Warrnambool Cheese and Butter Factory Company Limited v Warrnambool Cheese and Butter Factory Company Holdings Limited, in the matter of Warrnambool Cheese and Butter Factory Company Limited

ORDERS NSD 165 of 2017 IN THE MATTER OF THE WARRNAMBOOL CHEESE AND BUTTER FACTORY COMPANY LIMITED ACN 004 032 053 AND OTHERS

BETWEEN: THE WARRNAMBOOL CHEESE AND BUTTER FACTORY COMPANY LIMITED ACN 004 032 053 AND OTHERS

AND: WARRNAMBOOL CHEESE AND BUTTER COMPANY HOLDINGS LIMITED ACN 071 945 232

JUDGE: YATES J DATE OF ORDER: 7 March 2017

1. Pursuant to section 411(4)(b) of the Corporations Act 2001 (Cth) (Corporations Act), each of: (a) the scheme of arrangement proposed between the First Plaintiff and its sole member, the terms of which are set out in Annexure A to the Explanatory Memorandum dated 28 February 2017 (First Plaintiff's Scheme); (b) the scheme of arrangement proposed between the Second Plaintiff and its sole member, the terms of which are set out in Annexure A to the Explanatory Memorandum dated 28 February 2017 (Second Plaintiff's Scheme); (c) the scheme of arrangement proposed between the Third Plaintiff and its sole member, the terms of which are set out in Annexure A to the Explanatory Memorandum dated 28 February 2017 (Third Plaintiff's Scheme); and (d) the scheme of arrangement proposed between the Fourth Plaintiff and its sole member, the terms of which are set out in Annexure A to the Explanatory Memorandum dated 28 February 2017 (Fourth Plaintiff's Scheme), (together, Schemes), be approved.
2. Pursuant to section 413(1) of the Corporations Act (and using the definitions in the First Plaintiff's Scheme), on 1 April 2017, the First Plaintiff's Scheme be implemented by the following steps taken in the following order, and speaking as at that time: (a) first, all of the Scheme Assets of the First Plaintiff be transferred to and vested in the Defendant, without the need for any further act or deed of any person; (b) second, all of the Scheme Liabilities of the First Plaintiff be transferred to, and become liabilities of, the Defendant, without the need for any further act or deed of any person; and (c) third, the First Plaintiff be deregistered by the Australian Securities and Investments Commission (ASIC) without a winding up.
3. Pursuant to section 413(1) of the Corporations Act (and using the definitions in the Second Plaintiff's Scheme), on 1 April 2017, the Second Plaintiff's Scheme be implemented by the following steps taken in the following order, and speaking as at that time: (a) first, all of the Scheme Assets of the Second Plaintiff be transferred to and vested in the Defendant, without the need for any further act or deed of any person; (b) second, all of the Scheme Liabilities of the Second Plaintiff be transferred to, and become liabilities of, the Defendant, without the need for any further act or deed of any person; and (c) third, the Second Plaintiff be deregistered by ASIC without a winding up.
4. Pursuant to section 413(1) of the Corporations Act (and using the definitions in the Third Plaintiff's Scheme), on 1 April 2017, the Third Plaintiff's Scheme be implemented by the following steps taken in the following order, and speaking as at that time: (a) first, all of the Scheme Assets of the Third Plaintiff be transferred to and vested in the Defendant, without the need for any further act or deed of any person; (b) second, all of the Scheme Liabilities of the Third Plaintiff be transferred to, and become liabilities of, the Defendant, without the need for any further act or deed of any person; and (c) third, the Third Plaintiff be deregistered by ASIC without a winding up.
5. Pursuant to section 413(1) of the Corporations Act (and using the definitions in the Fourth Plaintiff's Scheme), on 1 April 2017, the Fourth Plaintiff's Scheme be implemented by the following steps taken in the following order, and speaking as at that time: (a) first, all of the Scheme Assets of the Fourth Plaintiff be transferred to and vested in the Defendant, without the need for any further act or deed of any person; (b) second, all of the Scheme Liabilities of the Fourth Plaintiff be transferred to, and become liabilities of, the Defendant, without the need for any further act or deed of any person; and (c) third, the Fourth Plaintiff be deregistered by ASIC without a winding up.
6. Pursuant to section 413(1)(c) of the Corporations Act, on and from 1 April 2017, any legal proceedings pending by or against each Plaintiff be continued by or against the Defendant, without the need for any further act or deed, other than appropriate amendment of the records of the relevant court or tribunal.
7. Pursuant to section 413(1)(g) of the Corporations Act, on and from the date on which the Schemes become Binding (as that word is defined in the Schemes): (a) the Defendant or any director, officer or company secretary of the Defendant from time to time may, in the name of each Plaintiff, sign all documents and do all things required to be done by each Plaintiff to complete or perfect the transfer and vesting of Scheme Assets and Scheme Liabilities of that Plaintiff provided for in Orders 2(a), 2(b), 3(a), 3(b), 4(a), 4(b), 5(a) and 5(b) above, whether by lodgement, registration, notification or otherwise; and (b) each of the Plaintiffs may disclose to the Defendant all personal information (including tax file numbers) held by each of them.
8. Pursuant to section 413(1)(g) of the Corporations Act, on and from 1 April 2017: (a) in contracts which form part of the Scheme Assets or Scheme Liabilities transferred to, and vested in, the Defendant pursuant to Orders 2(a), 2(b), 3(a), 3(b), 4(a), 4(b), 5(a) and 5(b) above, and to which the First, Second, Third or Fourth Plaintiff (as applicable) is named as a party, any reference to the First, Second, Third or Fourth Plaintiff be read as a reference to the Defendant; and (b) the Defendant may use, disclose and otherwise handle all information transferred and vested in it by each Plaintiff provided always that the Defendant shall receive the information upon the same terms as each Plaintiff held the information and subject to the Scheme Liabilities of each Plaintiff in respect of that information.
9. Liberty be reserved to any party to apply for any further orders as may be considered necessary or desirable under section 413 of the Corporations Act.
10. These orders be entered forthwith. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

INTRODUCTION 1 At the first court hearing on 28 February 2017, I made orders pursuant to s 411(1) of the Corporations Act 2001 (Cth) (the Act) for the purpose of convening members' meetings of the first plaintiff, the Warrnambool Cheese and Butter Factory Company Limited (WCBFC), the second plaintiff, Australian Dairy Products Pty Limited (ADP), the third plaintiff, Warrnambool Milk Products Pty Limited (WMP), and the fourth plaintiff Protein Technology Victoria Pty Limited (PTV), to consider, and if thought fit, approve, with or without modification, certain schemes of arrangement. I also made orders pursuant to s 1319 of the Act providing for the service of an explanatory statement (in the form of an Explanatory Memorandum) and notices of scheme meetings on the members concerned, as well as providing for the manner in which the scheme meetings were to be held and the advertising of the second court hearing on 7 March 2017. 2 At the second court hearing on 7 March 2017, I made orders pursuant to s 411(4)(b) of the Act approving each scheme of arrangement. I also made orders pursuant to s 413(1) of the Act to facilitate the reconstruction and amalgamation of the parties, all of whom are Part 5.1 bodies within the meaning of the Act. 3 These are my reasons for making these orders.

Background 4 WCBFC is the sole member of ADP, WMP and PTV. The defendant, Warrnambool Cheese and Butter Factory Company Holdings Limited (Holdings), is the sole member of WCBFC. 5 Four schemes of arrangement were proposed, namely between WCBFC and Holdings, ADP and WCBFC, WMP and WCBFC, and PTV and WCBFC to effect a solvent restructuring of the parties, such that all the assets and liabilities of the plaintiffs would be transferred to Holdings, which would then undertake the various businesses currently conducted by the plaintiffs. Each scheme was in relevantly similar terms and was set out in the one document. Holdings had been added as a defendant in the proceeding because it is the proposed transferee of the assets and liabilities of the plaintiffs and orders under s 413 of the Act had been sought: Royal Victorian Institute for the Blind Ltd v RBS.RVIB.VAF Ltd (2004) 206 ALR 581; see also SGIC Insurance Ltd v Insurance Australia Ltd [2004] FCA 1638 (SGIC) at [6] and Equatorial Mining Pty Ltd v Antofagasta Investment Company Ltd [2013] FCA 1452 at [29]. 6 The parties are Australian companies within a global group (the WCB Group), the ultimate parent company of which is Saputo Inc. (Saputo), a Canadian company. Holdings is listed on the Australian Securities Exchange (the ASX). The parties and other companies in the WCB Group produce, market and distribute globally a variety of cheeses, butter and butter blends, milk and cream. The products are sold in Australia under brand names including COON, Cracker Barrel, Mil Lel, Fred Walker, Sungold and Great Ocean Road. 7 The current structure of the WCB Group, as it involves the parties, is the result of the growth of their businesses in the 1990s. Holdings was incorporated in 1995 to be the holding company of the plaintiffs, whose existence largely reflects the legacy of the traditional business of WCBFC prior to the 1990s and the different businesses acquired and dairy processing plants constructed during that period. 8 Despite there being a number of companies, the businesses and affairs of the plaintiffs have been conducted under the name "Warrnambool Cheese and Butter Factory" and not in their separate names. The plaintiffs rely heavily on each other to provide goods, including raw materials, and services as between themselves. Ongoing debtor-creditor accounting entries are required in respect of these intercompany transactions. The multiplicity of companies gives rise to additional cost and complexity in circumstances where the businesses and affairs of the plaintiffs in Australia can be operated through a single entity. Put simply, management has taken the view that the existing corporate structure is unnecessary and impractical. 9 In order to obviate these intercompany transactions, and to achieve savings in administration, accounting, information technology systems, tax and other compliance costs, the parties proposed that all the assets and liabilities of the plaintiffs would be transferred to Holdings, who would also be substituted for the plaintiffs in any litigation to which the plaintiffs are party (although, on the evidence, there is currently no such litigation). The plaintiffs would then be deregistered without a winding up. The schemes and the orders sought under s 413 of the Act were considered to be the most efficient and certain way of achieving this internal reorganisation. Restructuring by this means would remove the need to involve a significant number of contractual counterparties, creditors, government authorities (which issue licences and permits to the plaintiffs), employees and other affected persons, to achieve the desired transfers of assets and liabilities. There was evidence before me that Holdings has no current intention to make any major changes to the businesses currently conducted by the plaintiffs should each scheme be approved and implemented. 10 One consequence of the schemes, if approved and implemented, would be that WCBFC's shareholding in ADP, WMP and PTV, and Holdings' shareholding in WCBFC, would be diminished in value. However, each relevant member (WCBFC and Holdings) has agreed to approve the scheme(s) relevant to it, notwithstanding that consequence. Further, under the schemes, each relevant member waives any rights it may otherwise have against the relevant scheme entity in connection with the schemes and consents to Holdings doing all things and executing all deeds, instruments, transfers or other documents as may be necessary, incidental or expedient to the implementation and performance of the schemes. These features of the schemes furnish the characteristic that each would be a "compromise or arrangement", within the meaning of s 411(1) of the Act, between the relevant plaintiff and its member: AGL Energy Services (Queensland) Pty Limited v AGL Energy Services Pty Limited (No 2) [2010] FCA 453 at [2]-[3]; All Star Funds Management Limited v Ventura Investment Management Limited [2012] FCA 527 at [4]-[6]; Macquarie Equipment Finance Pty Limited v Macquarie Bank Limited [2012] FCA 1212 at [3] and Barrick (Lawlers) Pty Ltd v Barrick Mining Company (Australia) Pty Ltd, in the matter of Barrick (Lawlers) Pty Ltd [2015] FCA 1510 (Barrick) at [21]-[27]. I should also mention, in this connection, that s 411 can be availed of where, as here, the Part 5.1 body has only one member: SGIC at [12]. 11 Schemes, such as the present, are undertaken as members' schemes of arrangement: Re AGL Sydney Ltd (1994) 13 ACSR 597 at 598; SGIC at [7]-[11]. The potential effect on creditors, occasioned by the proposed transfer of the relevant liabilities, does not require a creditors' scheme. The effect on creditors is regarded as an issue of fairness to be dealt with at the second court hearing following the approval of the scheme by its member(s): SGIC at [10]-[11]. 12 Even so, the evidence before me at the first court hearing on 28 February 2017 showed that the schemes themselves, if approved and implemented, would have no adverse effect on creditors because Holdings, following the implementation of the schemes, would be solvent and have a net asset position in excess of $395.4 million. This is a superior net asset position compared to the net asset position of each of the plaintiffs before implementation of the schemes. Holdings would be able to discharge the liabilities of each plaintiff that are to be transferred to it taking into account also the transfer of assets to be effected at the same time. 13 Another important consideration in this regard is that the parties are also currently parties to a Deed of Cross-Guarantee dated 26 June 2006 pursuant to which each guarantees the obligations of the others. Thus, creditors of the plaintiffs are already treated as if they were creditors of the sub-group within the WCB Group comprising the parties to this proceeding. 14 It is also convenient to note at this stage that the schemes, if approved and implemented, would have no adverse effect on employees. On the evidence that was before me, all relevant employees are currently employed by WCBFC. Employee wages and other entitlements are allocated to each plaintiff. Intercompany creditor-debtor entries are posted at the end of each month to allow for the redistribution of employee costs amongst the plaintiffs. Following implementation of the schemes, Holdings would become the employer of all existing employees of WCBFC. There would be no change to employee entitlements, including accrued leave entitlements. Thus, following implementation of the schemes, current employees of WCBFC would be in substantially the same, if not a better, position, given the improved net asset position of Holdings. 15 The directors of the plaintiffs have recommended that the members approve the schemes. Further, I note that, by letter dated 6 December 2016, the Foreign Investment Review Board gave a "no objections" notification to the reorganisation that was proposed.

First court hearing 16 When I made the orders on 28 February 2017, I was satisfied that each plaintiff was a Part 5.1 body and that, for the reasons I have discussed above, each proposed scheme was a "compromise or arrangement" for the purposes of s 411(1) of the Act. Based on the evidence before me, I was also satisfied that each scheme was of such a nature and cast in such terms that the Court would be likely to approve it on the hearing of an unopposed application seeking such approval: FT Easement & Sons Pty Ltd v Metal Roof Digging Supplies Pty Ltd (1977) 3 ACLR 69 at 72; see also Talent2 International Limited, in the matter of Talent2 International Limited [2012] FCA 771 at [49]. 17 Further, I was satisfied that the Explanatory Memorandum, proposed to be sent to Holdings and WCBFC as the relevant members, should be approved under s 411(1) of the Act as the explanatory statement required by s 412(1)(a) of the Act. In this connection I noted that, under reg 5.1.01 of the Corporations Regulations 2001 (Cth) (the Regulations), the Australian Securities and Investments Commission (ASIC) had waived the requirement under cl 8303 of Part 3 of Schedule 8 of the Regulations that the explanatory statement include or contain an independent expert's report: Ex B2. There was also evidence of verification of the statements made in the Explanatory Memorandum. 18 There were no statutory or procedural impediments to the meetings being held as proposed. ASIC had furnished written advice that it had been given notice of the first court hearing, as required by s 411(2)(a) of the Act. ASIC also stated that it had been given a reasonable opportunity, as required by s 411(2)(b), to examine the terms of the schemes and the explanatory statement, and to make submission to the Court thereon: Ex B1. ASIC said that it did not intend to appear at the first court hearing. Further, the plaintiffs had consented to the meetings being held on short notice.

Second court hearing 19 At meetings held on 1 March 2017, each scheme was approved by the relevant member. 20 At the second court hearing on 7 March 2017, there was evidence before me that the meetings had been held in accordance with the orders made on 28 February 2017 and that all relevant statutory requirements bearing on the Court's approval had been satisfied. 21 Having regard to the nature of the schemes and their intended purpose, and in light of the evidence before me at both hearings, I was satisfied that it was appropriate to approve the schemes under s 411(4)(b) of the Act. In that connection, ASIC had advised that, under s 411(17)(b), it had no objection to the schemes: Exhibit C. Further, no person had come forward to oppose the schemes. 22 At the second court hearing, the plaintiffs also sought orders under s 413 of the Act. I was satisfied that the compromises or arrangements effected by the schemes were for the purpose of, or in connection with, a scheme for the "reconstruction" of Part 5.1 bodies or, alternatively, for the "amalgamation" of Part 5.1 bodies, as those terms are understood in the context of s 413(1) of the Act: as to the meaning of "reconstruction" see the discussion and authorities referred to in Fiducian Portfolio Services Ltd v Fiducian Investment Management Services Ltd & Anor (No 2) (2015) 228 FCR 587; [2015] FCA 95 at [16]-[27]; as to the meaning of "amalgamation" see SGIC at [8] and Barrick at [92]. I was also satisfied that the orders, as sought, were appropriate. Each order was of a type and in a form substantially similar to orders previously made by the Court under s 413 in other cases of reconstruction or amalgamation. Orders were made accordingly.

A final matter 23 There is one final matter to note. I was informed at the first court hearing that there was a current takeover offer by Saputo Dairy Australia Pty Limited (Saputo Australia) for all the shares in Holdings in which it did not have a relevant interest. At that time, Saputo Australia owned approximately 88% of the shares in Holdings. I was informed that the takeover offer had been accepted but was not expected to have any impact on the implementation of the schemes if the Court's approval were to be given. At the second court hearing, I was informed that Saputo Australia had served notices commencing the compulsory acquisition process in relation to Holdings and that it was anticipated that Saputo Australia would acquire 100% of the shares in Holdings, and Holdings would be removed from the official list of the ASX, by 1 April 2017, the date when the schemes will be effective. I record these matters only for completeness. In my view, they did not stand as matters militating against the making of the orders sought on 28 February 2017 and 7 March 2017.

I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.