Other questions relating to likely approval
52 Let me now deal with some other matters that are relevant to the question of whether if the Scheme achieves the requisite statutory majorities I would be likely to approve it.
53 First, what is the proposed capitalisation of Angas and AAMF if the Scheme is adopted and implemented? The proposed Scheme has proceeded on the basis that the net tangible assets requirement for AAMF will be the same as for the other funds, that is, 0.5% of scheme assets. Further, a working capital buffer of $1 million for Angas has also been assumed.
54 The independent expert's opinion is that the key question regarding the solvency for Angas is whether the cash flows from the funds management business, together with cash at hand of $1 million, will be sufficient to fund the annual operating expenses of Angas, including the costs of managing the AAMF as responsible entity for no management fee in return. Angas will have no debt, putting to one side the question of the proper characterisation of the redeemable preference shares series 2 that I touched on at the outset. The independent expert is satisfied that provided there is no significant adverse change in the income and cash generated from the funds management business going forward, Angas should generate sufficient cash flows to pay its creditors in the ordinary course of business and any additional costs associated with acting as the responsible entity of AAMF.
55 Further, AAMF will have no long-term debt and assets of approximately $40 million. The independent expert's opinion is that for AAMF to remain solvent it must raise cash in the order of $2 to $3 million over the next 3 to 6 months. There is evidence before me that this should not be an issue. Angas received $2,447,673 from a biodiversity credit sale this last week which alone should address the funding issue, but further cash is expected to be raised from settlement of the Quinnco proceeding and further biodiversity credit sales.
56 Now Angas submitted that the size of the Trustee's claims for costs and expenses as described in the scheme booklet had the potential to impact the solvency of the proposed Scheme. But so as to facilitate the proposed Scheme, the agreed debt to the Trustee of approximately $3.4 million will not become due and payable until 30 June 2020 and payments in reduction of the debt will only be made from 25% of the net proceeds from sales of the legacy assets.
57 Second, various terms of the proposed Scheme include the releases of any potential claims against Angas, the directors and the Trustee arising out of or in connection with the affairs of Angas including the implementation of the Scheme. Now it may reasonably be expected that if a court-appointed receiver were appointed to Angas, the court-appointed receiver would investigate whether there were viable claims against the directors and the Trustee.
58 Now the release of any claims against Angas by debenture holders are plainly an aspect of the "arrangement" between Angas and debenture holders. But the proposed releases of claims against the directors and the Trustee extend to releases of parties other than Angas and therefore engage those authorities addressing when a scheme of arrangement may provide for releases of third parties and whether a scheme of arrangement can compromise or release claims of a creditor of the scheme company qua creditor of the scheme company only, or can also release claims of a creditor qua creditor of a third party. As Mr Jonathon Redwood for Angas submitted, two related requirements appear to have emerged from the authorities. The first requirement is that there is a sufficient nexus between a release by the creditor of the claims against the third party and the relationship between the creditor and the scheme company; see Fowler v Lindholm (2009) 178 FCR 563 at [68] to [73] per Emmett, Gordon and Jagot JJ and Re Lehman Brothers International (Europe) (in administration) [2009] EWCA Civ 1161 at [63] and [65] per Patten LJ. The second requirement is that there is some element of give and take such that the creditors receive something in return for the benefit conferred on the third party; see Fowler v Lindholm at [69], Lift Capital Partners Pty Limited (In Liquidation), in the matter of Lift Capital Partners Pty Limited (In Liquidation) [2009] FCA 1523 at [35] per Emmett J and Bacnet Pty Ltd v Lift Capital Partners Pty Ltd (in liq) (2010) 183 FCR 384 at [145] per Keane CJ and Jacobson J.
59 Now I do not doubt that a scheme of arrangement can involve creditors releasing claims against a third party.
60 The starting point is that the words "compromise" or "arrangement" are to be construed as broadly and as flexibly as their commercial setting within the boundaries of the text and context of s 411 permit. On their face they say nothing against the company requiring the creditor, as part of the arrangement involving the creditor's claims against the company, to release associated claims against, say, officers or employees of the company, related companies of the company, co-venturers of the company etc. Otherwise if the arrangement were not to embrace such a release, then it would be self-defeating. The creditor could pursue the third party. The third party could seek indemnity back against the company, with the consequence that the very purpose for the arrangement would be undermined. Nothing in the text and context of s 411 requires or justifies such a result.
61 Further, the concept of "arrangement" connotes that the creditors are receiving something of value to them, in this case, inter-alia, for the release. But nothing need flow from the released party to the creditor as such, as long as the creditor is receiving something from the arrangement or the company itself for the release.
62 But undoubtedly the release must at the least be reasonably connected to the restructuring of the company. As the authorities make plain, there must be some nexus between the release and the creditors' position qua creditor of the company itself in relation to the scheme as Fowler v Lindholm at [73] makes plain.
63 For completeness I would note that doubts have been raised concerning Fowler v Lindholm by a later Full Court in City of Swan v Lehman Brothers Australia (2009) 179 FCR 243 at [108] to [111] per Rares J and [142] to [144] per Perram J, but in respects that do not trouble me. First, that case concerned Pt 5.3A and the narrower textual and contextual questions involving ss 436A, 439C, 444A, 444B and 444D. Second, the concept and flexibility of "arrangement" under s 411 or Pt 5.1 does not automatically carry over to the phrase "deed of company arrangement" under Pt 5.3A. In other words any analogies between Pt 5.1 and Pt 5.3A are inapposite. Third, although Rares J and Perram J relied significantly upon Re Glendale Land Development Ltd (in liq) [1982] 2 NSWLR 563 at 567 (in terms of its implications) per McLelland J and earlier and later authority, for my part I am unable to identify compelling reasons which cast significant doubt on the reasoning of the Full Court in Fowler v Lindholm, the reasoning of the primary judge, Finkelstein J in that case (Re Opes Prime Stockbroking Ltd (2009) 179 FCR 20 at [28] to [55]), and the reasoning of Patten LJ in Re Lehman Brothers International (Europe).
64 Further, as to the enforcement of these third party releases, assuming that I approve the Scheme and it comes into force, if a debenture holder sued the third party the third party could plead them in bar. Alternatively, Angas being the subject of the Scheme could seek an injunction against the debenture holder from acting inconsistently with the terms of the Scheme. Neither option would necessarily require the third party to execute a separate instrument so as to be able to take the benefit of the release but be bound by the burden of the Scheme. Perhaps a third party might insist on this to protect its interests. But not to so insist could hardly prejudice the debenture holder at least in terms of the third party release. But obviously if the third party was providing a monetary or other substantial benefit to the Scheme, then that is a different question. From the debenture holders' perspective they would want the third party to also execute, say, a separate deed poll to fortify the requirement of the third party to provide the benefit.
65 Finally, to the extent that the releases raise any issues of fairness, that is a matter to be addressed at the second court hearing with the benefit also of the views of debenture holders from the scheme meeting (In the matter of BIS Finance Pty Limited; In the matter of Artsonig Pty Limited [2017] NSWSC 1713 at [44] per Black J). But for the purposes of the first court hearing it is sufficient to observe the following matters.
66 First, the proposed releases have been disclosed prominently and in sufficient detail in the scheme booklet so that if debenture holders have any concerns with the proposed releases they can be raised at or before the scheme meeting with Angas and the Trustee.
67 Second, the releases contain the standard carve-outs for fraud, wilful misconduct, recklessness or gross negligence.
68 Third, the releases are to be seen as reasonably connected to the proposed restructuring effected by the proposed Scheme in the sense that they can logically be seen as important for the viability and structural integrity of the proposed Scheme.
69 Fourth, in relation to the releases of the directors, if claims could be brought against the directors it could imperil Angas' ability to obtain the necessary professional indemnity insurance required by Regulatory Guide 126: Compensation and insurance arrangements for AFS as a Chapter 7 licensee in future years and would inevitably distract Angas from successfully managing the restructured business in the interests of debenture holders as the new owners of the restructured business.
70 Fifth, in relation to the release of the Trustee, if claims could continue to be brought against the Trustee, then the Trustee would presumably wish to preserve its right to an indemnity from the assets of Angas which may adversely affect the viability of the proposed Scheme.