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 1433

Supreme Court of NSW|2018-09-14|Before: Black J

Solicitors: Allens (Plaintiff) Gilbert & Tobin (Investa Wholesale Funds Management Limited in its capacity as responsible entity of the Investa Commercial Property Fund and ICPF Holdings Limited) Clayton Utz (Quartz Bidco Pty Ltd and Quartz Sub TC Pty Ltd) File Number(s): 2018/223255

Judgment - ex tempore (revised 17 september 2018)

By Notice of Motion filed by leave today, 14 September 2018, the Plaintiff, Investa Listed Funds Management Limited ("ILFM") as responsible entity for the Armstrong Jones Office Fund and the Prime Credit Property Trust (together, "IOF"), seeks, relevantly, the opinion, advice and direction of the Court under s 63 of the Trustee Act 1925 (NSW) that the chair of ILFM, in those capacities, would be justified in adjourning meetings of unitholders in the two funds that are presently due to take place on Monday, 17 September 2018, to a date to be determined. An order is also sought that a second court hearing on 18 September 2018 be vacated and that proceedings for judicial advice concerning a trust scheme in respect of IOF be adjourned for further directions or hearing to 9.15am on 27 September 2018.
I made the orders sought on 14 September 2018 and delivered ex tempore reasons for judgment. I have expanded these reasons to provide a more detailed outline of the factual background and ILFM's submissions without altering the substance of the judgment.

Background facts

This application raises similar issues to those which I addressed in an earlier application to adjourn earlier unitholders' meetings, and vacate an earlier second court hearing, in my judgment delivered on 5 September 2018 ([2018] NSWSC 1391). The now relatively complex history of these applications is set out in several earlier judgments of the Court. In broad terms, entities associated with the Blackstone Group made an offer to acquire units in IOF by a scheme of arrangement and an entity associated with Oxford Properties Group ("Oxford") then offered, on a conditional and non-binding basis, to purchase units in IOF at a somewhat higher price also by scheme of arrangement.
On 10 September 2018, following an earlier hearing of the Court, ILFM as responsible entity of IOF released a third supplementary explanatory memorandum, which dealt with the then position in respect of the offer by entities associated with the Blackstone Group, which provided for an increase in the consideration offered to $5.52 per IOF unit, if the scheme was approved and implemented by unitholders on or before Monday, 17 September 2018, but provided for a lesser price of $5.3485 per unit if the scheme was approved by unitholders after that date, unless that provision was waived by the Blackstone Group. I pause to recognise, as ILFM fairly recognised in this application, that an adjournment of the scheme meeting beyond Monday therefore has a risk that, unless Blackstone Group waives that condition, or makes some further offer, then the amount ultimately payable on an acquisition by the Blackstone Group would be less than it would be had the existing proposal been approved by unitholders at the meetings on 17 September 2018.
On Thursday, 13 September 2018, ILFM as responsible entity of IOF received a further non-binding, indicative and conditional proposal from Oxford to acquire units in IOF for a cash price of $5.60 per unit, less any distributions declared or paid after that date. That letter relevantly stated that: "Oxford is committed to prompt execution, enabling IOF [u]nitholders to receive cash consideration at the earliest possible opportunity. As such, Oxford anticipates that it will be able to enter into a binding implementation agreement within four weeks of receiving access to and commencing confirmatory due diligence." That letter also set out the conditions to Oxford's proposal, namely that: "The Proposal is subject to the following limited conditions: - Completion of confirmatory due diligence by Oxford to its satisfaction; - Execution of a Scheme Implementation Agreement for the Proposal on terms that are consistent with the Blackstone Scheme Implementation Agreement; - F[oreign] I[nvestment] R[eview] B[oard] approval, which will be required for implementation of the Proposal. Oxford does not anticipate any regulatory impediments or delay to the Proposal. Oxford will immediately submit a FIRB application for the Proposal upon IOF providing Oxford with access to due diligence; and - The unanimous recommendation of the Directors of [ILFM]." That letter also noted that Oxford had agreed to acquire nearly 10 per cent of IOF units from another fund, Investa Commercial Property Fund ("ICPF"), and it also obtained the right to purchase a further 10 percent of IOF units from ICPF entities, subject to approval by the Foreign Investment Review Board.
On 13 September 2018, ILFM released an announcement to Australian Securities Exchange Limited ("ASX") which attached the Oxford proposal and stated that: "[ILFM] as responsible entity of the [IOF] announces that it has received the attached unsolicited, non-binding, indicative and conditional proposal from Oxford Properties Group to acquire 100% of IOF for a cash price of $5.60 per unit (less any distributions declared or paid on or after today) (Oxford Proposal). [ILFM] recommends that unitholders take no action at this point. The [ILFM] Directors continue to unanimously recommend the Blackstone proposal in the absence of a superior proposal. The Board of [ILFM] is considering the Oxford Proposal and will update unitholders in due course."
ILFM as responsible entity of IOF made a further announcement to ASX on 13 September 2018 which attached a letter received from Investa Wholesale Funds Management Limited ("IWFM") as responsible entity for ICPF and ICPF Holdings Limited ("Holdings"). That letter provided further information in respect of the agreement between Oxford and those entities, as follows: "I write to inform you that [IWFM] as responsible entity for [ICPF] and [Holdings] have today each entered into a binding Securities Sale Deed with OMERS Administration Corporation (Oxford) under which, in simplified terms: - [IWFM] has agreed to sell 9.99% of IOF (9.99% Stake) to Oxford on 2 October 2018 (although Oxford can accelerate completion by giving two business days' notice). The price payable for the 9.99% Stake will be $5.60 per IOF unit unless [Blackstone] or another non-Oxford associated entity acquires 100% of IOF on or before an agreed date (which is currently no later than 28 February 2019) (End Date), in which case the price is $5.25 per IOF unit; - [IWFM] has agreed to sell 7.5% of IOF (7.5% Stake) to Oxford for $5.60 per IOF unit, subject to Oxford receiving FIRB approval and assuming Oxford does not terminate the acquisition of this 7.5% Stake, which it is permitted to do at its sole and absolute discretion; and - [Holdings] has agreed to sell 2.5% of IOF (2.5% Stake) to Oxford for $5.60 per IOF unit, subject to Oxford receiving FIRB approval and assuming Oxford does not terminate the acquisition of this 2.5% Stake, which it is permitted to do at its sole and absolute discretion. These new Securities Sale Deeds relate to the entirety of ICPF's collective holding. The earlier Securities Sale Deed between [IWFM] and Oxford dated 20 August 2018, which was referred to in the announcement of [ILFM] of that same date and which related to only 9.99% of IOF, has been terminated. As you will see from the terms of the Securities Sale Deeds: - Oxford has acquired control of all voting rights attached to the 9.99% Stake; - [IWFM] retains control of all voting rights attached to the 7.5% Stake until completion of that sale occurs; and - [Holdings] retains control of all voting rights attached to the 2.5% Stake until completion of that sale occurs. Full copies of the Securities Sale Deeds, together with a summary of their terms, are attached. ICPF confirms that there are no other arrangements or agreements in place with Oxford in relation to IOF." The agreement between Oxford and those entities was also released to ASX and I have been taken to it in the course of submissions.
By further ASX announcement on 14 September 2018, ILFM indicated that, pursuant to its fiduciary and statutory obligations, the ILFM board had resolved to engage with Oxford to determine whether its indicative proposal could become a binding proposal capable of acceptance by ILFM. ILFM also referred to clause 11 of the Scheme Implementation Agreement with the Blackstone Group, which provided for such an engagement in an appropriate circumstance, as an exception to certain exclusivity obligations under that agreement.
I pause to note that there has therefore been a significant level of information released to ASX as to these developments. Not surprisingly, however, where these developments commenced in the late morning yesterday, a further explanatory memorandum has not been released to IOF unitholders, nor would it have been feasible, given the timing, for such an explanatory memorandum to have been drafted, presumably put before the Court for approval, despatched to unitholders and received by them, before the closing time for lodgement of proxies in respect of Monday's meetings. It appears that about 48 per cent of proxies in respect of the unitholders' meetings due to be held on Monday had been received by ILFM and the time for lodgement of proxies is due to close tomorrow, 15 September 2018, suggesting that the balance of proxies would likely be received today or possibly through 15 September 2018.

ILFM's submissions

Mr Bender, who appears for ILFM, submits that, despite the fact that the chair of the meetings has the power to adjourn them, it may be appropriate for judicial advice pursuant to s 63 of the Trustee Act to be given to the responsible entity that an adjournment is justified. Mr Bender submits that several factors support such an adjournment, namely that: "If the meetings were to occur when scheduled unit holders would have very little time to consider the new proposal from Oxford which is obviously highly material to their decision in relation to Blackstone's proposal. Those intending to vote by proxy would have only until 7pm on 15 September 2018 (i.e. tomorrow) to reach a decision about these matters. Adjourning the meetings may permit competitive bidding between Blackstone and Oxford and potentially other bidders to continue thereby maximising value for existing unit holders. The most recent Blackstone proposal (i.e. net Scheme Consideration of $5.52 per unit) was expressed to be "best and final, in the absence of a superior proposal" and therefore does not exclude the possibility of further bidding. Putting the question of adjournment to the unit holders at the meeting would disenfranchise those unable to attend."
Mr Bender, fairly, also identifies risks for IOF unitholders arising from an adjournment of the unitholders meetings and submits that: "The risk to unit holders involved in adjourning the meetings is that if Blackstone (or some other party) does not to submit a higher bid and the Oxford proposal does not crystallise into a binding proposal, Blackstone will not be obliged to proceed with the Schemes at its most recently proposed price of $5.6215 by way of aggregate Scheme Consideration (i.e. $5.52 on a net basis). Instead the definition of Scheme Consideration in the Scheme Implementation Deed will revert to an aggregate amount of $5.45 per unit (i.e. $5.60 on a net basis). The magnitude of the risk is unknown to ILFML as it depends entirely on the attitude of Blackstone and Oxford. While the assessment of that risk might normally be appropriate for consideration by the unit holders in a meeting, the shortness of time in the present case means that, by the deadline for proxies at 7pm tomorrow, some unit holders may not be aware of the new Oxford proposal or the risk identified in the preceding paragraph and those that are would have very little time to consider them. Without these matters being properly explained prior to the deadline for proxies the results of the voting will not represent an informed decision by unit holders in respect of them. It is also significant that Oxford now controls the votes in respect of the 9.9% Stake and one would infer that they would vote these units against the Blackstone proposal if the meeting is not adjourned, increasing the prospect of the increased Blackstone proposal being lost to unit holders in any event. It is therefore submitted that, notwithstanding the risk identified above, the appropriate course would be for the chairman to adjourn the meetings so that an informed decision can be made in due course once the auction process has run its course and the best offer available can be put to unit holders."

Disposition

I reviewed the questions that arise in respect of an adjournment of meetings of unitholders in my earlier judgment ([2018] NSWSC 1391) dealing with the same question. The chair of ILFM has a constitutional power to adjourn the meetings of unitholders, and Mr Bender makes clear that the chair has formed the view that he should do so, subject to the receipt of the Court's advice as to these matters. I noted cases which had raised similar issues, in the analogous context of corporate schemes in my earlier judgment, including Re Envestra Pty Ltd (No 2) [2014] FCA 483 and Re Asciano Ltd (No 2) [2015] NSWSC 1651, and I noted that, in the latter case, unitholders had already completed and lodged proxies unaware of developments, and that supported in that case an adjournment of a scheme meeting. I took a similar approach in my earlier decision in this matter. I also there held, and proceed today on the basis, that the chair of ILFM has power to adjourn the relevant meetings, and has power to do so sine die for the reasons set out in my earlier judgment.
I recognise that the position here is perhaps more difficult than that addressed in earlier cases since, depending upon contingencies, the adjournment of the unitholders' meetings on Monday may have the result that the higher Blackstone Group proposal is lost, even if the Oxford proposal does not proceed beyond a conditional, non-binding proposal to a proposal that is capable of implementation. No doubt, that would be an unfortunate result for IOF unitholders. Having said that, it seems to me that this is not a case where the chair had to determine, or the Court had to determine, whether it is likely that that unhappy result would occur. The position here is simpler, since the chair could not be satisfied, and the Court could not be satisfied at a second hearing for judicial advice, that IOF unitholders were properly informed as to these recent developments.
No doubt, some and possibly many unitholders, including many or most institutional unitholders, would have followed the several ASX announcements yesterday. Some or many of the unitholders who lodged proxies by this morning, and will lodge proxies by the closing time tomorrow, will also be informed of those developments. However, neither the chair of ILFM, nor the Court at a second court hearing, would know how many unitholders fell within that category, and whether some, or many unitholders, particularly retail unitholders, were not following ASX announcements on Thursday, or the media this morning, and were not aware of these developments. Even those unitholders who were aware of those developments would not have had the advantage of a considered analysis of those developments by a supplementary explanatory memorandum, or any assessment by ILFM or an independent expert of the benefits and risks attached to their voting in favour of the Blackstone Group's proposal at the unitholders' meetings on Monday, or to voting it down and running the risk of whether a higher proposal by Oxford would become unconditional. That, plainly, is a complex decision, and one in which unitholders would be assisted by further information provided by ILFM or a further assessment by the independent expert. As I noted earlier, there can be no criticism of ILFM for not providing such an assessment in the short period available to it, which would plainly not permit a properly thought out assessment to be issued to unitholders.
In these circumstances, it seems to me that the view that the chair has formed, that he would adjourn the meetings, subject to the Court's direction and advice, is plainly not unreasonable or irrational, and may well be the only proper decision in the relevant circumstances. In expressing that view, I have in mind the difficulty for the chair and ILFM unitholders if the meetings proceeded in circumstances that some or many of those unitholders were not properly informed as to the relevant decisions to be made, and the risk that any decision made by unitholders could not then be effectively implemented, if the Court could not be satisfied at a second court hearing that it could give judicial advice that ILFM would be justified in implementing the proposals, where there was uncertainty as to the extent to which unitholders had been fully informed in voting in respect of them.
I have recognised, in forming this view, that it would be an adverse development for unitholders if the higher Blackstone Group proposal were lost, and a higher proposal by Oxford ultimately did not become unconditional. However, it seems to me that the chair can properly give greater weight, and the Court must itself give substantial if not exclusive weight, to the significant importance of unitholders being properly informed in decisions that they make. In some circumstances, that may have the unfortunate consequence that a unitholders' meeting should be deferred, even if there are risks to that course, so that unitholders can make a properly informed decision.
For these reasons, I am satisfied that I should give the directions and make the orders sought by ILFM in its Notice of Motion. I make 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: 28 September 2018

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