TRUSTS - Plaintiff custodian of assets - Termination of custody agreements - Assets of agreement not yet transferred to successor custodian - Shares in a foreign corporation - Corporation nearing insolvency - Restructuring proposal - Instructions unable to be obtained - Application for the power to authorise and direct the execution of documents - Power of the Court to rule upon propriety of contemplated exercise of discretion - Whether it is expedient in the interests of the beneficiaries to order pursuant to s 63 of the Trustee Act 1958 (Vic) the authority sought by the Plaintiff - Hornsby v Playoust

For ACT Super Management Pty Ltd ACN 073 947 690

For Neil Singleton, Stephen Parbery and Nicholas Martin (in their capacity as administrators of Astarra Funds Management Pty Ltd ACN 098 220 467 (administrators appointed))

1 The plaintiff is a wholly owned subsidiary of the Australia and New Zealand Banking Group Limited ("ANZ"). Until 2009, the ANZ had a business unit, ANZ Custodian Services, that provided custodian services to clients, including holding assets for the account of and on behalf of clients. ANZ appointed the plaintiff as a sub-custodian of those assets. In 2009 ANZ sold its custody business and each of the custody agreements were terminated with effect from 13 January 2009. Some of the assets have remained in the custody of the plaintiff as sub-custodian pending new arrangements concerning those assets.

2 Amongst the assets which the plaintiff has continued to hold as sub-custodian for ANZ are common shares in a German company, Revotar Biopharmaceuticals AG ("Revotar"). Revotar is a biopharmaceutical company involved in the development of anti-inflammatory pharmaceuticals. It is a stock corporation organised under the laws of Germany. As at 5 February 2010, the registered share capital of Revotar was EUR 6,501,507. The plaintiff holds 1,257,914 shares with a nominal value of EUR 1 each in Revotar, being 19.35% of the registered capital.

3 The plaintiff has been informed of a pending series of transactions concerning Revotar. The proposed transactions involve a re-capitalisation of Revotar by the introduction of several new shareholders who will acquire "Series B" preference shares in the company at a nominal cost of EUR 1 per share. A German lawyer, Mr Sebastian Potter, to whom the plaintiff gave a power of attorney regarding participation in Revotar, has asked the plaintiff to authorise the execution of relevant documents, including a shareholders agreement and investment agreement, to enable the re-capitalisation to proceed. The plaintiff does not have the power to authorise and direct its attorney to execute the documents.

4 Accordingly the plaintiff has made an application to the Court under s 63(1) of the Trustee Act 1958 (Vic) for the power to authorise and direct its attorney to execute the relevant documents and an order that it is justified in authorising and directing its attorney to execute the documents.

5 Section 63(1) of the Trustee Act provides:

(1) Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release or other disposition, or any purchase, investment, acquisition, expenditure or other transaction, is in the opinion of the Court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the trust instrument (if any) or by law, the Court may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose on such terms and subject to such provisions and conditions (if any) as the Court thinks fit and may direct in what manner any money authorized to be expended, and the costs of any transaction are to be paid or borne as between capital and income.

6 The Court has undoubted power under s 63(1) to make the order that is sought in relation to authorising and directing its attorney to execute the documents[1] and to provide "judicial advice" that the plaintiff is justified in authorising and directing its attorney to execute those documents.[2] I am satisfied on the basis of the evidence before me that the orders sought should be made.

7 The shares in Revotar are held under custody agreements dated 28 February 2005 between ANZ and each of Astarra Nominees (Australia) Pty Ltd ("Astarra Nominees") and Astarra Securities Pty Ltd ("Astarra Securities"). Although these custody agreements have terminated, ANZ has not received instructions to transfer the shares to a successor custodian despite requests for instructions and accordingly still holds the shares.

8 Each of Astarra Nominees and Astarra Securities is the trustee of a trust. Specifically Astarra Nominees is the trustee of the Millhouse Private Equity Trust I ("MPET I") and Astarra Securities is the trustee of the Millhouse Private Equity Trust II ("MPET II"). The beneficiaries under MPET I and MPET II are Huntley Management Limited as responsible entity for the Millhouse Private Equity Fund; and ACT Super Management Pty Ltd which acts as trustee of various superannuation funds. Each of these entities were represented in court. None of them opposed the making of the orders.

(i) There is no mechanism by which Astarra Nominees can authorise the plaintiff to execute the documents because Astarra Nominees currently has no directors. Astarra Securities has one director but that director was not authorised under the custody agreement to provide instructions to ANZ. Accordingly the plaintiff requires a grant of power under s 63(1) of the Trustee Act.

(ii) The plaintiff considers that it should be given the requisite power to enable the re-capitalisation of Revotar to proceed. The re-capitalisation is required because Revotar is nearing insolvency and under German law, without the re-capitalisation, Revotar will have to commence compulsory insolvency proceedings, following which it will be dissolved. The consequence would be that the shares held by the plaintiff for MPET I and MPET II would lose all their value.

(iii) In contrast, if the transaction does proceed the shares will maintain some value, although initially diluted, but with no additional financing obligations or risk and with the potential to increase in value. Presently the shares have a value of around EUR 10 - 20 cents per share. The allocation of "Series B" preference shares would dilute the holding of MPET I and MPET II in Revotar from 9.67% to 7.56% but the shares would still have value. The plaintiff has been informed that the execution of the documents would not involve additional financial obligations or risk to the plaintiff or to MPET I or MPET II. The plaintiff has also been advised by the Chief Executive Officer of Revotar that if the transaction does proceed, the value of the shares has the potential to increase significantly. The funds to be transferred to Revotar pursuant to the transactions will be used to advance a major phase 2 clinical trial for a pharmaceutical product. The funds should enable this work to continue and lay the foundations for a partnering or licensing agreement or further investment. The Chief Executive Officer believes that the re-capitalisation is in the best interests of the company and all of the shareholders. All other shareholders have signed the documentation.

(iv) The plaintiff has also been informed by its attorney that under German law a minority shareholder may be liable to pay damages for blocking rescue financing by way of re-capitalisation which resulted in the relevant company filing for insolvency. Thus the failure to execute the documents may result in legal action against the plaintiff by the other shareholders in Revotar.

10 In the circumstances, I am of the opinion that it is expedient to confer the power sought by the plaintiff. I am satisfied on the basis of the evidence before me that the conferral of that power is in the interests of MPET I and MPET II, neither of which entity opposes the execution of the documents. I am satisfied that it is appropriate for the plaintiff to direct its attorney to execute the documents. Accordingly orders will be made in the terms of the proposed orders provided to the court which includes an order for the costs of all parties to be paid on an indemnity basis from the assets of MPET I and MPET II.[3]

[1] Hornsby v Playoust (No. 2) [2005] VSC 125 (Unreported, Mandie J, 28 April 2005) [10]; Re Allen-Meyrick's Will Trusts; Manganall v Allen-Meyrick [1966] 1 WLR 499, 503; John Francis Chamberlin and Barry James Bennet v Spry & Ors [2008] VSC 562 (Unreported, Pagone J, 12 December 2008); Riddle & Ors v Riddle & Anor [1952] HCA 12; [1951] 85 CLR 202, 224.

[2] Hornsby v Playoust (No. 2) [2005] VSC 125 (Unreported, Mandie J, 28 April 2005) [10]; Re Green deceased [1972] VicRp 98; [1972] VR 848, 850; John Francis Chamberlin and Barry James Bennet v Spry & Ors [2008] VSC 562(Unreported, Pagone J, 12 December 2008).

[3] Re Pasminco Limited [2004] FCA 656; 49 ACSR 470, 481-2.