In the matter of Investa Listed Funds Management Limited as responsible entity for the Armstrong Jones Office Fund and the Prime Credit Property Trust [2018] NSWSC 1369

Background

1. By way of background, Ward CJ in Eq made orders under s 63 of the Trustee Act on 24 July 2018 directing that ILFM would be justified in distributing an explanatory memorandum to unitholders in the funds and convening certain meetings of unitholders in respect of a trust scheme. On 16 August 2018, I made a further order under s 63 of the Trustee Act that ILFM would be justified in distributing a supplementary explanatory memorandum and adjourning the meeting of unitholders until 29 August 2018. That supplementary explanatory memorandum was announced to the market on 16 August 2018 and despatched to unitholders on 20 August 2018.
2. Also on 20 August 2018, a major unitholder in ILFM, Investa Wholesale Funds Management Ltd ("IWFM") in its capacity as the responsible entity of the Investa Commercial Property Fund ("ICPF") advised ILFM that (among other things) it had entered into a binding Securities Sale Deed by which it agreed to sell approximately 59.8 million units in IOF, representing approximately 9.99% of IOF to Oxford Properties Group ("Oxford") for $5.25 per IOF security ("Oxford Share Sale Agreement"), with completion of that agreement being conditional on the proposed resolutions relating to the trust scheme being either voted down by IOF unitholders or not voted on by 18 September 2018. IWFM also advised ILFM that, until completion of the Oxford Share Sale Agreement, it was entitled to control the exercise of any rights to vote in respect of the relevant securities; there were no other arrangements or agreements in place with Oxford in relation to IOF; and IWFM and ICPF Holdings Ltd ("Holdings") shared the view that the proposal resolutions did not adequately reflect the value of IOF's portfolio and intended to vote all of their IOF securities they hold (being 19.95% of IOF) against those resolutions. Mr Wood also drew attention to cl 7 of the Oxford Share Sale Agreement which, in effect, provided for IWFM to pay specified amounts to Oxford if the proposed acquisition of IOF securities by entities associated with the Blackstone group ("Acquirer") proceeded at an increased price.
3. On 22 August 2018, ILFM requested Australian Securities Exchange Limited ("ASX") to implement a trading halt in respect of IOF securities due to an impending revised offer from the Acquirer. On that day, the Acquirer advised ILFML that: "On the basis that the conditions outlined below are satisfied, we are prepared to increase the aggregate Scheme Consideration from $5.25 to $5.45 per IOF Scheme Unit for all of the IOF Scheme Units, subject to the existing terms and conditions in the [Scheme Implementation Agreement ("SIA")], including a reduction for any distributions as provided in clause 7.3(c) of the SIA ("Improved Proposal")" That letter also referred to the level of premium to pre-proposal market prices reflected by that offer. The conditions to that proposal included that, by no later than 5pm (AEST) on Friday 24 August 2018, IWFM in its capacity as responsible entity of ICPF and Holdings together issue a public statement that they intend to vote all of their IOF units (being approximately 19.95% of IOF) in favour of the scheme resolutions, in the absence of a superior proposal; the ILFM Board continue to unanimously recommend that IOF unitholders vote in favour of the schemes, in the absence of a superior proposal; and certain conditions as to implementation of a revised scheme. The Acquirer also advised that the proposed increase in price was best and final, in the absence of a superior proposal.
4. On 24 August 2018, the first condition of the Acquirer's revised proposal letter was satisfied, when IWFM in its capacity as responsible entity of ICPF and Holdings together issued a media release that they intend to vote all of the IOF units they hold (being approximately 19.9973% of IOF) in favour of the proposal resolutions that give effect to the revised proposal in the absence of a superior proposal.
5. KPMG Financial Advisory Services (Australia) Pty Ltd ("KPMG"), which had prepared an independent expert's report included in the Scheme Booklet that was originally circulated to unitholders, have now prepared a supplementary independent expert's report that is proposed to be included with a Second Supplementary Scheme Booklet. KPMG concluded, consistent with their conclusion in respect of the earlier scheme proposal, that: "In our opinion, we consider the Scheme continues to be in the best interests of IOF Unitholders in the absence of a superior proposal. This opinion is based on our assessment that the Scheme remains not fair but reasonable and, in accordance with RG 111, in the best interests of IOF Unitholders."
6. KPMG also noted that the revised consideration for the proposal substantially reduced the discount to the low end of their assessed value range for an IOF unit such that there was now only a 1.3% discount and noted that: "These factors provide IOF Unitholders with an improved consideration, greater certainty as to the voting position of the major IOF Unitholder in relation to the Scheme and a reduced likelihood of a superior alternative proposal".
7. ILFM has now also prepared and lodged with the Australian Securities and Investments Commission ("ASIC"), on 27 August 2018, a draft second supplementary explanatory memorandum which sets out the relevant details of the revised proposal and includes the supplementary independent expert's report. There is evidence that ILFM has verified the material in the Second Supplementary Scheme Booklet that is materially different to that which was previously provided to unitholders.
8. By an Amendment Deed dated 27 August 2018, the SIA has also been amended so that the aggregate amount of consideration to be received by IOF unitholders under the definition of Scheme Consideration is increased to $5.45 (Ex P1, tab 15). By a further Amendment Deed dated 27 August 2018, a previous deed poll dated 23 July 2018 in favour of IOF unitholders was agreed to be amended, and the Acquirer has now entered into a Further Deed Poll dated 27 August 2018, reflecting the revised consideration for the trust schemes (Ex P1, tab 16). Other documentation has also been provided to IOF evidencing the Acquirer's equity funding arrangements (MFI 1, confidential tabs 1 and 2).
9. ILFM has advised ASIC of these developments. ILFM also indicates that, if the Court approves the adjournment of the IOF scheme meetings and the second court hearing, it will publish a further newspaper advertisement in the form required by the orders previously made by the Court on 24 July 2018, as amended by orders made on 16 August 2018, with necessary changes to account for the revised proposal.

Despatch of Second Supplementary Scheme Booklet to unitholders

1. As Mr Wood rightly recognises in submissions, where the Court has convened or approved the convening of a meeting and approved an explanatory statement, additional material should ordinarily not be despatched to members without first obtaining court approval. That view has been taken in relation to both corporate schemes under s 411 of the Corporations Act 2001 (Cth) and trust schemes: Re Centro Retail Ltd [2011] NSWSC 1321; Re Trust Company Ltd [2013] NSWSC 1946 at [7]; Re Investa Listed Funds Management Ltd [2016] NSWSC 344, at [4]; Re Investa Funds Management Ltd [2016] NSWSC 369 at [1]; Re Investa Listed Funds Management Limited as responsible entity for the Armstrong Jones Office Fund and the Prime Credit Property Trust (unpublished, 16 August 2018). There is nothing in the content of the revised proposal, which is on its face more favourable to unitholders than the original proposal already the subject of judicial advice, that suggests that it should not be put to unitholders for their consideration. The Court should therefore approve the despatch of the Second Supplementary Scheme Booklet to unitholders, where the events that have occurred since the Scheme Booklet was distributed, and the increased price now offered by the Acquirer, would likely be material to unitholders' decision as to how to vote at the meetings.

Adjournment of the scheme meetings

1. Mr Wood submits that, and I accept that, although the chairman of the scheme meetings has power to adjourn them under the constitutions of the relevant funds, it may be appropriate for judicial advice to be given to the responsible entity that an adjournment is justified where supplementary material is to be sent to security holders: Re Investa Funds Management Ltd [2016] NSWSC 369 at [8]; Re Investa Listed Funds Management Limited as responsible entity for the Armstrong Jones Office Fund and the Prime Credit Property Trust above.
2. It is proposed that the Second Supplementary Scheme Booklet, if approved by the Court, be released to ASX after the hearing on 28 August 2018 and then sent to unitholders between 28 and 30 August 2018. The meetings are proposed to be adjourned until 6 September 2018 with proxies being due at 10am on 4 September 2018. Mr Wood points out that unitholders will have 5 clear calendar days (including 3 clear business days) from the date the Second Supplementary Scheme Booklet is released to ASX until proxies are due and a further 2 clear business days until the meetings. Mr Wood fairly acknowledges that these periods are shorter than the 10 calendar days' notice that ASIC indicates, in Regulatory Guide 60 as to schemes of arrangement under Part 5.1 of the Corporations Act, will "generally be appropriate for scheme participants, including those voting by proxy" to consider supplementary disclosures. However, Mr Wood also points out that the revised proposal has been well-publicised (including by ILFM's ASX releases on 22, 23 and 24 August 2018, IWFM's and Holdings' media release of 24 August 2018 and a letter from ILFM to unitholders on the same date) since its receipt and any interested unit holder has likely been on notice of its more favourable terms for at least 10 days prior to the due date for proxies. It is also proposed that, due to the short notice of the proposed adjournment of the meeting previously convened for 29 August 2018, members of ILFM's board will make themselves available at the time previously scheduled for that meeting to meet informally with any unitholders who attend at that time and answer questions about the revised proposal.
3. Mr Wood also submits, and I accept, that the material change introduced by the revised proposal, namely an increase in the Scheme Consideration, will readily be understood by unitholders. Mr Wood also fairly recognises that the Second Supplementary Scheme Booklet, including the supplementary independent expert's report, is still to be sent to unitholders, who will have a relatively short time to review it. However, as he points out, KMPG have not changed their conclusion that the proposal (now in its revised form) is "not fair but reasonable", and the revised proposal now falls closer to the lower end of their value range. Again, unitholders should have little difficulty in understanding the matters addressed by the Second Supplementary Scheme Booklet and supplementary independent expert's report when they receive it. These matters suggest that a longer adjournment of the scheme meeting is not required in this case: compare Re Seven Network Ltd (No 2) (2010) 77 ACSR 587; Re Billabong International Limited (No 2) [2018] FCA 496 Mr Wood submits, and I accept, that this case does not share the features that have supported a longer adjournment in different circumstances: compare Re Envestra Ltd (No 2) [2014] FCA 483; Re Asciano Limited (No 2) [2015] NSWSC 1651. Finally, as Mr Wood points out, if any issue as to the adequacy of the notice given of the adjourned notice arises, it can be considered when the Court is asked to approve the schemes, consistent with the approach taken in Re Seven Network Ltd (No 2) above at [23] and Re Ross Human Directions Ltd (No 2) [2010] FCA 1175 at [13].

Variation to timetable for approval hearing

1. ILFM also seeks, and I will order, a variation to orders 4 and 5 made on 24 July 2017 (as varied on 16 August 2018), which follows from the directions that I will give in respect of the despatch of the Second Supplementary Scheme Booklet and the adjournment of the scheme meeting to 6 September 2018. ILFM's application for judicial advice that it would be justified in implementing the schemes (if approved by unit holders) will now be listed on 7 September 2018 and a further advertisement will be published in a national newspaper not less than 7 days prior to that hearing to give notice of that hearing.
2. For these reasons, I was satisfied that I should make, and I made, orders in accordance with the Short Minutes of Order initialled by me and placed in the file.

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: 12 September 2018