scheme with a better outcome than they would be able to achieve in the absence of the scheme, although of course, members will have to make up their own mind as to whether that is a sufficient attraction to approve it, and whether they prefer that consideration to a longer term investment in the Dexus group. But, on the commercial merits, there is no obvious objection to the scheme such as to preclude it being put to the members at all.
In addition, the independent directors - who now constitute all of the directors - unanimously recommend the proposal to members.
As is common in this type of application, the scheme contains a number of features to which it is conventional to refer, but none of them appear out of the ordinary in this context.
I have already referred to the provisions concerning ineligible overseas unitholders. Similar provisions for sale of such interests have been approved in many schemes now. The scheme involves each unit holder giving a deemed warranty that their securities are fully paid and unencumbered. Such clauses have frequently been approved and are now common-place, and their existence is disclosed in the draft explanatory memorandum. The scheme also involves "no shop", "no talk" and "no due diligence" restrictions. The "no talk" and "no due diligence" restrictions are subject to a fiduciary carve out, and the authorities indicate that a "no shop" restriction can be included without such a carve out. There is a reimbursement fee in the event of certain specific trigger events, but it is not triggered merely if the scheme is not approved by unitholders, although it is triggered if another proposal is adopted and implemented, for example. The fee is not payable if the independent directors change their recommendation following the receipt of an opinion from an independent expert to the effect that the proposal is not or no longer in the best interests of unitholders. In any event, the fee is less than 1% of the implied value of the total consideration, and thus is within the usual accepted tolerances in this respect.
Accordingly, there does not appear to be any such defect in or objection to the proposal that would warrant declining to allow it to be put to unitholders at all. The draft explanatory memorandum has been the subject of a rigorous process of verification. It has also been submitted to ASIC, and ASIC has provided comments on it which have been accepted and incorporated in revisions of the explanatory memorandum. I have read what appears to be the important parts of the explanatory memorandum; and, having regard to the examination by and comments of ASIC, the verification proposal, and my own scanning of it, I am satisfied that the memorandum fairly and sufficiently represents and explains the scheme, and its advantages and disadvantages to unitholders.
As I have said, the plaintiff also seeks advice as to whether the proposed amendments to the constitution of the AJO Fund and the PCP Trust are within the power of amendment referred to in Corporations Act, s 601GC. The summons refers also to the power contained in the constitutions themselves. That power, in cl 15 of each constitution, provides in ample terms that the trustee may replace or amend the constitution. However, as I understand what is proposed, it is not that the trustee replace or amend the constitution, but that the members do so by special resolution.
Corporations Act, s 601GC(1) provides that the constitution of a registered scheme may be modified, or repealed and replaced with a new constitution inter alia by special resolution of the members of the scheme. It is well established that that is a wide and ample power of amendment, not to be read in any narrow way. The proposed amending resolution is plainly within that power.
The plaintiff has accepted that in addition to notice to the members of the schemes through the explanatory memorandum, notice of the proceedings should be given to ASIC, and also should be published in a national newspaper.
[3]
Orders
The Court orders that:
1. Pursuant to (NSW) Trustee Act 1925, s 63:
1. The plaintiffs would be justified in convening concurrent extraordinary general meetings ("trust scheme meeting") of security holders of Armstrong Jones Office Fund (ARSN09024229) ("the AJO Fund") and Prime Credit Property Trust (ARSN089849196)("the PCP trust"), (together, the "Investa Office Fund ('IOF')"), to consider and, if thought fit, approve the resolution set out in the notice of meeting which forms part of the draft explanatory memorandum, in relation to the Proposal, as defined in the explanatory memorandum that is marked as exhibit PX02 ("the Explanatory Memorandum");
2. The plaintiffs would be justified in distributing the Explanatory Memorandum, in substantially the same form as exhibit PX02, to all registered security holders of IOF;
3. The first plaintiff would be justified in proceeding on the basis that the proposed amendments to the constitution of the AJO fund, contemplated by the Proposal, would be within the powers of alteration conferred by Corporations Act, s 601GC;
4. The second plaintiff would be justified in proceeding on the basis that the proposed amendments to the constitution of the PCP trust, contemplated by the Proposal, would be within the powers of alteration conferred by conferred by Corporations Act, s 601GC.
1. The costs of the first plaintiff arising out of and incidental to this proceeding be paid out of the assets of the AJO fund, pursuant to the first plaintiff's right of indemnity.
2. The costs of the second plaintiff arising out of and incidental to this proceeding be paid out of the assets of the PCP trust, pursuant to the second plaintiff's right of indemnity.
3. Any security holder of the AJO Fund who wishes to oppose the proposed amendments to the AJO Fund constitution and the first plaintiff effecting the Proposal, may do so by:
1. Prior to the hearing scheduled to occur on the date in order (8) below ("the second court hearing"), filing with the Court and serving on the first plaintiff a notice of appearance in the prescribed form, together with any affidavit that the security holder proposes to rely on; and
2. By appearing at the second court hearing.
1. Any security holder of the PCP Trust who wishes to oppose the proposed amendments to the PCP Trust constitution and the second plaintiff effecting the Proposal, may do so by:
1. Prior to the second court hearing, filing with the court and serving on the second plaintiff a notice of appearance in the prescribed form, together with any affidavit that the security holder proposes to rely; and
2. Appearing at the second court hearing.
1. Notice of these proceedings and these orders need not be given to or served on any person, except as follows:
1. Publication in the Explanatory Memorandum of a summary of orders (1) to (5) above;
2. Service of these proceedings and these orders on the Australian Securities and Investments Commission;
3. Publication in a national newspaper, not later than 7 days before the date of the second court hearing, of a notice of that hearing, and a summary of a relief to be sought at it.
1. There be liberty to restore on 1 days' notice, by arrangement with my Associate;
2. The proceedings be adjourned to Tuesday, 12 April 2016 at 10am for the second court hearing.
These orders are to be entered forthwith.
[4]
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Decision last updated: 30 March 2016