Lendlease RL (Rowville) Pty Ltd v Lendlease Capital Services Pty Ltd

Introduction 1 The plaintiffs seek orders providing for the convening of meetings in relation to proposed schemes of arrangement. The schemes of arrangement have been proposed for the purposes of, or in connection with, the reconstruction or amalgamation of companies within the Lendlease Capital Services Group. Most of the plaintiffs have participated in the Lendlease Retirement Living business (the LRL business). 2 There are 114 plaintiffs. A separate scheme is proposed between each plaintiff and its sole member. In the following paragraphs of these reasons, it is convenient to refer to each plaintiff as a scheme company and to the plaintiffs collectively as the scheme companies. 3 The scheme companies have either ceased to carry on business by December 2017 or have never traded at all. Subject to one exception, the scheme companies which have traded have transferred all their assets to third parties. The exception is Lendlease Primelife Limited (LLPL), which holds a net receivable of approximately $307,000 that relates to the sale of a resident loan portfolio in New Zealand. Each other scheme company had nil assets as at 30 June 2018. 4 Further, each scheme company's external liabilities were either nil or the subject of a provision reflected in the balance sheet extracted from the audited financial statements of the defendant, Lendlease Capital Services Pty Ltd (LCS). Each scheme company is now entirely funded by LCS. LCS is a wholly-owned subsidiary of Lendlease Corporation Limited (LLC), which is the ultimate holding company of each scheme company. 5 The only shares on issue in each scheme company are ordinary shares, other than in respect of Lakeside Gardens Management Pty Ltd and PLT Management Pty Ltd, where the only shares on issue are Class A shares. None of the shares of the scheme companies are quoted on the official list of the Australian Securities Exchange or any other financial market. 6 None of the scheme companies is, presently, a party to litigation.

The schemeS 7 It is proposed that: the property of each scheme company will, simultaneously with the property of every other scheme company, be transferred to and vested in LCS, without the need for any further act or deed; all liabilities of each scheme company will, simultaneously with the liabilities of every other scheme company, be transferred to and become liabilities of LCS, without the need for any further act or deed; all legal proceedings pending by or against any scheme company will be continued by or against LCS without the need for any further act or deed, other than an amendment of the record of the relevant court or tribunal; each scheme company will attend to such incidental, consequential and supplemental matters as are necessary to ensure that the scheme to which it is a party is fully and effectively carried out; and each scheme company will be deregistered by the Australian Securities and Investments Commission (ASIC), without winding up. 8 The objectives of the proposed reconstruction or amalgamation are to: materially reduce the administrative, accounting, audit, compliance and reporting costs of the Lendlease Capital Services Group by approximately $205,200 per annum; consolidate the ownership of any undertaking or business of a scheme company into LCS; and rationalise the number of companies in the Lendlease Capital Services Group, and eliminate the duplication of functions across the companies in that group. 9 These proposals will, in respect of each scheme company, affect the rights which its sole member has against the company as a shareholder, and diminish the value of the member's property represented by its shareholding in the company. The sole member of each scheme company will consent to the steps noted above notwithstanding any diminution in the value of that member's shareholding and the rights at law it may have in connection with the scheme. Further, each member waives any rights that it may otherwise have in connection with the scheme or the reconstruction or amalgamation effected by the scheme. In the circumstances, each scheme is a "compromise or arrangement" for the purposes of s 411(1) of the Act: AGL Energy Services (Queensland) Pty Ltd v AGL Energy Services Pty Ltd (No 2) [2010] FCA 453; Warrnambool Cheese and Butter Factory Limited v Warrnambool Cheese and Butter Factory Company Holdings Limited, in the matter of Warrnambool Cheese and Butter Factory Company Limited [2017] FCA 302 at [10] and the cases there cited. 10 LCS has been added as a defendant in the proceeding because it is the proposed transferee of the assets and liabilities of the scheme companies, and orders under s 413 of the Corporations Act 2001 (Cth) (the Act) will be sought: Royal Victorian Institute for the Blind Ltd v RBS.RVIS.VAF Ltd [2004] FCA 735; (2004) 206 ALR 581; see also SGIC Insurance Ltd v Insurance Australia Ltd [2004] FCA 1638 at [6] and Equatorial Mining Pty Ltd v Antofagasta Investment Company Ltd [2013] FCA 1452 at [29]. The evidence is that LCS is aware of this proceeding, waives formal service of the originating process and supporting affidavits, supports the application, and does not wish to appear.

Explanatory statement 11 A draft explanatory statement, intended to fulfil the requirements of s 412(1) of the Act in relation to each scheme, has been prepared. The scheme companies and LCS have undertaken a verification process in relation to the contents of the statement. This is explained in an affidavit made by Mr Cockerill, the Executive General Manager Finance of the LRL business. On 31 August 2018, the directors of the scheme companies reviewed a draft of the explanatory statement (as at 27 August 2018) and resolved, amongst other things, to approve it and to authorise minor changes made after that date. Further, Mr Cockerill has responsibility for all financial decisions, structuring, business planning, management and statutory reporting for the companies and trusts that undertake the LRL business, including the scheme companies. He has been involved in the verification process and deposed that, to the best of his knowledge, information and belief, all statements of fact made in the explanatory statement are true and correct and that there is no other information material to the making of a decision in relation to any scheme which has not previously been disclosed to the relevant member of a scheme company.

Directors' opinion 12 The directors of the scheme companies unanimously support the scheme and believe that it is fair and reasonable and in the best interests of each scheme company member. Further they believe that the scheme will not adversely affect the interests of the scheme companies' creditors. This is because all obligations of each scheme company to its creditors will be assumed by LCS, whose financial position is superior to the position of all the scheme companies. 13 In this connection, the evidence is that the net assets of LCS, following implementation of the schemes, will exceed $561,405,000. Also, following implementation of the schemes, LCS will have the benefit of contractual rights, undertakings and indemnities currently possessed by the scheme companies which have traded and sold their assets to third parties. 14 Relatedly, any remaining business or undertaking of each scheme company will be carried on by LCS in the same manner as it is currently carried on, and there will be no major changes to any such business or any redeployment of any fixed assets of any scheme company. No scheme company has employees. 15 Further, on 31 August 2018, the directors of LCS resolved that, in their opinion, LCS will be able to pay its debts as and when they become due and payable, and is a going concern on the basis that LLC had provided a letter dated 1 August 2018 confirming financial support for LCS.

No expert report 16 LCS is, directly or indirectly, a holding company for every scheme company. Clause 8303 of Pt 3 of Sch 8 of the Corporations Regulations 2001 (Cth) (the Regulations) requires the explanatory statement be accompanied by a report made by an expert who is not associated with the sole member of the company, stating whether or not, in his or her opinion, the scheme is in the best interests of the member of the relevant company and setting out reasons for that opinion. ASIC has waived compliance with this requirement.

Potential liabilities 17 Those scheme companies that have traded were involved in owning, operating and managing retirement villages and associated facilities. As such, they entered into contracts with residents at the retirement villages (concerning such matters as the residents' rights to reside in particular residential units and to receive services while in occupation) and various business contracts relating to the conduct of the villages. The scheme companies have also assumed legal obligations under State legislation providing for the operation of such villages. Therefore, the scheme companies concerned have ongoing potential liability arising from their previous activities. These potential liabilities are not reflected in the balance sheet extracted from the audited financial statements of LCS as at 30 June 2018 because they are not "liabilities" or "potential liabilities" under the relevant accounting standards that applied in respect of the preparation of the statements. The directors of the scheme companies are not aware of any particular, actual liability in this regard and, as I have noted, no scheme company is presently involved in litigation. 18 However, one scheme company, PLT New Zealand Pty Ltd (PLTNZ), has been notified that it may be subject to a warranty claim by a purchaser under an agreement styled "Agreement for Sale and Purchase of New Zealand Lendlease Retirement Living Portfolio" dated 31 January 2016, under which LLPL is also PLTNZ's guarantor. While notification of the potential warranty claim has been received, no formal dispute process or litigation has been commenced by the purchaser against PLTNZ or LLPL and any amount that might be sought from PLTNZ or LLPL has not been particularised. PLTNZ and LLPL have stated that there are multiple bases on which the potential warranty claim could be denied and that any claim, if brought, would be defended.

Exit from tax consolidated group 19 LLC is the head entity of a tax consolidated group which includes the scheme companies and LCS. The group is treated as a single entity for income tax purposes and its members are parties to a tax sharing agreement dated 18 August 2003. A group member can leave the consolidated group on paying an exiting contribution amount. LLC, LCS and the scheme companies have entered into legally binding arrangements under which LCS will advance funds to each scheme company that will enable it to pay its exiting contribution to LLC before the scheme company is deregistered. On implementation of the schemes, the debts will be transferred to LCS and merge with LCS's right to repayment of the advanced funds. The net diminution in the net assets of LCS that will occur as a consequence of the transactions contemplated has been provided for in the balance sheet extracted from the audited financial statements as at 30 June 2018. After allowing for this provision, the net asset position of LCS following implementation of the schemes will still be more than $561,405,000.

The scheme meetingS 20 It is proposed that the scheme meetings will be held successively on 16 October 2018, with the first scheme meeting commencing at 12.30 pm and each subsequent meeting commencing immediately after the conclusion or adjournment of the meeting immediately preceding it. 21 Mr Randello is a director of each scheme company and the managing director of the LRL business. He has consented to act as chairperson of each scheme meeting. He has made an affidavit in fulfilment of the requirements of r 3.2 of the Federal Court (Corporations) Rules 2000 (Cth). Mr Cockerill has consented to act as alternative chairperson. He has also made an affidavit in fulfilment of r 3.2.

ASIC's position 22 ASIC has confirmed that 14 days' notice of the hearing of this application has been given to it: s 411(2)(a). It has also confirmed that it has had a reasonable opportunity to examine the terms of the proposed schemes and the draft explanatory statement, and to make submission to the Court in relation thereto: s 411(2)(b). ASIC did not seek to appear at the hearing of the present application or to make submissions in respect of the proposed schemes. As I have noted, ASIC has waived compliance with cl 8303 of Pt 3 of Sch 8 of the Regulations.

The evidence 23 The following affidavits were read in support of the present application: Melinda Lee Smith, sworn 5 September 2018; Matthew Alan Mears, sworn 3 October 2018; Tony Randello, sworn 3 October 2018; Steven John Knight, sworn 8 October 2018; and Nathan Dean Cockerill, sworn 4 October 2018. 24 Mr Cockerill's affidavit exhibits a folder of documents by the designation "NDC-2". A claim of confidentiality is made in respect of them. It has not been necessary for me to determine that claim at the present time. These documents remain with the plaintiffs' solicitors.

Generally 25 I am satisfied that each scheme company is a Pt 5.1 body for the purposes of the Act. As I have recorded, I am satisfied that each scheme is in respect of a "compromise or arrangement" for the purposes of s 411(1) of the Act. I am satisfied that the statutory requirements for convening each scheme meeting have been satisfied or that compliance has been waived. I am satisfied that each proposed scheme is of such a nature and cast in such terms that, if it receives the requisite statutory majority (as is obviously highly likely), the Court is likely to approve it on an unopposed application.

Disposition 26 Orders as sought should be made. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.

Associate: Dated: 11 October 2017 Schedule Second Plaintiff ALLORA GARDENS PTY LTD ACN 073 480 225 Third Plaintiff AUSTRALIAN RETIREMENT SERVICES GROUP PTY. LTD. ACN 065 193 955 Fourth Plaintiff BURWOOD TERRACE PTY LTD Fifth Plaintiff COASTAL WATERS RETIREMENT VILLAGE PTY LIMITED Sixth Plaintiff FOREST HILLS VILLAGE PTY. LTD. Seventh Plaintiff GLENAEON RETIREMENT VILLAGE PTY LTD Eighth Plaintiff HENRY KENDALL (MORISSET) PTY LIMITED Ninth Plaintiff HENRY KENDALL BAYSIDE PTY. LIMITED Tenth Plaintiff HENRY KENDALL VILLAGE PTY. LIMITED Eleventh Plaintiff HOMESTAY VILLAGE CANNINGTON PTY LTD Twelfth Plaintiff HUNTER LODGE PTY. LTD. Thirteenth Plaintiff KEPERRA SANCTUARY PTY LIMITED Fourteenth Plaintiff KOOROOTANG COURT VILLAGE PTY. LTD. Fifteenth Plaintiff KOOROOTANG VILLAGE MANAGEMENT PTY. LTD. Sixteenth Plaintiff LAKESIDE GARDENS MANAGEMENT PTY LTD Seventeenth Plaintiff LENDLEASE AC (MORPETH) PTY LTD Eighteenth Plaintiff LENDLEASE PRIMELIFE LIMITED Nineteenth Plaintiff LENDLEASE PRIMELIFE PROPERTY MANAGEMENT PTY LTD Twentieth Plaintiff LENDLEASE PRIMELIFE QLD NO 1 PTY LTD Twenty First Plaintiff LENDLEASE PRIMELIFE WA NO 1 PTY LTD Twenty Second Plaintiff LENDLEASE RL (ABERVALE) PTY LTD Twenty Third Plaintiff LENDLEASE RL (ASHTON GARDENS) PTY LTD Twenty Fourth Plaintiff LENDLEASE RL (BELLFLOWER) PTY LTD Twenty Fifth Plaintiff LENDLEASE RL (BRENTWOOD) PTY LTD Twenty Sixth Plaintiff LENDLEASE RL (BRIGHTON CLASSIC RESIDENCES) PTY LTD Twenty Seventh Plaintiff LENDLEASE RL (BUDERIM GARDENS) PTY LTD Twenty Eighth Plaintiff LENDLEASE RL (BUDERIM MEADOWS) PTY LTD Twenty Ninth Plaintiff LENDLEASE RL (CHANCELLOR PARK) PTY LTD Thirtieth Plaintiff LENDLEASE RL (CLOSEBOURNE) PTY LTD Thirty First Plaintiff LENDLEASE RL (DEE WHY GARDENS) PTY LTD Thirty Second Plaintiff LENDLEASE RL (FIDDLERS GREEN) PTY LTD Thirty Third Plaintiff LENDLEASE RL (GARDENS ON LINDFIELD) PTY LTD Thirty Fourth Plaintiff LENDLEASE RL (GREENWICH) PTY LTD Thirty Fifth Plaintiff LENDLEASE RL (HEATHGLEN) PTY LTD Thirty Sixth Plaintiff LENDLEASE RL (ISABELLA GARDENS) PTY LTD Thirty Seventh Plaintiff LENDLEASE RL (LITTLE BAY) PTY LTD Thirty Eighth Plaintiff LENDLEASE RL (MARTHA'S POINT) PTY LTD Thirty Ninth Plaintiff LENDLEASE RL (MENZIES MALVERN) PTY LTD Fortieth Plaintiff LENDLEASE RL (NAMBOUR) PTY LTD Forty First Plaintiff LENDLEASE RL (NGUNNAWAL) PTY LTD Forty Second Plaintiff LENDLEASE RL (NOOSA OUTLOOK) PTY LTD Forty Third Plaintiff LENDLEASE RL (TANNOCH BRAE) PTY LTD Forty Fourth Plaintiff LENDLEASE RL (TREBARTHA) PTY LTD Forty Fifth Plaintiff LENDLEASE RL (WAVERLEY COUNTRY CLUB) PTY LTD Forty Sixth Plaintiff LENDLEASE RL (WOODSTOCK WEST) PTY LTD Forty Seventh Plaintiff LENDLEASE RL (YOWIE BAY) PTY LTD Forty Eighth Plaintiff LLP RV (CAESIA GARDENS) PTY LTD Forty Ninth Plaintiff LLP RV (CLOSEBOURNE VILLAGE) PTY LTD Fiftieth Plaintiff LLP RV (NELSONS GROVE) PTY LTD Fifty First Plaintiff LLP RV (ROCHFORD PLACE) PTY LTD Fifty Second Plaintiff LLP RV (THE TERRACES) PTY LTD Fifty Third Plaintiff LLP RV (TRINITY GREEN) PTY LTD Fifty Fourth Plaintiff LLP RV (WATERFORD PARK) PTY LTD Fifty Fifth Plaintiff LUTANDA MANOR RETIREMENT VILLAGE PTY. LTD. Fifty Sixth Plaintiff MEADOWVALE VILLAGE PTY. LTD. Fifty Seventh Plaintiff P.V. MANAGEMENT PTY LIMITED Fifty Eighth Plaintiff PEPPERTREE HILL MANAGEMENT PTY. LTD. Fifty Ninth Plaintiff PLT AB PTY LIMITED Sixtieth Plaintiff PLT EAGLEMOUNT PTY LTD Sixty First Plaintiff PLT HK HOLDINGS PTY LTD Sixty Second Plaintiff PORT PHILLIP PTY LIMITED Sixty Third Plaintiff PRIME LIFE (MT EVELYN) PTY. LTD. Sixty Fourth Plaintiff PRIME LIFE MANAGEMENT SERVICES PTY. LTD. Sixty Fifth Plaintiff PRIMELIFE (VERMONT) PTY LTD Sixty Sixth Plaintiff RBD TERRACES MANAGEMENT PTY LTD Sixty Seventh Plaintiff RETIREMENT VILLAGE PROPERTIES PTY. LTD. Sixty Eighth Plaintiff ST JAMES DEVELOPMENTS PTY. LTD. Sixty Ninth Plaintiff TIMBERSIDE VILLAS MANAGEMENT PTY LTD Seventieth Plaintiff WILLIAMSTOWN RANGE PTY LTD Seventy First Plaintiff RETIREMENT GUIDE MANAGEMENT PTY LTD Seventy Second Plaintiff LINDFIELD VILLAGE MANAGEMENT PTY LTD Seventy Third Plaintiff HIBISCUS RV MANAGEMENT PTY LTD Seventy Fourth Plaintiff CARLYLE RV MANAGEMENT PTY LTD Seventy Fifth Plaintiff BUDERIM GARDENS VILLAGE MANAGEMENT PTY. LTD. Seventy Sixth Plaintiff BRENTWOOD VILLAGE MANAGEMENT PTY LTD Seventy Seventh Plaintiff BELLFLOWER VILLAGE MANAGEMENT PTY LTD Seventy Eighth Plaintiff APC RV HOLDINGS PTY LTD Seventy Ninth Plaintiff ASHTON GARDENS VILLAGE MANAGEMENT PTY LTD Eightieth Plaintiff ANNESLEY LIFESTYLE CENTRE PTY LIMITED Eighty First Plaintiff CENTRAL COAST RETIREMENT VILLAGES PTY. LIMITED Eighty Second Plaintiff KOOROOTANG COURT ANNEXE PTY LTD Eighty Third Plaintiff LENDLEASE PRIMELIFE WA NO 2 PTY LTD Eighty Fourth Plaintiff LENDLEASE RETIREMENT LIVING SERVICES PTY LTD Eighty Fifth Plaintiff LENDLEASE RETIREMENT LIVING UNIT HOLDINGS PTY LTD Eighty Sixth Plaintiff LENDLEASE RETIREMENT VILLAGE HOLDINGS PTY LTD Eighty Seventh Plaintiff LENDLEASE RL (GW) PTY LTD Eighty Eighth Plaintiff HAZEN PTY. LTD. Eighty Ninth Plaintiff LENDLEASE RL (TWIN WATERS) PTY LTD Ninetieth Plaintiff LLP AGED CARE PROPERTIES PTY LIMITED Ninety First Plaintiff LLP CORPORATE SERVICES PTY LTD Ninety Second Plaintiff LLP DEVELOPMENT SERVICES PTY LTD Ninety Third Plaintiff LLP RETIREMENT VILLAGES MANAGEMENT SERVICES PTY LTD Ninety Fourth Plaintiff PLT A PTY LTD Ninety Fifth Plaintiff PLT ALLORA GARDENS PTY LTD Ninety Sixth Plaintiff PLT ELLIOT GARDENS PTY LTD Ninety Seventh Plaintiff PLT MANAGEMENT HK PTY LTD Ninety Eighth Plaintiff PLT MANAGEMENT PTY LTD Ninety Ninth Plaintiff PLT NEW ZEALAND PTY LIMITED One Hundredth Plaintiff PRIMELIFE (CONSTRUCTION SERVICES) PTY LTD One Hundred First Plaintiff RETIREMENT MANAGEMENT PTY LTD One Hundred Second Plaintiff TOWNSVILLE VILLAGE SERVICES PTY LTD One Hundred Third Plaintiff NAMBOUR VILLAGE SERVICES PTY LTD One Hundred Fourth Plaintiff NOOSA OUTLOOK VILLAGE SERVICES PTY LTD One Hundred Fifth Plaintiff MACKAY VILLAGE SERVICES PTY LTD One Hundred Sixth Plaintiff LINDFIELD VILLAGE SERVICES PTY LTD One Hundred Seventh Plaintiff CHANCELLOR PARK VILLAGE SERVICES PTY LTD One Hundred Eighth Plaintiff BUDERIM GARDENS VILLAGE SERVICES PTY. LTD. One Hundred Ninth Plaintiff BUDERIM MEADOWS VILLAGE SERVICES PTY LTD One Hundred Tenth Plaintiff BRENTWOOD VILLAGE SERVICES PTY LTD One Hundred Eleventh Plaintiff BELLFLOWER VILLAGE SERVICES PTY LTD One Hundred Twelfth Plaintiff ARGYLE VILLAGE SERVICES PTY LTD One Hundred Thirteenth Plaintiff ASHTON GARDENS VILLAGE SERVICES PTY LTD One Hundred Fourteenth Plaintiff LENDLEASE CAPITAL SERVICES RL HOLDING PTY LIMITED