In the matter of WOTSO Limited; In the matter of Blackwall Fund Services Limited as responsible entity of Blackwall Property Trust [2021] NSWSC 100

Supreme Court of NSW|2021-02-05|Before: Black J

Solicitors: Both Proceedings Gadens (Plaintiffs) File Number(s): 2020/349090 2020/349305

Judgment

By my judgment published on 22 January 2021 ([2021] NSWSC 21), I made orders convening a meeting of shareholders of WOTSO Ltd ("WOTSO") to consider a scheme of arrangement proposed between WOTSO and its fully paid shareholders and associated orders. I also gave judicial advice under s 63 of the Trustee Act 1925 (NSW) in respect of a trust scheme concerning the Blackwall Property Trust ("BWR") in an associated application.
As I noted in my earlier judgment, and as Mr Crutchfield and Mr Rudd note in submissions for the second Court hearing, the commercial purpose of the transaction is to effect a 1:1:1 stapling of the securities in each of WOTSO, BWR and a third company, Planloc Pty Ltd ("Planloc"), by a somewhat complex process involving consolidating existing WOTSO shares, with every four WOTSO shares being consolidated into approximately one WOTSO share; issuing new WOTSO shares to Blackwall Fund Services Ltd ("BFSL") as agent for BWR unitholders; issuing new BWR units to WOTSO shareholders; splitting existing Planloc shares, which are held by Pelorus Private Equity Limited ("Pelorus") and Pelorus then transferring the Planloc shares to BFSL as agent for BWR unitholders; issuing new Planloc shares to WOTSO shareholders; stapling the WOTSO shares, BWR units and Planloc shares on a 1:1:1 basis; and listing the stapled securities on the Australian Securities Exchange under the name "WOTSO Property".

The applicable principles in respect of approval of the WOTSO scheme

Section 411(4) of the Corporations Act provides that an arrangement is binding if, at a meeting of scheme shareholders, it is passed by a majority of scheme shareholders present and voting (in person or by proxy) and by 75% of votes cast and it is approved by order of the Court. At the second court hearing, the Court will first determine whether the procedural requirements in respect of the scheme have been satisfied and then exercise its discretion as to whether or not to approve the scheme: Re Central Pacific Minerals NL [2002] FCA 239 at [12]; Re Redcape Property Fund Ltd and Trust Company (RE Services) Ltd (as the responsible entity for the Redcape Property Trust) [2012] NSWSC 486 at [7]; Re Aveo Group Ltd [2019] NSWSC 1679 at [15]. The Court is not bound to approve a scheme merely because it has previously made orders for the convening of meetings and the statutory majorities have been achieved and will have due regard to members' assessment of their interests as manifested in the voting at the scheme meeting, and will recognise that shareholders are generally "the best judges of whether an arrangement is to their commercial advantage", and will therefore "be reluctant to make decisions contrary to the views of security holders expressed at meetings": Re NRMA Ltd (No 2) (2000) 156 FLR 412; ; [2000] NSWSC 408 at [22]; Re Seven Network Ltd (2010) 267 ALR 583; 77 ACSR 701; [2010] FCA 400 at [31]; Re Atlas Iron Ltd (No 2) [2016] FCA 481 at [5]; Re Central Pacific Minerals NL above at [13].
In the exercise of its discretion, the Court will generally have regard to whether scheme members have voted in good faith and not for an improper purpose; whether the proposal is fair and reasonable so that an intelligent and honest person who was a member of the relevant class, properly informed and acting alone might approve it; whether the plaintiff has brought to the attention of the Court all matters that could be considered relevant to the exercise of the Court's discretion; whether there has been full and fair disclosure of all information material to the decision; whether minority shareholders would be oppressed by the scheme; 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: Corporations and Markets Advisory Committee report, Members' schemes of arrangement, 2009, pp 49-52; Re Permanent Trustee Co Limited (2002) 43 ACSR 601; [2002] NSWSC 1177 at [8]-[10]; Re Seven Network Limited above at [35]-[40]; Re GBST Holdings Ltd [2019] NSWSC 1503 at [11]; Re Aveo Group above at [15].
In Re Amcor Limited (No 2) [2019] FCA 842 at [7]-[11], Beach J summarised the applicable principles as follows: "In essence, my role at the second court hearing is to assess the Scheme taking into account whether the Scheme is sufficiently fair and reasonable such that an intelligent and honest shareholder properly informed and acting alone might approve it. Of course, I can only approve a scheme of arrangement if the requisite majority of shareholders vote in favour of it, but I am not bound to approve the Scheme simply because I previously made orders for the convening of a Scheme meeting and subsequently the requisite majority agreed to it. But I accept that shareholders voting collectively at the Scheme meeting are better judges than I of what is to their commercial advantage and in their interests and accordingly, absent good reason, I should give effect to their intentions. Now whilst there is no exhaustive statement of the matters as to which I must be satisfied before granting approval, it is not in doubt that in exercising my power under s 411(4)(b), I should be satisfied that: (a) the Scheme complies with the law, including the relevant procedural requirements; (b) The Scheme was approved by shareholders acting in good faith and for proper purposes; (c) There has been an accurate and comprehensive disclosure of the details of the Scheme and its effect to those voting on it; (d) there is no suggestion of oppression of any minority; (e) there is no evidence that any third parties will be disproportionately adversely affected by the operation of the Scheme; (f) the Scheme does not offend against any aspect of public policy; and (g) all matters that could be considered relevant to the exercise of my discretion have been drawn to my attention. I also need to be satisfied that the conditions precedent to the Scheme have been met, save for Court approval, and that ASIC has been given the opportunity to draw to my attention any relevant matter(s). In considering whether the Scheme complies with the law, including the relevant procedural requirements, I need to satisfy myself that the procedural and other requirements in the Act, Corporations Regulations 2001 (Cth) and [the Corporations Rules] have been complied with and that the requirements for a valid resolution of the shareholders have been satisfied. Now as I have said, my task is to consider whether the Scheme is fair and reasonable with the test of fairness and reasonableness including a consideration of whether "an intelligent and honest [shareholder], properly informed, acting alone, might approve [the scheme]" … But the Scheme shareholders' vote in favour of the Scheme is evidence of its inherent fairness. Put another way, if a majority of the Scheme shareholders have approved the Scheme, it is unlikely that the Scheme would be unreasonable. Further, I do not have to be satisfied that no better Scheme could have been devised."

Affidavit evidence in respect of the WOTSO scheme

WOTSO relies on the affidavit dated 3 February 2021 of Mr Joseph Glew, its chairman, who leads evidence as to the conduct of the scheme meeting, at which the relevant resolutions were passed by substantial majorities by number of shareholders attending and by votes cast, although a relatively small percentage of shareholders attended that meeting. He also refers to the passage of associated resolutions, also by substantial majorities, at an associated general meeting. By an affidavit dated 3 February 2021, Mr Whitelum, who is the company secretary of WOTSO, led evidence as to the preparation of the final scheme booklet, the conduct of the scheme meeting, tagging of votes of certain parties at that scheme meeting and poll reports for that scheme meeting. By her affidavit dated 4 February 2021, Ms Ann Nguyen, who is the head of capital markets and investor services at Automic Pty Ltd ("Automic"), dealt with the dispatch of documents to those shareholders who received documents by email and by post and with the receipt of completed proxy forms. An affidavit dated 4 February 2021 of Mr Andrew Harvey, who is the operations manager for a time engaged by Automic, also related to the mailout of documents in respect of the scheme.
By his affidavit dated 4 February 2021, Mr Jolyon Rogers, who is the solicitor for WOTSO, addressed the registration of the scheme booklet by the Australian Securities and Investments Commission ("ASIC"), the publication of an advertisement in respect of the scheme hearing and the lodgement of a prospectus in respect of WOTSO and Pelorus (which is associated with the scheme) with ASIC. By a further affidavit dated 5 February 2021, Mr Rogers referred to correspondence from ASIC, the satisfaction of conditions precedent to the scheme and the absence of notice that of any person would appear to seek to oppose the scheme. By letter dated 4 February 2021, ASIC advised that it had no objection to the scheme for the purposes of s 411(17)(b) of the Corporations Act 2001 (Cth). The relevant parties also provided certificates confirming satisfaction of relevant conditions precedent in respect of the WOTSO scheme.

WOTSO's submission and determination in respect of the WOTSO scheme

Mr Crutchfield submits that the evidence establishes that the statutory and procedural requirements for the WOTSO scheme under s 411 of the Act have been satisfied, since WOTSO has complied with the orders convening the scheme meetings and with the Court Rules; complied with the disclosure obligations under s 412(1) of the Act; the approval resolution was passed by the requisite majorities of WOTSO shareholders required by s 411(4)(a)(ii) of the Act; the conditions precedent to the scheme were satisfied; and s 411(17) of the Act is satisfied.
I am satisfied that the evidence establishes that WOTSO complied with the convening orders and Rules and that the relevant documents were dispatched to shareholders in accordance with the orders made by the Court. Mr Crutchfield points out that, of the 778 scheme meeting email distributions that were sent to Email Shareholders (as defined) on 21 December 2020, 738 were successfully delivered to the intended email addresses, and 40 emails "bounced back" indicating that the notifications could not be delivered to the intended email address; and, when the general meeting email distributions were sent to Email Shareholders on the same date, 759 emails were sent to Email Shareholders. Of those, 738 were successfully delivered to the intended email addresses and 21 emails 'bounced back' also indicating that the notifications could not be delivered to the intended email address. On 23 December 2020, the relevant scheme meeting and general meeting materials were distributed to those shareholders whose emails had bounced back in the same manner as the Postal Shareholders (as defined). Relevant documents were posted to the 477 Postal Shareholders on 22 December 2020. The evidence also addresses the receipt and recording of proxy votes and the publication of a notice advertising the second Court hearing on 5 February 2021.
Mr Crutchfield also points out that s 412(1) of the Act sets out disclosure requirements for the explanatory statement to be sent to members at the time of providing notice of the scheme meeting. I had noted in the earlier judgment that the scheme booklet was in conventional form and had been verified in the usual way and made available for ASIC's review, that the independent expert's report contained a detailed evaluation of the scheme, and that there was no reason to think that members would not be properly informed as to the nature of the scheme before the scheme meeting. As Mr Crutchfield also points out, the scheme booklet (including explanatory statement) distributed to WOTSO shareholders was substantially in the form approved by the Court at the first Court hearing pursuant and subsequently registered with ASIC. I am satisfied that the requirements of s 412(1) of the Act have been satisfied.
The scheme resolution was put to a vote which was conducted by poll at the scheme meeting; 80 shareholders voted in favour of the resolution and 3 shareholders voted against it; 48,897,776 votes were cast in favour of the resolution, representing 99.92% of the total votes cast on the resolution; and 40,205 votes were cast against the resolution, representing 0.08% of the total votes cast on the resolution. In accordance with s 411(4)(a)(ii) of the Act, the resolutions were passed by a majority in number of members present and voting (either in person or by proxy) at the scheme meeting and by more than 75% of the votes cast on the resolution. This reflected a low shareholder participation rate of 6.9%, casting total votes of approximately 60% (48,937,981) of total share capital, but I accept that no inference can be drawn that that reflects opposition to the proposal by the shareholders who did not consider it necessary to vote in respect of it. Each of the associated resolutions which were put to a general meeting were also carried.
For completeness, the evidence indicates that votes of interests associated with Mr Glew, Mr Tresidder, BFSL and Planloc were tagged and, excluding those votes, 99.72% of votes cast on the scheme resolution, representing 63 of the 83 holders who voted on the resolution, voted in favour of the scheme, and 0.2% of the votes cast on the resolution, representing 3 holders, voted against the Scheme. Mr Crutchfield submits and I accept that the resolution enjoyed broad support among the general body of shareholders and that the tagged votes did not unduly influence the outcome of that resolution.
Mr Crutchfield also recognises that, before approving a scheme, the Court will ordinarily require that all conditions precedent to the scheme (other than the Court's approval and the lodgement of the Court's approval order with ASIC) have been satisfied or waived: Re United Medical Protection Ltd [2007] FCA 631 at [19]. This scheme is subject to the satisfaction or waiver of several conditions precedent, as set out in cl 3.1 of the Scheme Implementation Deed and cl 3.1 of the Scheme of Arrangement. Each of WOTSO, BFSL and Planloc provided a certificate confirming (in respect of matters within their knowledge) that those conditions precedent (other than the condition relating to Court approval of the Scheme) have been satisfied or waived. At the approval stage, the Court must also be satisfied there is no proscribed purpose as described in s 411(17)(a), or there must be provided to the Court a statement in writing by ASIC that it has no objection to the arrangement under s 411(17)(b). A letter from ASIC to that effect was tendered and there is no need for the Court to further consider s 411(17)(a), where no issue otherwise arises concerning Chapter 6 of the Act.
There is no reason to think that any other necessary matters have not been brought to the Court's attention. Having regard to the disclosure made by the scheme booklet and the conduct of the scheme meeting, I am satisfied that there has been full and fair disclosure to WOTSO shareholders of the information material to the decision whether to vote for or against the scheme. Mr Crutchfield also submits that the scheme is fair and reasonable in that an intelligent and honest person who was a member of the relevant class, properly informed and acting alone, might approve it, and refers, inter alia, to shareholders' support for the scheme resolution; the directors' recommendation that shareholders vote in favour of the scheme for the reasons given in the scheme booklet and the directors' stated intention to vote their WOTSO shares in favour of the scheme; the independent expert's opinion that the scheme is not fair but reasonable and in the best interests of WOTSO shareholders; and the disclosures in the scheme booklet of the potential benefits and disadvantages of the scheme. I am satisfied of that matter.
As I noted above, a special resolution of WOTSO shareholders was carried, at the general meeting which followed the scheme meeting, which provides for the replacement of WOTSO's constitution upon the scheme becoming effective, to include detailed provisions concerning the stapling proposal. Mr Crutchfield submits, and I accept, that the Court should exempt WOTSO, under s 411(12) of the Act, from the requirement (in s 411(11) of the Act) to exhibit a copy of the Court's orders approving the scheme to every copy of its constitution issued after the order is made, since current shareholders have been informed of the scheme and that no ongoing purpose will be served by requiring the orders approving the scheme to be annexed to that constitution: Re Healthscope Limited (No 2) [2019] FCA 759 at [41].
For these reasons, I made the orders sought by WOTSO at the second Court hearing.

Role of the Court in granting judicial advice in respect of the BWR trust scheme

The role of the Court in granting judicial advice at the second Court hearing is of a similar nature to that in schemes under Part 5.1 of the Corporations Act 2001 (Cth). An application for judicial advice that the responsible entity is justified in giving effect to and implementing a restructuring approved by unitholders can be brought before the Court once unitholders' views, expressed through voting at the relevant meeting or meetings, is known and any unitholder who wishes to appear to oppose the application is given an opportunity to do so: Re Mirvac Limited (1999) 32 ACSR 107; [1999] NSWSC 457 at [48]; Re Homemaker Retail Management Ltd (2001) 40 ACSR 116 at [5]-[7]; Re Macquarie Goodman Funds Management Ltd (2004) 52 ACSR 194; [2004] NSWSC 1197 at [10]. At the second hearing, the Court will consider whether the procedural requirements for the obtaining of the unitholders' approval have been satisfied, and the Court then gives considerable weight to the level of support for the proposed transaction, and to whether any person appears at the second Court hearing to express any opposition to it: Re Cromwell Property Securities Ltd [2006] NSWSC 1449 at [23]; Re Commonwealth Managed Investments Ltd [2014] NSWSC 244 at [3].

Affidavit evidence in respect of the BWR trust scheme

BFSL as responsible entity of BWR relies on Mr Glew's affidavit dated 3 February 2021 which refers to the conduct of an extraordinary general meeting in respect of BWR, at which a special resolution to amend BWR's constitution was passed by a substantial majority, again with a relatively low voter turnout. Mr Whitelum's affidavit dated 3 February 2021 refers to dealings with Automic, in respect of the preparation and dispatch of electronic and hard copy communications to BWR unitholders and the conduct of the extraordinary general meeting. Mr Harvey refers to the preparation of personalised proxy forms, letters and other documents and to the mailout of those documents. Ms Nguyen's affidavit dated 4 February 2021 refers to the dispatch of relevant documents by email and by post and to the receipt of completed proxy forms. Mr Rogers' affidavit dated 4 February 2021 refers, inter alia, to dealings with ASIC in respect of the BWR and to the provision of BWR's replacement constitution to ASIC. Evidence was led at the hearing to confirm that the relevant constitutional amendments did not take effect prior to the giving of the judicial advice sought from the Court.

Submissions and determination as to BWR trust scheme

BFSL seeks orders pursuant to s 63 of the Trustee Act to the effect that it would be justified in giving effect to and implementing the transactions contemplated by the resolutions passed by unitholders at the BWR meeting, in giving effect to the repeal and replacement of the constitution of BWR approved at the meeting, and in doing all things necessary to implement the transactions contemplated by those resolutions.
Mr Crutchfield refers to the evidence as to the dispatch of documents in respect of the BWR meeting, and I am satisfied they were dispatched by email and by post in accordance with the Court's orders. Mr Crutchfield also address the receipt and recording of proxy votes and the conduct of the BWR meeting. The evidence indicates that 99.83% of the votes cast (111,089,335 units) were in favour of the special resolution for the repeal and replacement of BWR's constitution and 0.17% of the votes cast (191,023) were against the special resolution. That resolution was passed by the necessary majority in accordance with the requirements of BWR's then current constitution and s 601GC(1)(a) of the Act, being 75% of the votes cast by unitholders entitled to vote on the resolution. I again recognise that resolution was passed on the votes of a relatively small proportion of unitholders by number, being 8.4% of unitholders by number, holding approximately 78% of total units on issue. Mr Crutchfield submits that it is appropriate to give the further judicial advice now sought with respect to the implementation of the stapling proposal pursuant to BWR's replacement constitution, where the special resolution was passed at the BWR unitholder meeting. The relevant statutory power of amendment is very wide, as I noted in the earlier judgment, and there is nothing to suggest that its exercise by the appropriate majority of unitholders at the BWR meeting was not effective, or that BFSL in its capacity as responsible entity of BWR would not otherwise be justified in giving effect to the transactions contemplated by the special resolution. I am satisfied I should give the advice sought on that basis.
BSFL also seeks an order under s 93 of the Trustee Act that the costs of and incidental to its application for judicial advice be paid out of the assets of BWR. I am satisfied that it was appropriate for BFSL as responsible entity of BWR to approach the Court for such judicial advice, in accordance with the common practice in a trust scheme, and that such an order should be made.
For these reasons, I was satisfied that I should give the judicial advice sought by BFSL as responsible entity of BWR and I made orders in accordance with those proposed by BFSL at the second Court hearing.

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 February 2021

Act, Corporations Regulations 2001(Cth)

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