Mirvac & Mirvac Funds [1999] NSWSC 457

1 These matters have come before the Court by two summonses. The first, in matter 1984 of 1999, is a summons for orders with respect to two proposed schemes of arrangement relating to the plaintiff, Mirvac Limited ('Mirvac'). The second summons, in proceedings 2038 of 1999, is an application by Mirvac Funds Limited ('MFL') and Capital Property Management Limited ('CPML') for judicial advice pursuant to section 63 of the Trustee Act 1925 (NSW) with respect to proposed amendments to the trust instruments of two unit trusts of which those entities are respectively responsible entities under the Corporations Law. 2 The two matters are connected because the two schemes of arrangement by Mirvac and the amendments to the trust instruments relating to MFL and CPML are components of an overall proposal under which shareholders of Mirvac and unitholders in the two trusts will either become the holders of stapled securities each comprising a consolidated share and a consolidated unit of each trust, or they will be cashed out in the process of implementation of the proposal. Given the close connection between the two proceedings, I directed yesterday that the proceedings be heard together and that evidence in each be evidence in the other. 3 Mirvac has secured listing rule waivers from the Australian Stock Exchange ('ASX'), by three letters dated 28 April 1999 which are in evidence. It has given ASIC the opportunity to review the documentation in the manner required by section 411(2) of the Corporations Law. ASIC has responded, by letter dated yesterday, in a manner which satisfies me that it has had reasonable opportunity to consider the terms of the proposed schemes and the draft explanatory memorandum, and to make submissions to the Court. In fact the letter signifies that ASIC has chosen not to appear at the present hearing. 4 The two matters came before me yesterday ex parte (as one would expect), and on an urgent basis. The parties wish to implement the overall proposal by 30 June 1999, subject to the approval of shareholders and unitholders and (as regards the schemes) the Court. In order to meet their timetable, the parties asked the Court to make orders yesterday and I did so, after having the opportunity to consider the applications, and on the basis that I would deliver my reasons for judgment this morning. 5 I propose to describe the overall proposal, then deal with the schemes of arrangement for Mirvac and then the application for judicial advice by the two responsible entities. Overall proposal 6 Mirvac is an Australian listed company incorporated in New South Wales. It has on issue approximately 218.8 million ordinary shares and some variable priced options which I will refer to as the VPOs. Mirvac proposes two schemes, one relating to its shares and the other relating to the VPOs. 7 MFL and CPML are the responsible entities of two trusts, namely, , the Mirvac Property Trust ('MPT') and the Capital Property Trust ('CPT'). Mirvac, MPT and CPT are proposing a merger by stapling securities of the three entities to form the Mirvac Group. In this context the stapling of securities means that the constitutional documents of Mirvac and the two trusts will be amended in such a way that their securities cannot be transferred separately from one another, and new securities cannot be created of one entity without a matching creation of securities of the other entities. The 'stapling' will have the effect that each transfer of Mirvac consolidated shares must be accompanied by a transfer of an equal number of consolidated units in MPT and an equal number of consolidated units in CPT. In order to achieve that outcome, it is necessary to restructure the securities of each entity so as to produce an appropriate weighting of each to the others. This entails converting the existing securities into new securities which are referred to as 'consolidated securities' in the explanatory memorandum, and in the proposed amendments to the constitutions by which stapling is to be achieved. The stapling will remain in place until the first to occur of: (a) the commencement of the winding up of Mirvac, CPT or MPT; (b) Mirvac, CPT or MPT resolving by special resolution in general meeting and in accordance with its constitution to terminate the arrangement. 8 As a practical matter, this 'merger' by the stapling of securities will have the effect that instead of there being three entities listed separately on the ASX, connected by virtue of the fact that the responsible entity for each of the two trusts is a subsidiary of Mirvac, there will be a single economic entity for listing purposes, namely Mirvac Group, and a single quoted security, namely the stapled security comprising a consolidated Mirvac share and a consolidated trust unit of each of the two trusts. 9 The main implementation steps are as follows: (a) existing shares in Mirvac will be consolidated into new consolidated shares, and contemporaneously existing units in CPT and MPT will be consolidated; (b) new consolidated securities will be issued by each of the three entities to their security holders so that on completion of the merger, each security holder will hold an equal number of securities in each of Mirvac, CPT and MPT respectively; (c) the three consolidated securities will be stapled to each other by means of constitutional amendments in the manner which I have described and the composite stapled security will be quoted and traded on the ASX; (d) shareholders in Mirvac, and also unitholders in CPT and MPT, who elect not to hold Mirvac Group stapled securities, or who do not vote at the appropriate shareholders' or unitholders' meetings, or who have registered addresses outside Australia and New Zealand, will receive cash for their existing securities. Share scheme 10 As far as Mirvac and its shareholders are concerned, the proposal is to achieve the merger by scheme of arrangement under section 411 of the Corporations Law, because of the need to bind shareholders into an election between stapled securities and cash, and the perceived logistical and administrative needs to deal with shareholders who do not respond or who have addresses outside Australia and New Zealand by providing them with cash only. In concept, this is an appropriate case for the scheme mechanism to be used. 11 As one would except, there is an implementation deed to give effect to the scheme and in this case the implementation deed covers other aspects of the merger relating to the two trusts. Additionally in this case, there is a deed of co-operation whereby Mirvac and the two responsible entities agree with respect to the future management of the merged entities. 12 There is also an explanatory memorandum which serves (inter alia) as part of the explanatory statement for the scheme. The explanatory memorandum includes information about the VPO scheme as well as information about the restructure of the two trusts. Somewhat unusually there are three shorter documents which are referred to as the overview documents for each of Mirvac and the two trusts. These are also in evidence. It is intended that each shareholder will receive the explanatory memorandum together with the Mirvac overview, and that the two documents together will constitute the explanatory statement for the share scheme. Unitholders of the respective trusts will receive the explanatory memorandum and the overview relevant to their trust. Unitholders in the VPO scheme will receive the explanatory memorandum and a separate VPO explanatory memorandum, together constituting the explanatory statement for the VPO scheme. 13 The explanatory memorandum sets out in detail some arrangements with respect to the funding of the merged entities, which I shall briefly describe below when dealing with the VPO scheme, and arrangements for the sale of stapled securities in order to pay out those security holders who have opted for or are required to take the cash alternative. 14 In this respect there is in evidence a cash alternative nominee deed poll whereby Warburg Dillon Read Australian Equities Limited agrees to act as a nominee for the purposes of the selling process. I have reviewed the deed poll and I am satisfied that it meets the requirements briefly referred to by Young J in Re RGC Limited (1998) 29 ACSR 445, 447. 15 The selling process involves a procedure set out in the explanatory memorandum and also in two bidding procedure manuals, both of which are in evidence. The procedure involves what is colloquially referred to as a 'bookbuild'. The evidence indicates that Warburg Dillon Read Australia Limited has been appointed as the lead manager and bookrunner with respect to the offer of Mirvac Group stapled securities under the selling arrangements, while ABN Amro Rothschild has been appointed co-manager of that offer. 16 Additionally the explanatory memorandum and associated documents contain detailed information with respect to the calculation of price for the purpose of the selling arrangements and the paying out of security holders who opt for, or are required to take, cash. 17 Finally, I should note that the explanatory memorandum contains prospectus-like disclosure with respect to the business of the merging entities and the merged group, including, as is now common in such transactions, pro forma accounts of the consolidated group, earning and distribution forecasts for the unmerged entities and an earning and distribution forecast for the merged economic entity. There is evidence that a due diligence investigation has been conducted for the purpose of verifying the information contained in the explanatory memorandum. 18 The explanatory memorandum is supported by an investigating accountant's report on the historical and forecast financial statements preferred jointly by PricewaterhouseCoopers and PricewaterhouseCoopers Securities Limited (which holds a dealers licence under the Corporations Law). It is also supported by an independent expert's report by Grant Samuel & Associates which relates to the VPO scheme and the proposal as it affects unitholders, as well as the share scheme. Grant Samuel concludes that the merger is in the best interests of Mirvac shareholders and optionholders, and also in the best interests of the unit holders of CPT and MPT. There is also a taxation report by PricewaterhouseCoopers Securities Limited which deals amongst other things with the taxation position of holders of stapled securities. 19 Enough has been said by me to indicate that the share scheme and the wider proposal to which it relates are quite complex in matters of detail. Counsel for Mirvac has acknowledged that in this matter the paperwork is voluminous but he submits that the devil is in the detail rather that the concept. I agree with him. 20 In my opinion the application for orders convening a shareholders meeting to approve the share scheme in this case falls within the established law and practice of this Court relating to schemes for corporate reconstruction. The complexity arises because not only is there a parallel option scheme (not uncommon with listed entities) but also there are parallel reconstruction proposals for the two trusts and an ultimate stapling of securities. 21 As far as the share scheme is concerned, there are just a few matters upon which I should specifically comment. First, as I have indicated, the explanatory statement which the Corporations Law and Regulations require for such a scheme is both the explanatory memorandum (which also covers the VPO scheme, the trust restructuring and other matters outlined above) and the Mirvac overview. In my opinion, it would be undesirable to produce separate explanatory statements for each scheme and the trust restructuring. This is because, although the share scheme itself will apply only to that part of the overall proposal which binds the company and its shareholders, it is properly to be seen as a component in the larger transaction. The complexity of detail makes it appropriate to place the information which is common to each proposal in a single document, while also supplying a simple overview document to the shareholders who are to consider the share scheme. Nothing in the Corporations Law and Regulations prohibits the distribution of an explanatory statement comprising two documents. The overview makes it clear that full disclosure is not intended to be achieved through that document alone. The overview is endorsed with advice to the recipient to read both documents carefully before deciding how to vote on the resolutions which are proposed. Given the complexity of the transaction, in my opinion the approach taken by the production of separate overview documents is a sensible one. Production of a simple explanatory document is encouraged by the policy reflected in proposals to amend the Corporations Law in the Corporations Law Economic Reform Bill 1998 and with modifications granted by the Commission in respect of other major transactions such as the partial privatisation of Telstra Corporation and the demutualisation of the AMP Society; although in each of those examples the further document was not distributed except on request. 22 Secondly, the share scheme meeting is to be followed by a meeting of the company in which various resolutions will be proposed to give effect to the overall proposal including a resolution to adopt a new corporate constitution. Meetings of unitholders of the two trusts are also proposed at which amendments to their constitutions are intended to be adopted. In none of the three cases is it proposed that the documents sent to security holders will include the full text of the relevant constitution as affected by the resolution. Instead, in each case the explanatory memorandum purports to give a summary of the substantial effect of the adoption of the resolution, and states that the full text of the constitution as amended can be inspected at a specified place or obtained upon request. 23 In my opinion it is not necessary in the present case to add to the burden of paper by distributing the full text of the relevant new constitution. Having inspected the three constitutions, I doubt that they would convey much useful information to the lay reader, given their predictable length and complexity. Instead it is much more useful, consistently with principles frequently enunciated by the Courts with respect to disclosure in a notice of meeting (see for example, Fraser v NRMA Holdings Ltd (1995) 55 FCR 452) to give a concise and clear summary of the effect of the changes which is materially comprehensive. I do not say that such an approach is always justifiable, but rather that it is clearly justifiable here in view of the overall complexity of the proposals and the particular complexity of the constitutional changes which are necessary to implement them. It is implied from what I have said, however, that those responsible for convening a meeting at which constitutional changes are proposed must be scrupulously careful, if they are to use the disclosure technique used in this case, that the summary of the effects of changes is accurate and complete in all material respects. 24 Thirdly, one specific matter to which counsel drew my attention relates to the period for receipt of notice of meetings. In this case the timetable has been completed in such a manner as to allow three days. This has been adopted as a practical approach, though counsel notes that the legal position has been rendered uncertain by amendments to the Corporations Law introduced by the Company Law Review Act which took effect on 1 July 1998. 25 Prior to that date the situation was relatively clear. Section 247(4) of the Corporations Law had the effect that the constitution of a company could specify the point of time at which notice of a meeting is deemed to have been received by shareholders, but in the absence of such provision, the 'default rule' was that stated in the Table A articles. Section 247(4) was repealed by the Company Law Review Act. 26 Now section 249H(1) states, without relevant qualifications, that at least twenty-one days notice must be given of a meeting of a company's members, though the constitution may specify a longer minimum period. In the case of a listed company section 249HA(1) demands that at least twenty-eight days notice be given. Neither of these provisions gives any guidance as to the point of time at which the period of notice commences to run. 27 In Re RGC Limited, cited above, Young J referred very briefly to the problem. He appears to have taken the view that the corporate constitution cannot determine the commencement point for notice because neither section 249H(1) nor section 249HA(1) makes any specific allowance for the constitution to do so. Young J expressed the opinion that in the circumstances, the period of notice must be computed under section 249J(4). That provision states that a notice of meeting sent by post is taken to be given three days after it is posted, while if sent by fax or other electronic means, notice is taken to be given on the business day after it is sent. 28 Young J's conclusion has been criticised: See R L Barrett (1999) 73 ALJ 178. The basis of the criticism is that section 249J(4) is stated to be a replaceable rule, which under section 135 applies only to a company registered on or after 1 July 1998 or a company which after that date repeals its constitution. Obviously at the present time there will be very few companies to which the replaceable rules adopted by the Company Law Review Act 1998 will have any application. Mr Barrett speculates that in those circumstances the correct method of computing the commencement point should be derived from section 109Y, which has the effect that notice is taken to have been given at the time when the document is delivered in the ordinary course of post. However, as he notes, the language of section 109Y is not obviously appropriate to deal with notice of a meeting, because it purports to apply only 'where a provision of this Law authorises or requires any document to be served by post', and subparagraph 109Y(a) uses language which appears to be particularly inappropriate. 29 It appears to me that section 249J(4) provides a partial solution to the problem, though only indirectly. One can extract from section 249J(4), when read in context with section 135(2), a legislative intention to allow a constitutional provision governing computation of the commencement point to be operative. That view appears to draw support from the explanatory memorandum to the Company Law Review Bill, which states: 'A replaceable rule provides that notices sent by post will be taken to be given 3 days after they are sent and that notices sent by fax or electronically will be taken to be given on the business day after they are sent (Bill s 249J(4)). These time periods are consistent with those generally adopted in current practice. However, a company will be able to replace them if they wish to adopted different time periods.' 30 This implies that there was no legislative intention to change the previous law under which the computation provisions of the corporate constitution were effective. It would follow that section 109Y would have application, if at all, only in the event that the corporate constitution is silent on the question of computing the commencement point. 31 In the present case, there is no practical problem because of the cautious approach taken by those who have framed the proposal, which allows for the period of three days contained in Young J's judgment rather than relying on the provisions of article 20 of Mirvac's constitution, which would permit a shorter period. VPO scheme 32 It is proposed that at the time of the merger $100 million in additional capital will be raised by the Mirvac Group. The new capital is intended to be raised by way of restructure of the existing VPOs which were issued by Mirvac in 1997 and are quoted on the ASX. 33 When they were issued in 1997 the terms of the VPOs enabled Mirvac to raise $100 million by two tranches of $50 million each up to June 2001. As part of the restructuring, it is proposed that the terms of issue of VPOs be amended so that they will be delisted and the full value of $100 million will be callable shortly after the merger. As one would expect, this proposal assumes a minimum value for the Mirvac Group stapled securities. On the exercise of the VPOs, stapled securities rather than shares will be issued. If the merger proceeds but the restructure of VPOs is not approved, then Mirvac will purchase them in accordance with the original terms of issue and additional capital will be raised by way of placements of stapled securities. Judicial advice 34 In proceedings 2038 of 1999 MFL and CPML seek judicial advice under section 63 of the Trustees Act (NSW) 1925. That section provides certain limited protection to a trustee who acts in accordance with the advice given by the Court. 35 The application for advice is supported by a statement on behalf of those two entities. The statement sets out the restructure proposal for each of the two trusts. It is unnecessary for me to give any further or fuller descriptions of the proposals at this stage in view of the matters which I have set out earlier in this judgment. Importantly, as far as unitholders are concerned, the proposed merger will be achieved not by any Court-approved scheme of reconstruction but rather by the adoption of constitutional amendments. 36 In that context the two responsible entities have sought the opinion, advice and directions of the Court in relation to the following matters: (a) whether each of MFL and CPML is justified in convening meetings of their respective unitholders to consider the resolution set out in the explanatory memorandum; (b) whether either of them is justified in amending their respective constitutions in the manner proposed; and (c) whether, if the amended constitutions are accepted for lodgment in the Australian Securities and Investments Commission, each of them is justified in effecting and implementing the proposal in the explanatory memorandum. 37 The proposed amendments to the constitutions of the two trusts are contained in draft supplementary deed polls, each of which is expressed to be governed by the law of New South Wales. The MPT constitution states that it is governed by the law of New South Wales. As I have indicated, Mirvac was incorporated in this State. CPT's constitution states, however, that it is governed by the law of the Australian Capital Territory. 38 In my opinion this Court has jurisdiction to provide judicial advice to the responsible entities of the two trusts as trustees notwithstanding that the trust instrument for one of the trusts is expressed to be governed by a law other than the law of New South Wales. The question of jurisdiction was referred to by McLelland CJ in Eq in Permanent Trustee Co Limited v National Australia Managers Ltd (unreported, 8 August 1994). His Honour concluded in that case that it was appropriate for him to exercise jurisdiction under the Trustee Act of New South Wales to give judicial advice notwithstanding that the proper law of one of the trusts was the law of Victoria. 39 In my opinion it is unlikely that the proper law governing the merger as it affects the CPT is the law of the Australian Capital Territory rather than the law of New South Wales. However, even if it is the law of the Australian Capital Territory, I am persuaded that it is appropriate in the circumstances of this case to provide judicial advice to the trustees of both trusts concurrently, of the kind which I propose to provide under the New South Wales Act. If it were necessary to do so, I would rely on the Jurisdiction of Courts (Cross-Vesting) Acts of the Commonwealth and New South Wales as a source of jurisdiction. 40 Under section 63 of the Trustee Act of New South Wales judicial advice may be given to a 'trustee'. Section 5 says that 'trustee' has a meaning corresponding with that of trust. 'Trust' is defined in section 5, inter alia, to include implied and constructive trusts and cases where the trustee has a beneficial interest in the trust property. 41 In the present case steps have been taken pursuant to Chapter 5C of the Corporations Law and the relevant transitional provisions for MFL and CPML, which were formerly managers of the respective trusts, to become the responsible entities. That having occurred, section 601FC(2) states that the responsible entity holds scheme property (in this case the property of the respective trusts) on trust for scheme members (in this case the respective unitholders). There are therefore express trusts here and each responsible entity clearly falls within the definition of the 'trustee' for the purposes of section 63. I see nothing in Chapter 5C of the Corporations Law to suggest that it is intended to exclude the Court's jurisdiction to provide judicial advice to a responsible entity under general trustee legislation. I therefore conclude that I have jurisdiction to provide appropriate advice in this case. 42 As I have indicated, the central proposal in respect of each of the two trusts is that very substantial changes will be made to their constitutions having the effect of implementing the stapling arrangements; and also there will be a redemption of units in order to pay out unitholders who do not wish to take stapled securities or are excluded from doing so under the terms of the arrangement. The amendments also permit the consolidation of units and deal with the mechanics of stapling. 43 Under the constitutions of the respective trusts, which are not materially different, there are powers of amendment. They are to be found in clause 29 in the case of MPT and clause 62, when read in conjunction with clause 59, in the case of CPT. In each of those cases, the constitution authorises the trustee and manager, effectively now the responsible entity, to alter or amend the constitution by supplemental deed. Several grounds for doing so are set out, one of which is in each case simply that the amendment is approved by special resolution of unitholders. The amendments proposed in the present case are to be adopted by special resolution of unitholders. Now that each of the trusts is a managed investment scheme under Chapter 5C of the Corporations Law, amendments to the constitutions are governed by section 601GC. Subsection 601GC(1) states that the constitution of a registered scheme may be modified by, inter alia, special resolution of the members of the scheme. 44 Section 601GC is not entirely consistent with the alteration provisions contained in the constitutions. This is because the section implies that the passing of the special resolution is the operative event, whereas the constitutional provisions proceed upon the basis that the amendment is effected by the responsible entity executing a supplemental deed after the special resolution has been passed. It is unnecessary to resolve any tension arising from a comparison of the constitutions with the section because what is proposed here is that the special resolutions approving the amendments will be closely followed by the execution of the supplemental deeds. 45 In the Permanent Trustee case to which I have referred, McLelland CJ in Eq was asked to consider whether a provision in a trust deed similar to the alteration in this case was effective to permit the adoption of a scheme of reconstitution not entirely dissimilar from the present proposal. He expressed the view that the alteration power was very wide and was in quite unlimited terms. He rejected an argument to the effect that the alteration power was to be confined to amendments which could reasonably have been foreseen at the time when the deed was made, or that there was some limit by reference to destruction of substratum. In his opinion the only relevant limitation was that the power of amendment was to be used only for the purpose for which it was conferred. He took the view that the evident purpose of the wide power before him was to ensure maximum flexibility. Unitholders would have the protection of the requirement of a special resolution and the requirement that the manager must act in good faith in what it perceives to be the interests the unitholders. He concluded that an amendment which had the effect of bringing the trust to an end by the cancellation of units was authorised by the amending power. 46 I am content to adopt and apply McLelland CJ in Eq's reasoning with respect to the similarly worded powers of amendment before me in this case, and to apply the same reasoning to the statutory power of amendment contained in section 601GC. I therefore conclude that notwithstanding the significance of the amendments in the present case and notwithstanding that they will produce the consequence of compulsorily requiring that certain unitholders be cashed out, they are authorised by the statute supplemented by the provisions of the two constitutions. 47 In the circumstances presented to me, I therefore have no hesitation in providing judicial advice, similar to the advice provided by McLelland CJ in Eq, to the effect that the two responsible entities would be justified in proceeding on the basis that the making of the amendments which are proposed, following approval by special resolution of unitholders, would be within the powers of alteration which they possess. In those same circumstances I also have no hesitation in providing judicial advice to the effect that the responsible entities are justified in convening meetings to consider the proposals which are to be put to the unitholders. 48 The application also seeks judicial advice which would go further by stating that the responsible entities would be justified in giving effect to and implementing the proposals set out in the explanatory memorandum. In my opinion it would be unwise to give advice of that kind at the present stage. In this case, the matter comes before me ex parte in conjunction with the scheme proposals which I have described. Those proposals will be put to meetings of shareholders, optionholders and unitholders respectively for consideration. There is bound to be a further hearing with respect to the two schemes of arrangement, and in the present proceedings I am asked to make orders having the effect that any unitholder who wishes to make any application may do so when the matters return to the Court. In those circumstances judicial advice broadly to the effect that all implementation steps may be taken seems to be premature and too widely expressed. 49 In reaching that conclusion I have been influenced by another judgment of McLelland CJ in Eq. in Re J W Murphy & P C Allen; re BPTC (in liq) (1996) 19 ACSR 569. In that case his Honour envisaged that certain kinds of advice, such as advice with respect to the performance of a contract, might be sought under Part 68 Rule 2(4) of the Supreme Court Rules rather than under section 63. While the circumstances before me are different from the circumstances in that case, it seems to me that a broad judicial commendation of the course of conduct to be embarked upon in circumstances which cannot presently be known but which may come to be known to the Court at a later stage, would be an unwise exercise of the Court's power under section 63. Conclusion 50 I have therefore made orders for the convening of the meetings for the two schemes and orders providing judicial advice to the extent indicated in these reasons.

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