Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar

Convening of scheme meetings, distribution of scheme booklet and other documents

1. Although registered managed investment schemes are not Part 5.1 bodies for the purposes of the scheme provisions in Part 5.1 of the Corporations Act, it is now common in a "trust scheme" for a responsible entity to seek judicial advice in a two-stage process that is analogous to that adopted in company schemes under Part 5.1 of the Corporations Act: Re Mirvac Limited [1999] NSWSC 457; (1999) 32 ACSR 107; Re Macquarie Goodman Funds Management Ltd (2004) 52 ACSR 194; 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 Limited [2013] NSWSC 817; (2013) 95 ACSR 34; Re Sydney Airport Holdings Limited [2013] NSWSC 1665. At a first court hearing, the responsible entity will typically seek judicial advice 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 trust scheme would be within the powers of alteration conferred by that constitution and s 601GC of the Corporations Act: Re Mirvac Ltd above at [47]; Re Macquarie Capital Alliance Ltd above at [19]; Re DUET Management Company 1 Ltd above at [9]. 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 in doing so: Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar (2008) 237 CLR 66 at [55]-[59].
2. Here, as I noted above, ILFML seeks the opinion, advice and direction of the Court that it would be justified in convening the relevant meetings and distributing a scheme booklet, proxy form and "relevant foreign resident declaration form" to IOF unitholders. ILFML has put a draft notice of meeting and draft explanatory memorandum before the Court. That explanatory memorandum contains a chairman's letter in a common form and sets out a list of "key questions" which draw attention to significant matters for unitholders' consideration in respect of the Oxford proposal. The explanatory memorandum draws attention to the ILFML directors' recommendation and their evaluation of the Oxford proposal and to reasons why IOF unitholders may vote for or against that proposal, and also provides information concerning IOF and its property holdings, the Oxford Group and the Oxford acquirers and the income tax implications of the proposal. The draft explanatory memorandum also includes the independent expert's report prepared by KPMG Corporate Finance, which concludes that the Oxford proposal is in the best interests of IOF unitholders in the absence of a superior proposal and is fair, and therefore reasonable, for the purposes of ASIC's Regulatory Guide 111. ILFML submits, and I accept, that nothing in that report indicates any issue as to the proposed trust schemes that should cause the Court to decline to advise ILFML that it would be justified in convening the scheme meetings for the purpose of considering the proposal. The explanatory memorandum also contains copies of significant documents, including a Deed Poll given by the Oxford acquirers in favour of each IOF scheme unitholder and Supplemental Deed Polls setting out proposed amendments to the constitutions for the AJO Fund and the PCP Trust. As I noted above, the information in the scheme booklet has been the subject of a due diligence and verification process, details of which are set out in Mr Cugati's and Mr Kim's affidavits.
3. ILFML also points out that, under Australian foreign resident capital gains tax withholding rules, the Oxford acquirers are required to assess whether an IOF unitholder is a "relevant foreign resident". If an Oxford acquirer considers or reasonably believes that an IOF unitholder is a "relevant foreign resident" then, unless that unitholder provides an appropriate declaration regarding its residency or interest, the Oxford acquirer is required to remit a specified percentage of the consideration otherwise payable to that holder to the Commissioner of Taxation for capital gains tax purposes. It is proposed that an IOF unitholder who the Oxford acquirers consider or reasonably believe is a "relevant foreign resident" will be sent a declaration form and covering letter (Ex AJM1, tab 5) and IOF unitholders who are not sent that form but consider that they might be a "relevant foreign resident" will also be able to request a copy of the form. This issue is disclosed both in the key questions in section 1 and in section 7 of the scheme booklet and is also recognised in the definition of "Scheme Consideration" in the SIA and the Supplemental Deed Polls.
4. ILFML points out that arrangements have been made with IOF's registry services provider, Link Market Services Limited, for the despatch of the scheme booklet, a personalised proxy form (Ex AJM1, tab 6) and, if applicable, the relevant foreign resident declaration form to IOF unitholders on the register as at 6 November 2018 (Murray [36]). A further despatch of scheme materials will occur on a date closer to the scheme meetings to additional IOF unitholders which come onto the register from 6 November 2018. Copies of the relevant documents will also be available for download from IOF and Link Market Services Limited's websites at least until the date of the IOF scheme meeting: (Murray [39]-[40]). These arrangements do not create any reason not to give the advice sought, recognising also that any issues of this kind can be addressed at the second court hearing.

Performance risk

1. ILFML also addresses the question of "performance risk" with respect to the Oxford acquirers in submissions. The amendments to be made to the constitutions of the AJO Fund and the PCP Trust pursuant to the schemes, and specifically a new clause 23 to each constitution, have the effect that ILFML will not transfer either the units in the AJO Fund or the units in the PCP Trust until the Oxford acquirers have complied with their obligations under cl 4.2(b) of the Deed Poll, which requires that the aggregate Scheme Consideration (as defined) be paid by the Oxford acquirers to the Trust Account (as defined). ILFML, as trustee for each of the AJO Fund and the PCP Trust, will then make or procure the payment from that trust account to the IOF unitholders. This approach avoids the risk that unitholders are left to a claim under the Deed Poll in respect of a failure to pay that consideration, after their units are transferred: Re Brambles Industries Ltd (2006) 59 ACSR 501 at [9]; and Re APN News & Media Ltd [2007] FCA 770 at [23].
2. ILFML also points out that, under cl 4.1 of the Deed Poll, the Oxford acquirers jointly and severally covenant in favour of each Scheme Unitholder (as defined) that each will observe and perform all obligations contemplated of them under the schemes, including in each case the relevant obligations relating to the provision of the AJO Scheme Consideration (as defined) in accordance with the terms of the AJO Trust Scheme and the PCP Scheme Consideration (as defined) in accordance with the terms of the PCP Trust Scheme. ILFML points out that, where Deed Poll is governed by the law of New South Wales and Oxford AJO Bid Trust and Oxford PCP Bid Trust are Australian companies and have submitted to the non-exclusive jurisdiction of the courts of New South Wales, it is unnecessary for there to be evidence relating to the enforceability of the Deed Poll overseas: Re Veda Group Limited [2015] FCA 1506 at [32]-[33].

Deal Protection Measures

1. Clause 11 of the SIA contains various exclusivity provisions that regulate the steps that that ILFML may take in respect of any "Competing Proposal" (as defined). These include, in cll 11.2 and 11.3, "no-shop" and "no-talk" restrictions on ILFML and its representatives; in cl 11.4, a restriction on ILFML providing due diligence information relating to IOF to a third party in connection with an actual, proposed or potential Competing Proposal; in cl 11.7, a requirement that ILFML notify the Oxford acquirers if ILFML or its representatives become aware of a Competing Proposal being received by ILFML or its representatives; in cl 11.8, a requirement that ILFML allow the Oxford acquirers a period of at least 4 business days to match any Competing Proposal that it has determined is a "Superior Proposal" (as defined); and cl 11.9 requires ILFML to provide the Oxford acquirers with non-public information relating to the business or affairs of IOF that is provided to a third party in connection with an actual, proposed or competing proposal. ILFML points out that the "no talk" (cl 11.3), "no due diligence" (cl 11.4) and notification of third party approaches (cl 11.7) provisions are each subject to a "fiduciary carve-out", and cl 11 generally is subject to other carve-outs that apply in three specified circumstances. By cl 11.11 of the SIA, ILFML acknowledges that it has received legal advice in respect of the SIA and the operation of that clause. ILFML draws attention to the consideration of exclusivity measures in the case law, including Re Arthur Yates & Co Ltd (2001) 36 ACSR 758 at [9] and Re Wridgways Australia Limited [2010] FCA 1187 at [13]-[25]. Exclusivity restrictions of this kind have now been accepted in many company schemes of arrangement and in trust schemes: Re The Trust Company Ltd [2013] NSWSC 1680 at [19]; Re Duet Finance Ltd [2017] NSWSC 415. I am satisfied that this matter should not prevent the Court giving the advice sought in respect of the trust schemes.
2. Clause 12.2 of the SIA requires ILFML to pay the Oxford acquirers a substantial "break fee" in specified circumstances. The affidavit evidence, to which I referred above, addresses the negotiations that led to agreement to that fee. Break fees are now common features in schemes of arrangement and will generally be permitted unless the amount is such that it could influence voting at the scheme meeting or if there are other unusual circumstances: Re SFE Corporation Ltd [2006] FCA 670; (2006) 59 ACSR 82 at [6]-[7]; Re APN News & Media Ltd above at [43]. That break fee was agreed in a context that unitholders are allowed the opportunity to consider a substantial proposal that they may find commercially attractive, which might well not have come to fruition without ILFML's agreement to pay that break fee. Although that break fee is large in absolute terms, reflecting the scale of the transaction, I accept that it does not provide reason not to give the advice sought in respect of the trust schemes.

Deemed Warranty

1. The proposed amendments to the constitutions provide that each IOF unitholder eligible to participate in the schemes is deemed to have warranted to the Oxford acquirers and have authorised ILFML to warrant to the Oxford acquirers that all of their IOF units (including any rights and entitlements attaching to those securities) will, at the date of transfer to the Oxford acquirers, be fully paid and free from encumbrances, and that they have full power and capacity to sell and to transfer their IOF units (including any rights and entitlements attaching to them) to the Oxford acquirers under the proposal. The case law has recognised the legitimacy of deemed warranty provisions, provided that appropriate disclosure is made in the explanatory material relating to the schemes: Re APN News & Media Ltd above at [57]-[63]; Re DUET Management Company 1 Ltd above at [23]. A further amendment to the constitutions of the AJO Fund and the PCP Trust would also add a new cl 23.4 to each constitution which provides that, to the extent permitted by law, all scheme units (including any rights and entitlements attaching to them) that are transferred to the Oxford acquirers under the trust schemes will vest in the Oxford acquirers free from all encumbrances. As IFMFL points out, I considered that a clause in similar terms did not prevent advice sought in respect of the trust schemes in Re Duet Finance Ltd above at [32]. These matters do not provide reasons not to give the advice sought in respect of the trust schemes.

Other matters

1. As ILFML points out, the voting entitlements of associates of ILFML are addressed in the scheme booklet and need not be further addressed at the first court hearing in a trust scheme: Macquarie Private Capital A Limited [2008] NSWSC 323 at [8]-[11].

Constitutional amendments

1. As I noted above, ILFML seeks the Court's advice under s 63 of the Trustee Act that it would be justified in proceeding on the basis that the making of the proposed amendments to the constitutions of the AJO Fund and the PCP Trust set out in supplemental deeds poll in the scheme booklet, following approval by at least 75% of the total votes cast by (or on behalf of) unitholders at the IOF scheme meetings, would be within the powers of alteration conferred by those constitutions and s 601GC of the Corporations Act.
2. ILFML's Statement of Facts (Ex SOF1) annexes copies of the constitutions of the AJO Fund and the PCP Trust. Those constitutions relevantly provide, in cl 15, that the trustee may, by deed, replace or amend the constitutions; in cl 17, that the trustee may convene meetings of unitholders; and, in cl 20.5, that the trustee may determine that the stapling provisions of the constitutions cease to apply, subject to approval by special resolution of the unitholders. As ILFML points out, the constitution of a managed investment scheme may also be altered by a special resolution of the members of the scheme under s 601GC(1)(a) of the Corporations Act. That power of alteration is wide and unlimited in terms, and the Court can give a direction as to its exercise under s 63 of the Trustee Act in a trust scheme: Re Mirvac Ltd at [44]-[47] above.
3. I am satisfied that ILFML, as responsible entity of the AJO Fund and the PCP Trust, would be justified in proceeding on the basis that the making of the proposed amendments to those constitutions in connection with the trust schemes, following the requisite approval by unitholders, would be within its powers, including the powers of alteration conferred by those constitutions and s 601GC of the Corporations Act.

Orders

1. For these reasons, I made orders in accordance with those proposed by ILFML at the hearing on 6 November 2018.

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