Macedonian Orthodox Church St Petka Inc v His Eminence Petar

Judgment 1The plaintiff, Sydney Airport Holdings Limited ("SAHL") as responsible entity of Sydney Airport Trust 2 ("SAT2"), seeks orders of the Court under s 63 of the Trustee Act 1925 (NSW) in respect of a proposed trust scheme. That trust scheme is part of a restructure of one of two managed investment schemes that together trade on Australian Securities Exchange Limited as stapled securities, which is intended to allow an increase in the permitted level of foreign ownership of those securities under the Airports Act 1996 (Cth) and provide increased certainty in respect of certain corporate governance and taxation issues. 2At this first hearing, SAHL as responsible entity of SAT2 seeks the opinion, advice and direction of the Court that it would be justified in convening a meeting of unitholders in SAT2 to consider, and, if thought fit, agree to proposed scheme resolutions; distributing an Explanatory Memorandum to SAT2 unitholders in advance of that meeting; and proceeding on the basis that proposed amendments to the SAT2 constitution would be within the powers of alteration conferred by that constitution and s 601GC of the Corporations Act 2001 (Cth). 3If that advice is given and the scheme were approved at the proposed meeting, SAHL, as responsible entity of SAT2, would then seek the opinion, advice and direction of the Court at the second hearing that it would be justified in implementing the scheme, giving effect to the amendments to the SAT2 constitution and doing all things necessary to effect the scheme. Applicable principles 4A responsible entity of a registered managed investment scheme holds scheme property on trust for the members under s 601FC(2) of the Corporations Act and the constitution of a registered managed investment scheme may be altered by a special resolution of members under s 601GC(1)(a) of the Act. That power of alteration supports the Court's jurisdiction under s 63 of the Trustee Act in the context of a trust: Re Mirvac Ltd [1999] NSWSC 457; (1999) 32 ACSR 107 at [44]-[47]; Re DUET Management Company 1 Ltd [2013] NSWSC 817 at [10]. There is no implied limitation on the Court's power to give advice pursuant to s 63 of the Trustee Act or on the discretionary factors that the Court may take into account: Macedonian Orthodox Church St Petka Inc v His Eminence Petar [2008] HCA 42; (2008) 237 CLR 66 at [55]-[59]. 5As SAHL points out in submissions, a registered managed investment scheme is not a Part 5.1 body for the purposes of the provisions applicable to corporate schemes in Part 5.1 of the Corporations Act. However, a responsible entity may implement a "trust scheme", in which it seeks judicial advice in a two-stage process, by analogy with a scheme under Part 5.1 of the Corporation Act: Re Mirvac Ltd above; Re Macquarie Goodman Funds Management Ltd (as responsible entity of Macquarie Goodman Industrial Trust) [2004] NSWSC 1197; (2004) 52 ACSR 194; Re Abacus Funds Management [2005] NSWSC 1309; (2005) 24 ACLC 211; Macquarie Private Capital A Ltd [2008] NSWSC 323; (2008) 26 ACLC 366; Re Macquarie Capital Alliance Ltd [2008] NSWSC 745; (2008) 67 ACSR 484; Re Macquarie Communications Infrastructure Group [2009] NSWSC 487; Re DUET Management Company 1 Ltd above. 6The responsible entity of the scheme may obtain judicial advice under s 63 of the Trustee Act at the first hearing, that it is justified in propounding resolutions to implement the scheme and in proceeding on the basis that proposed amendments to the constitution of the registered managed investment scheme to implement the scheme would be within the powers of alteration conferred by that document and s 601GC of the Corporations Act: Re Mirvac Ltd above at [47]; Re Macquarie Capital Alliance above at [19]; Re DUET Management Company 1 Ltd above at [9]. An explanatory statement is then sent to unitholders in respect of a meeting to consider the resolutions to implement the scheme, which will describe the proposed transaction, disclose that judicial advice and draw attention to unitholders' rights to appear at a second hearing and object to the trust scheme: Re DUET Management Company 1 Ltd above at [9]. If unitholders approve the proposed scheme, the Court may give judicial advice to the responsible entity at a second hearing that, having regard to the result of the meetings and any other relevant circumstances, it is justified in implementing the scheme: Re Mirvac Ltd above at [48]; Re Homemaker Retail Management Ltd [2001] NSWSC 1058; (2001) 40 ACSR 116 at [6]; Re Macquarie Goodman above at [10]. The proposed restructuring 7SAHL is presently the responsible entity of Sydney Airport Trust 1 ("SAT1") and SAT2, which are managed investment schemes registered under Chapter 5C of the Corporations Act. Units in SAT1 and SAT2 are "stapled" together on a 1:1 basis and together comprise the security traded on ASX. SAHL (in its capacity as responsible entity of SAT1 and SAT2) and Sydney Airport Limited ("SAL"), which is a public unlisted Australian resident company, have entered into an Implementation Agreement in respect of the proposed scheme which contemplates that, subject to the necessary approvals from existing securityholders, the necessary opinion, advice and directions of the Court and the satisfaction or waiver of specified conditions precedent, a scheme meeting will be convened for SAT2 unitholders to consider and vote on the scheme resolutions. 8The proposed scheme provides for existing securities to be "destapled" and for SAT2 unitholders to transfer their SAT2 units to SAL in exchange for SAL shares, by way of the scheme. SAT2 unitholders would not pay any cash consideration for SAL shares issued under the scheme. Contemporaneous with the issue of the SAL shares in exchange for SAT2 units, SAL would undertake a capital reduction under Part 2J.1 of the Corporations Act and cancel the shares in SAL held by the original shareholder so that, after the scheme had been implemented, securityholders will hold shares in SAL in the same proportion as they held SAT2 units. Several further steps would be taken after the scheme was implemented, with the result that SAL would directly hold the Sydney Airport operating entities; a new and separate entity would act as responsible entity of and various Australian and foreign non-operating entities of the Sydney Airport Group would be acquired by SAT1. Explanatory Memorandum and expert reports 9The proposed Explanatory Memorandum for the scheme is in evidence. There is evidence that a due diligence and verification process in the usual form has been undertaken in respect of that Explanatory Memorandum, as described in the affidavit of the General Counsel of Sydney Airport, Mr Jamie Motum, dated 21 October 2013 and in the affidavit of its external solicitor, Mr Julian Donnan, dated 25 October 2013. The proposed chairperson and alternate chairperson of the scheme meeting have consented to act in that capacity, as evidenced by affidavits of Messrs Max Moore-Wilton and Trevor Gerber dated 24 October 2013. 10Deloitte was engaged to prepare an Independent Expert's Report which indicates that, in its opinion, the proposed restructure (including the scheme) is fair and reasonable and is in the best interests of securityholders. Mr Stephen Ferris of Deloitte, in his affidavit dated 24 October 2013, confirms that he holds the opinions expressed in the report; intends (subject to any matters raised by the Court) to sign a copy of the report in its current form for inclusion in the Explanatory Memorandum to be sent to securityholders; and is not aware of any facts or circumstances which would cause him to change the opinions expressed in the current version of that report. 11The Explanatory Memorandum and Independent Expert's Report identify the anticipated advantages of the restructuring which include, as noted above, that the revised structure will allow increased foreign ownership of the relevant securities, to the maximum percentage specified in the Airports Act and potentially increase demand for and liquidity in the securities; will or may facilitate a proposed settlement of issues arising from a tax audit as to the deductibility of dividends on redeemable preference shares paid under the existing structure and allow future financing to be occur by an interest bearing loan proposed to be made by SAT1 to SAL; and introduce governance changes resulting from the introduction of SAL into the corporate structure and the appointment of an independent responsible entity to SAT1. The Explanatory Memorandum and that report also, appropriately, identify potential disadvantages and risks including transaction costs and the possibility of different views taken by the separate boards of SAL and the responsible entity of SAT1. 12KPMG was engaged to prepare an Investigating Accountant's Report for inclusion in the Explanatory Memorandum. In his affidavit dated 22 October 2013, Mr Craig Mennie of KPMG confirms that he holds the opinions expressed in the report; intends (subject to any matters raised by the Court) to sign a copy of the report in its current form for inclusion in the Explanatory Memorandum to be sent to securityholders; and is not aware of any facts or circumstances which would cause him to change the opinions expressed in the current version of that report. 13PricewaterhouseCoopers was engaged to prepare a summary of Australian income tax and GST issues relevant to the restructure (including the scheme) for inclusion in the Explanatory Memorandum. In his affidavit dated 22 October 2013, Mr Paul Abbey of PricewaterhouseCoopers confirms that he holds the opinions expressed in the report; intends (subject to any matters raised by the Court) to sign a copy of the report in its current form for inclusion in the Explanatory Memorandum to be sent to securityholders; and is not aware of any facts or circumstances which would cause him to change the opinions expressed in the current version of that report. 14Ashurst Australia was engaged to prepare statements concerning the Australian stamp duty implications of the proposed transactions for inclusion in the Explanatory Memorandum, which are contained in section 10.7.4 of the draft Explanatory Memorandum, and to apply to the NSW Chief Commissioner of State Revenue for certain relief in connection with the transactions. In his affidavit dated 22 October 2013, Mr William Cannon of Ashurst confirms that he holds the opinions expressed in the statements; intends (subject to any matters raised by the Court) to approve the statements for inclusion in the Explanatory Memorandum to be sent to securityholders and is not aware of any facts or circumstances which would cause him to change the opinions expressed in the current version of the statements; and also confirms that the NSW Chief Commissioner of State Revenue has granted the relief sought in the relevant applications. 15Arrangements have been made with the registry services provider for the despatch of the Explanatory Memorandum and a proxy form to securityholders on the register at 23 October 2013 and for the despatch of the Explanatory Memorandum and the proxy form to securityholders on the register as 11 November 2013 to whom those documents have not, as at that date, been previously despatched. A copy of the Explanatory Memorandum will not be sent to new securityholders who come onto the register between 11 November 2013 and 20 November 2013 (the voting record date for the scheme), but copies of the Explanatory Memorandum and proxy form will be available to be downloaded over that period (and until at least 22 November 2013, the date of the scheme meeting) on the listed entity's website. Other issues 16SAHL notes in submissions that, by reason of s 253E of the Corporations Act, a responsible entity and its associates are not entitled to vote their interests on a resolution at a meeting of scheme members if they have an interest in the matter other than as a member of the relevant managed investment scheme. It appears that section will not have application in this case, since there is no suggestion that either SAHL (as responsible entity of SAT2) or its associates has any interest in the resolutions to be considered at the meeting other than in their capacities as members of SAT2. 17Several cases, in the context of corporate schemes of arrangement, have identified the need to address performance risk, by ensuring there is a mechanism for scheme members to enforce the right to entitlements that are to be received under a scheme: Re Kaz Group Ltd [2004] FCA 738 at [4]-[5]; Re Tempo Services Ltd [2005] FCA 410; (2005) 53 ACSR 523; Re Brambles Industries Ltd [2006] FCA 1273; (2006) 59 ACSR 501; Re APN News & Media Ltd [2007] FCA 770 at [23]; (2007) 62 ACSR 400; Re Macquarie Capital Alliance Ltd above. SAHL submits, and I accept, that any such risk addressed, in respect of the proposal, by a Deed Poll executed by SAL by which SAL covenants in favour of securityholders that it will observe and perform all obligations imposed on it under the Scheme Implementation Agreement; and proposed amendments to SAT2's constitution under a Supplemental Deed which will be executed by SAHL if the scheme become effective, which provide that the transfer of SAT2 units will be subject to SAL first issuing SAL shares to SAT2 unitholders. 18The proposed amendments to the SAT2 constitution under the Supplemental Deed also provide that each SAT2 unitholder is deemed to have warranted that all of their SAT2 units, including any rights or entitlements attaching to them, which are transferred under the scheme will, at the time of transfer, be fully paid and not subject to any encumbrances or interests of third parties or restrictions on transfer of any kind; and they have full power and capacity to transfer their units pursuant to the scheme. The balance of the case law has accepted the legitimacy of such provisions, where they are disclosed in the information provided to securityholders, on the basis that they seek to ensure that scheme participants whose shares are subject to an encumbrance are not unfairly advantaged: Re APN News & Media Ltd above at [59]-[62]; Re Coles Group Ltd [2007] VSC 389; (2007) 25 ACLC 1380 at [42]-[45]; Re Hostworks Group Ltd [2008] FCA 64 at [41]; (2008) 26 ACLC 137; Re Cytopia Ltd [2009] VSC 560 at [23]. The proposed amendments to the SAT2 constitution also provide that, "to the maximum extent permitted by law", units transferred pursuant to the trust schemes will be transferred free from all mortgages, charges, liens, encumbrances and interests of third parties of any kind. Provisions of this character have also been accepted in the case law: Re Investa Properties Ltd [2007] FCA 1104; (2007) 25 ACLC 1186 at [30]; Re HPAL Ltd [2007] FCA 1570 at [5]; Re Dyno Nobel Ltd [2008] VSC 154 at [8]-[9]; Re DUET Management Company 1 Ltd above. Orders 19Having regard to these matters, I was satisfied that judicial advice leading to a meeting of the members of the managed investment schemes should be given as sought, and I made orders substantially in the form sought by the Plaintiffs, as initialled by me and placed in the file.

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