Supreme Court New South Wales Medium Neutral Citation: In the matters of Boart Longyear Limited [2021] NSWSC 982 Hearing dates: 27 and 29 July 2021 Date of orders: 29 July 2021 Decision date: 06 August 2021 Jurisdiction: Equity - Corporations List Before: Black J Decision: Orders made convening scheme meetings in two creditors' schemes and members' scheme and ancillary orders made. Catchwords: CORPORATIONS – Schemes of arrangement or compromise – Application under s 411 of the Corporations Act 2001 (Cth) for orders convening meeting of creditors and members to consider schemes of arrangement. Legislation Cited: - Corporations Act 2001 (Cth), 411, 412, 563A - Cross-Border Insolvency Act 2008 (Cth), Sch 1 Cases Cited: - First Pacific Advisors LLC v Boart Longyear Ltd (2017) 320 FLR 78; (2017) 121 ACSR 136; [2017] NSWCA 116 - FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 - Re Abacus Funds Management Ltd (2006) 24 ACLC 211; [2005] NSWSC 1309 - Re Arthur Yates & Co Ltd (2001) 36 ACSR 758; [2001] NSWSC 40 - Re Associated Advisory Practices Ltd [2013] FCA 761 - Re Atlas Iron Ltd (2016) 112 ACSR 554; [2016] FCA 366 - Re BINGO Industries Limited [2021] NSWSC 798 - Re BIS Finance Pty Limited [2017] NSWSC 1713 - Re Boart Longyear Ltd (2017) 121 ACSR 328; [2017] NSWSC 567 - Re Boart Longyear Ltd (2017) 318 FLR 226; [2017] NSWSC 537 - Re Boart Longyear Ltd (No 2) (2017) 323 FLR 241; (2017) 122 ACSR 437; [2017] NSWSC 1105 - Re Centrebet International Limited [2011] FCA 870 - Re Coca-Cola Amatil Limited [2021] NSWSC 270 - Re Ellerston Global Investments Limited [2020] NSWSC 879 - Re Glencore Nickel Pty Ltd (2003) 44 ACSR 210; [2003] WASC 18 - Re Hills Motorway Ltd (2002) 43 ACSR 101; [2002] NSWSC 897 - Re New Look Financing Plc [2020] EWHC 2793 (Ch) - Re Obrascon Huarte Lain SA [2021] EWHC 1431 (Ch) - Re Permanent Trustee Co (2002) 43 ACSR 601; [2002] NSWSC 1177 - Re SAI Global Limited [2016] FCA 1312 - Re Selecta Finance UK Ltd [2020] EWHC 2689 (Ch) - Re Simavita Holdings Limited [2013] FCA 1274 - Re Syncreon Group BV [2019] EWHC 2412 (Ch) - Re The Trust Company Ltd [2013] NSWSC 1680 - Re TPG Telecom Limited [2020] NSWSC 772 - Re Villa World Ltd (2019) 139 ACSR 550; [2019] NSWSC 1207 - Re Virgin Atlantic Airways Ltd [2020] EWHC 2376 (Ch) - Re Watpac Limited [2018] FCA 656 Category: Principal judgment Parties: Proceedings 2021/209335 Boart Longyear Limited (First Plaintiff) Boart Longyear Management Pty Ltd (Second Plaintiff) Boart Longyear Australia Pty Ltd (Third Plaintiff) Votraint No 1609 Pty Ltd (Fourth Plaintiff) Boart Longyear Investments Pty Ltd (Fifth Plaintiff) BL Capital Management LLC (Sixth Plaintiff) BLY US Holdings Inc (Seventh Plaintiff) Proceedings 2021/209360 Boart Longyear Limited (Plaintiff) Representation: Counsel: I M Jackman SC/B Ng (Plaintiffs) M Oakes SC (Affiliates of Centerbridge Partners LP) J Williams SC (Ad Hoc Group) Solicitors: Ashurst (Plaintiffs) MinterElllison (Affiliates of Centerbridge Partners LP) Clifford Chance, Gilbert & Tobin (Ad Hoc Group) File Number(s): 2021/209335 2021/209360 Judgment 1. These proceedings concern two creditors' schemes of arrangement and a members' scheme of arrangement respectively and were heard together with evidence in one to be evidence in the other. In proceedings 2021/209335, the Plaintiffs, Boart Longyear Ltd ("BLY") and other entities within the BLY Group sought orders under s 411 of the Corporations Act 2001 (Cth) convening a meeting of secured creditors to consider a secured creditors' scheme and convening a meeting of unsecured creditors to consider an unsecured creditors' scheme, and also sought consequential relief. In proceedings 209360/2021, BLY sought an order under s 411 of the Corporations Act that it convene a meeting of its shareholders to consider a scheme of arrangement which would provide for the redomiciliation of BLY to Canada. The proposed creditors' schemes are not dependent on the redomiciliation scheme. 2. By way of background, the Boart Longyear group sells drilling products and provides drilling services equipment for mining and drilling companies globally and has operations in several jurisdictions and employs 5,000 employees globally. Nearly 76% of the shares in BLY are now held by companies associated with Centerbridge Partners LP ("Centerbridge") and other shareholders which are also creditors of BLY and support the proposed schemes. As at the close of trading on 30 June 2021, BLY's issued securities were 88,511,800 ordinary fully paid shares in BLY and also included quoted ordinary warrants expiring 13 September 2024 (Ordinary Warrants), unquoted Class A 7% warrants expiring 13 September 2024 (Class A 7% Warrants), unquoted Class B 7% warrants expiring 13 September 2024 (Class B 7% Warrants) and unquoted options (BLY Options) over BLY shares subject to a 2014 Option Plan, 2015 Option Plan and 2016 Option Plan (First Pincus Affidavit [30]). 3. The BLY Group has a complex debt structure and owes very substantial principal amounts to creditors under several facilities, which partly result from the implementation of an earlier restructuring by BLY and other companies by two interdependent creditors' schemes of arrangement in 2017 ("2017 Restructure"). The background to the 2017 Restructure and the creditors' schemes then implemented are set out in, inter alia, Re Boart Longyear Ltd (2017) 121 ACSR 328; [2017] NSWSC 567, on appeal First Pacific Advisers LLC v Boart Longyear Ltd (2017) 320 FLR 78; (2017) 121 ACSR 136; [2017] NSWCA 116 and Re Boart Longyear Limited (No 2) (2017) 323 FLR 241: (2017) 122 ACSR 437; [2017] NSWSC 1105. That restructure also contemplated that BLY would take steps to redomicile its business to Delaware, the United Kingdom, Canada or such other jurisdiction to which all supporting creditors agreed as soon as practicable after the implementation of the 2017 schemes and in any case before 15 April 2018, unless BLY and the relevant supporting creditors jointly determined in their reasonable discretion that such redomiciliation would not be in the best interests of BLY (First Pincus Affidavit [92]). That redomiciliation was challenged by a shareholder and, although that challenge was not finally determined, was not effected (First Pincus Affidavit [93]). 4. As at 30 June 2021, the BLY Group owed the total amount of US$925.2 million to its lenders under several key facilities comprising the BLY Group's debt capital (First Pincus Affidavit [37]), including amounts owing under: * the "Existing PNC ABL" of US $6.0 million. The applicable rate of interest under the Existing PNC ABL varies depending on the nature of the advance and other criteria set out in the Existing PNC ABL and principal, plus accrued and unpaid interest is due to be repaid on 24 July 2022 by way of a "bullet repayment" which may be extended to 12 May 2025 on the satisfaction of certain conditions including that there is funding under an Exit Financing Facility (as defined) (First Pincus Affidavit [42]); * the "Existing Backstop ABL" of US $62.4 million. Interest is to be paid quarterly and accrues at a rate of 10% per annum if BLM elects to make the relevant interest payment in cash or 11% per annum if BLM elects to make the relevant interest payment in kind and principal plus accreted/accrued is due to be repaid on 22 October 2022 (First Pincus Affidavit [47]); * the "Incremental Finance Facility" of US $50.3 million (described as representing "commitment amount for illustrative purposes and actual accrued interest as at 30 June 2021"). The principal plus accrued/accreted interest is due to be repaid on 31 December 2021 by way of a "bullet repayment" (First Pincus Affidavit [51]); * the "Term Loan – Tranche A" of US $162.1 million, comprising loan securities issued to various affiliates of Centerbridge (TLA Purchasers) under a Term Loan A Securities Agreement dated 31 December 2018, as amended. Interest accretes on amounts owing under the Term Loan A and is capitalised at a rate of 8% per annum, compounded quarterly, and principal and accreted/accrued interest is due to be repaid on 31 December 2022 by way of a "bullet repayment" (First Pincus Affidavit [52]-[56]); * the "Term Loan – Trance B" of US $195.4 million, comprising term loan securities issued to various affiliates of Centerbridge under a Term Loan B Securities Agreement dated 31 December 2018, as amended. Interest accretes on amounts owing under the Term Loan B and is capitalised at a rate of 8% per annum, compounded quarterly, and principal and accreted/accrued interest is due to be repaid on 31 December 2022 also by way of a "bullet repayment" (First Pincus Affidavit [57]-[61]). * the "SSN Indenture Notes" of US $354.9 million, as to which Boart Longyear Management Pty Limited ("BLM") as issuer issued 12.0% / 10.0% senior secured payment-in-kind (PIK) toggle notes due 2022 under an Indenture dated 27 September 2013, as amended (First Pincus Affidavit [66]; Ex NRP-1 at pages 1606 to 1763). Interest is payable on 30 June and 31 December of each year and amounts owing in relation to the SSN Indenture Notes are due to be repaid by 31 December 2022 by way of a "bullet repayment"; and * the "SUN Indenture Notes" of US$94.1 million, as to which BLM as issuer issued 1.50% subordinated unsecured PIK notes due 2022 under an Indenture dated 28 March 2011, as amended. Interest accretes on the SUN Indenture Notes and is capitalised at a rate of 1.50% per annum, compounded quarterly, and amounts owing in respect of the SUN Indenture Notes are due to be repaid on 31 December 2022 by way of a "bullet repayment" (First Pincus Affidavit [74]). 1. The amounts owing under the BLY Group's key facilities are secured over working and non-working capital assets with specified priorities, and the Term Loan A, Term Loan B and SSN Indenture Notes are guaranteed by several Plaintiffs and by other companies within the BLY Group. The intercreditor and priority "waterfall" arrangements of the BLY Group are primarily governed by three intercreditor arrangements, namely an Amended and Restated Intercreditor Agreement dated 1 June 2021 (First Pincus Affidavit [78(a)]); a Second Amended and Restated Intercreditor Agreement dated 1 June 2021 (First Pincus Affidavit [78(b)]); and a Third Amended and Restated Intercreditor Agreement dated 1 June 2021 (First Pincus Affidavit [78(c)]). 2. In a memorandum dated 19 July 2021, the United States legal advisers to the BLY Group summarise the security position under the Term Loan A, Term Loan B, SSN Indenture and SUN Indenture as follows (First Pincus Affidavit [86]; Ex NRP-1, 2629 to 2637). Term Loan A is secured as to amounts owing of up to US$85,000,000 being the original principal amount of indebtedness under the Term Loan A and unsecured as to amounts owing in respect of accreted or capitalised interest or any other amounts owing under the Term Loan A. Term Loan B is secured as to amounts owing of up to US$105,000,000 being the original principal amount of indebtedness issued under the Term Loan B and unsecured as to amounts owing in respect of accreted or capitalised interest, or any other amounts owing under the Term Loan B. The SSN Indenture is secured as to the original principal amount of indebtedness under the SSN Indenture; subject to certain caps set out in the SUN Indenture, unpaid interest through to 31 December 2016 and accreted principal from 1 January 2017 to 31 December 2018; accreted principal from 1 January 2020 to 31 December 2020 with respect to SSN Indenture Notes held by SSN Noteholders that consented to the BLY Group meeting the interest payments under the SSN Indenture Notes due 30 June 2020 and 31 December 2020 by way of a payment in kind, rather than payment in cash; and accreted principal from 1 January 2021 to 30 June 2021 with respect to SSN Indenture Notes held by SSN Noteholders that consented to the June 2021 SSN PIK Issuance (as defined) and unsecured as to the SSN Applicable Premium (as defined) (First Pincus Affidavit [87(b)]). Amounts owing in respect of the SUN Indenture Notes are subordinated to all amounts (secured and unsecured) owing and under the SSN Indenture Notes, Term Loan A and Term Loan B (First Pincus Affidavit [87(d)]). 3. It appears that the BLY Group's business was materially impacted by the COVID-19 pandemic (Ex NRP-1, 3019) and, according to its Annual Report FY20, as at 31 December 2020, the BLY Group's EBITDA had declined to US$40.3 million compared to US$66.5 million as at 31 December 2019, being a negative change of 39.4% (Ex NRP-1, 3021, 3023); the BLY Group had suffered an operating loss of US$0.7 million compared to an operating profit of US$27.2 million as at 31 December 2019, being a negative change of 102.6% (Ex NRP-1, 3021-3022, 3061); the BLY Group suffered a net loss of US$98.8 million compared to a net loss of US$56.6 million as at 31 December 2019 (Ex NRP-1, 3061); the BLY Group's net cash flow provided by operating activities was US$49.4 million compared to US$35.3 million as at 31 December 2019, a positive change of US$14.1 million primarily due to the BLY Group's converting the interest payments on the SSN Indenture Notes from payment in cash to payment in kind (Ex NRP-1, 3021, 3024); the BLY Group's total assets had declined to US$609.6 million compared to US$642.0 million as at 31 December 2019, a reduction of US$32.3 million, primarily due to impairment of property, plant and equipment, reductions in tax receivables and a decrease in working capital balances offset by increases in intangible assets and cash (Ex NRP-1, 3024, 3062); the BLY Group's total liabilities had increased to US$1.1 billion compared to $1.0 billion as at 31 December 2019, an increase of US$54.9 million primarily due to accreted interest for the period (Ex NRP-1, 3024, 3062); and the BLY Group's total net liabilities were US$469.4 million compared to US$382.2 million as at 31 December 2019, an increase of liabilities of US$87.2 million primarily due to the BLY Group's net loss of US$98.8 million (Ex NRP-1, 3024, 3062). These matters are also addressed in the independent expert reports concerning the proposed schemes. 4. By an announcement made by BLY to Australian Securities Exchange ("ASX") on 7 January 2021, BLY advised that it was undertaking a strategic review of available options in anticipation of the BLY Group's debt facilities reaching maturity in the second half of 2022 and to position the BLY Group "to take advantage of future growth opportunities". BLY subsequently made a further announcement indicating that it anticipated that its strategic review process, if successful, would likely involve existing lenders converting all or part of their debt to equity, which could be highly dilutive to existing BLY shareholders. The creditors' schemes at issue in these proceedings adopt that approach, and would convert approximately US$795,000,000 of debt into shares in BLY. 5. On 12 May 2021, BLY and associated entities and major creditors, including affiliates of Centerbridge and members of the Ad Hoc Group entered into a Restructuring Support Agreement ("RSA"), by which they agreed to implement the creditors' schemes and a series of other recapitalisation transactions and to implement the redomiciliation scheme and, on 13 May 2021, BLY announced that matter to ASX. The parties to the RSA are BLY and several other companies within the BLY Group and a majority of the BLY Group's lenders, namely affiliates of Centerbridge, Ascribe II Investments LLC ("Ascribe") and relevant affiliates of Ares Management LLC, Corre Partners Management LLC, First Pacific Advisors LP, Nut Tree Capital Management and HPS Investment Partners LLC ("HPS") ("Ad Hoc Group"). For completeness, I note that HPS subsequently sold its relevant debt to other supporting creditors (Third Pincus Affidavit [37]-[39]). 6. On 11 May 2021, BLM and certain lenders also entered into a binding commitment letter ("Incremental Finance Commitment Letter") regarding the provision of senior secured debt financing in an aggregate maximum amount of US$50 million, intended to allow adequate liquidity for the BLY Group's operations until the restructuring contemplated by the RSA was complete (First Pincus Affidavit [117]; Ex NRP-1, 3263-3395). On 12 May 2021, BLM and PNC Bank, National Association ("PNC") entered into a seventh amendment to the Amended and Restated Revolving Credit and Security Agreement to amend the Existing PNC ABL (First Pincus Affidavit [118]) which, inter alia, made available an additional US$15 million of accessible liquidity; permitted the BLY Group to incur indebtedness pursuant to the Incremental Finance Commitment Letter; and, subject to the satisfaction of certain conditions, extended the term of the Existing PNC ABL to 12 May 2025. On 1 June 2021, pursuant to the Incremental Finance Commitment Letter, the relevant parties also entered into the Incremental Finance Facility (First Pincus Affidavit [120]) which, inter alia, provided a commitment of US$50 million in aggregate principal amount (of which US$30 million was drawn down on 1 June 2021), maturing on 31 December 2021. 7. On 1 June 2021, relevant members of the BLY Group and relevant finance parties also entered into agreements amending the Existing Backstop ABL, Term Loan A, Term Loan B, SSN Indenture and SUN Indenture, the BLY Group Intercreditor Agreements and other ancillary finance documents in several respects (First Pincus Affidavit [121]). 8. The schemes that are the subject of these proceedings implement the transactions contemplated by the RSA and the Plaintiffs also propose to seek recognition of the creditors' schemes under Chapter 15 of Title 11 of the United States Code. 9. I made the orders sought by BLY at the conclusion of the first Court hearing on 29 July 2021, to convene the scheme meetings and address ancillary matters. These are my reasons for making those orders. I have drawn on the helpful submissions of Mr Jackman, with whom Ms Ng appears, in that regard. Affidavit evidence 1. The Plaintiffs relied on the affidavit dated 21 July 2021 of Ms Nora Pincus, a company secretary of BLY and a director of several associated companies, filed in proceedings 2021/209335. Ms Pincus there summarised the effect of the creditors' schemes of arrangement, noting that the creditors' schemes were intended to permit the Plaintiffs: "to materially deleverage, reduce interests costs and improve liquidity by, amongst other things, comprising debts owed by the Plaintiffs under certain major facilities by way of two interdependent creditors' schemes of arrangement". 1. Ms Pincus also there noted that the redomiciliation scheme was intended to transfer BLY's corporate and tax domicile from Australia to Canada under a members' scheme of arrangement, by which all of BLY's issued shares would be acquired by Boart Longyear Ltd, a newly formed holding company incorporated in Ontario, Canada. 2. Ms Pincus also referred to the nature of the activities of the BLY Group and the complex debt structure of the BLY Group, to which I have referred above. Ms Pincus also referred to BLY's several announcements of ASX to which I referred above. Ms Pincus also outlined the structure of the creditors' schemes, addressed the position of "subordinate claim holders" under those schemes and outlined the complex steps that would be necessary to implement the creditors' schemes, and also addressed the steps to be taken under the redomiciliation scheme. She also referred to a proposed general meeting of BLY's shareholders which would required to obtain approval under the ASX Listing Rules and Item 7 of s 611 of the Corporations Act for the conversion of debt to equity as contemplated by the creditors' schemes. Ms Pincus also referred to independent expert reports obtained by BLY, namely a report of FTI Consulting (Australia) Pty Ltd ("FTI") for the benefit of creditors under the secured scheme and the unsecured scheme dealing with the solvency position of BLY and two reports of KPMG Financial Advisory Services (Australia) Pty Ltd ("KPMG") dealing with the creditors' schemes and the redomiciliation scheme and also addressed the conditions precedent to the schemes. 3. By a second affidavit dated 21 July 2021 in proceedings 2021/209360, Ms Pincus referred to the redomiciliation scheme, and adopted her evidence in support of the creditors' scheme in respect of the redomiciliation scheme. By her further affidavit dated 25 July 2021, Ms Pincus outlined the due diligence and verification process which had been undertaken in respect of disclosure documents for the secured creditors' scheme and the unsecured creditors' scheme and the redomiciliation scheme, both in respect of the BLY Group and in respect of its legal advisers as to matters of United States Federal law and New York State law, and as to Centerbridge and the Ad Hoc Group. By her fourth affidavit dated 28 July 2021, Ms Pincus addressed an amendment to the RSA dealing with the number of New Warrants (as defined) to be issued under the proposed unsecured creditors' scheme and also addressed the verification process adopted in that respect. 4. The Plaintiffs also rely on an affidavit dated 20 July 2021 of Mr Thomas Kreller, a partner in a United States law firm, which set out the structure of the various debt instruments to which BLY and associated companies are party and also referred to the process for corporate reorganisations in the United States, where many of the BLY Group's creditors are situated. A further affidavit dated 21 July 2021 of Mr James Daloia addressed the role of an information agent in respect of US debt securities and the manner in which documents and information would be distributed to scheme creditors and voting would be undertaken at the creditors' scheme meetings. 5. By his affidavits dated 22 July 2021, filed in each of the proceedings, Mr Jason Ireland, who is a partner of McGrathNicol and a non-executive director of BLY, consented to act as chair of the proposed creditors' schemes meetings and the proposed redomiciliation scheme meetings. By his affidavits dated 19 July 2021 in the proceedings, Mr Robert Smith, who is also a partner of McGrathNicol and a non-executive director of BLY, consented to act as alternate chair of the relevant meetings if Mr Ireland was unable to do so. By his affidavit dated 19 July 2021, Mr David McGrath of FTI, who is a registered liquidator, consented to act as administrator of the creditors' schemes. 6. By his affidavit dated 27 July 2021, Mr Kyle McLachlan, who is a solicitor employed at BLY's Australian solicitors, set out the process of provision of draft documents to the Australian Securities and Investments Commission ("ASIC") and referred to subsequent correspondence with ASIC. By letter dated 27 July 2021 (Ex P1), ASIC has indicated that it has had a reasonable opportunity to examine the terms of the creditors' and redomiciliation schemes and did not propose to appear to make submissions or intervene to oppose those schemes at the first Court hearing. By his second affidavit dated 28 July 2021, Mr McLachlan referred to an updated creditors' schemes explanatory statement and updated redomiciliation scheme explanatory statement and indicated the amendments made in those documents. 7. By their affidavits dated 27 and 28 July 2021, Mr Hill of FTI Consulting, Mr Jedlin and Ms Thomas of KPMG addressed the expert reports on which BLY relied. Mr Hill prepared an independent expert's report in relation to the proposed creditors' schemes ("Creditors' Schemes IER"). Mr Hill confirms his independence in the preparation of that report and his consent to act as one of the joint and several scheme administrators of each of the creditors' schemes together with Mr McGrath of FTI. In the Creditors' Schemes IER (Annexure C of the creditors' schemes explanatory statement), Mr Hill in turn expresses the view that that creditors under the secured scheme would receive a return corresponding to US 43.5 cents in the dollar and creditors under the unsecured scheme would receive US 10.5 cents in the dollar on implementation of the schemes (Section 7.1, Creditors' Schemes IER; Ex NRP-1, 4037). He also expresses the opinion that, if the BLY Group is wound up within 6 months of the first Court hearing in respect of the creditors' schemes and the creditors' schemes are not implemented, the likely return to secured scheme creditors and unsecured scheme creditors if the business of the Group was sold as a going concern in its distressed state ("Controlled Insolvency Scenario") would be US 29.6 cents in the dollar to secured scheme creditors and nil to unsecured scheme creditors (Section 8.2 Creditors' Schemes IER, Ex NRP-1, 4040). He also expresses the view that, if the business of the Group ceased and its assets located in various entities in a variety of international jurisdictions were sold by liquidators to pay outstanding liabilities ("Uncontrolled Insolvency Scenario"), then secured scheme creditors would receive US 12.3 cents in the dollar and unsecured scheme creditors would receive US 0.2 cents in the dollar (Section 8.2 Creditors' Schemes IER, Ex NRP-1, 4041). 8. Mr Jedlin and Ms Thomas prepared independent expert's reports as to whether the Primary Recapitalisation Transaction (as defined) was in the best interests of shareholders of BLY who are not a secured or unsecured scheme creditor ("Recapitalisation IER") and whether the proposed redomiciliation scheme was in the best interest of BLY shareholders ("Redomiciliation IER"). In the Recapitalisation IER, Mr Jedlin and Ms Thomas express the opinion that, in the absence of a superior proposal, the Primary Recapitalisation Transaction (as defined) was fair to Non-Associated Shareholders (as defined) by assessing the value of BLY prior to the Primary Recapitalisation Transaction on a control basis and the value of BLY after the Primary Recapitalisation basis on a non-controlling basis (Section 3.1; Ex NRP-1, 5014). They conclude that Non-Associated Shareholders will be better off after the Primary Recapitalisation Transaction because BLY's current debt is greater than the value of its assets prior to the Primary Recapitalisation Transaction and BLY shares have no value prior to the Primary Recapitalisation Transaction and will have a value after the Primary Recapitalisation Transaction of between US$0.0354 and US$0.0421 per BLY share (Section 3.1; Ex NRP-1, 5015). 9. In the Redomiciliation IER, Mr Jedlin and Ms Thomas express the opinion that the redomiciliation scheme is on balance in the best interests of BLY shareholders (Section 4; Ex NRP-1, 4781) and identify its primary advantage for BLY as being to better align its legal structure with the geography of its shareholder base to improve access to capital. They note that, while BLY shareholders will receive New BLY Parent CHESS depository interests ("CDIs") representing a New BLY Parent share, after redomiciliation, BLY shareholders will still hold the same proportional economic interests in the assets of the BLY Group that they will hold after the Primary Recapitalisation Transaction, and will be able to trade the New Parent BLY CDIs on the ASX (subject to ASX approval) and there will be no change to the business plan or the financial and operating strategies of the BLY Group (Section 4; Ex NRP-1, 4781). 10. BLY also tendered the updated explanatory statement to the creditors' scheme (Ex P2) and an updated explanatory memorandum to the redomiciliation scheme (Ex P3). I have referred, in dealing with the explanatory statements below, to the late draft which was exhibited to the First Pincus Affidavit, to retain the page references to that exhibit, although limited amendments were made in the final version of the explanatory statements. The terms of the creditors' schemes 1. Mr Jackman points out that the proposed creditors' schemes comprise two interdependent schemes, the secured creditors' scheme and the unsecured creditors' scheme. The debts subject to the creditors' schemes, as at 12 May 2021 are (First Pincus Affidavit [139]) in respect of the Term Loan A, the total amount of US$160,336,984.87, being principal in the amount of US$85,000,000 (which is secured) and accreted/accrued interest in the amount of US$75,336,984.87 (which is unsecured); in respect of the Term Loan B, the total amount of US$193,285,306.60, being principal in the amount of US$105,000,000 (which is secured) and accreted/accrued interest in the amount of $88,285,306.60 (which is unsecured); in respect of the SSN Indenture Notes, principal and accrued interest in the amount of US$303,567,773.87 (which is secured) and the SSN Applicable Premium of US$44,924,586.44 (which is unsecured); and, in respect of the SUN Indenture Notes, the total amount of US$93,944,522.71 being principal and accrued interest (which is unsecured). 2. The Existing PNC ABL, the Existing Backstop ABL and the Incremental Finance Facility are not compromised under either of the creditors' schemes. Under the RSA, each of the Existing Backstop ABL, the Incremental Finance Facility and, if determined to be commercially reasonable in accordance with the terms of the RSA, the Existing PNC ABL, will be the subject of "Exit Financing" to be obtained by the BLY Group, which is a condition precedent to each of the creditors' schemes under cl 3.1 of each of the creditors' schemes (Ex NRP-1, 3584, 3777). Debts owed to trade creditors or employees of the BLY Group are also not subject to the creditors' schemes. 3. The secured creditors' scheme is a scheme between the Plaintiffs and several secured creditors of each of the Plaintiffs ("secured scheme creditors") (First Pincus Affidavit [128(a)]; Ex NRP-1, 3590), namely the TLA Purchasers in respect of claims under the Term Loan A that are secured; the TLB Purchasers in respect of claims under the Term Loan B that are secured; and the holders of SSN Indenture Notes ("SSN Noteholders") in respect of the claims under the SSN Indenture Notes that are secured. The total number of new shares in BLY which will be issued under the creditors' schemes together will represent 98.5% of BLY's ordinary shares immediately after the implementation of the creditors' schemes and before any dilution from other elements of the recapitalisation. The new BLY shares which will be issued to the secured scheme creditors under cl 7(a) of the secured creditors' scheme will be 87.07% of the new BLY shares. In addition to their relevant pro-rata equity entitlements under the secured creditors' scheme, secured scheme creditors may also subscribe for up to US$2,500,000 (plus any undersubscription under a proposed share purchase plan) of new BLY shares in accordance with the terms of the Creditor Share Purchase Option provided for in cl 12 of the creditors' schemes (Ex NRP-1, 3597). 4. The unsecured creditors' scheme is a scheme between the Plaintiffs, the holders of subordinate claims within the meaning of s 563A of the Corporations Act ("Subordinate Claim Holders") and specified unsecured creditors of each of the Plaintiffs ("unsecured scheme creditors") (First Pincus Affidavit [128(b)]; Ex NRP-1, 3783-3788), namely the TLA Purchasers in respect of claims under the Term Loan A that are unsecured; the TLB Purchasers in respect of claims under the Term Loan B that are unsecured; the SSN Noteholders in respect of claim under the SSN Indenture Notes that are unsecured; and the holders of SUN Notes ("SUN noteholders") in respect of claims under the SUN Indenture Notes. The new BLY shares which will be issued to the unsecured scheme creditors under cl 7(a) of the unsecured creditors' scheme will be 12.92% of the new BLY shares. SUN noteholders will also receive new warrants to be issued by BLY, in addition to a pro rata share of the shares to be issued under the unsecured creditors' scheme, in exchange for their unsecured claims under the SUN Indenture. Subordinate Claim Holders will not receive any BLY shares or New Warrants pursuant to the unsecured creditors' scheme. By cl 12 of the unsecured creditors' scheme, unsecured scheme creditors may also subscribe for up to US$2,500,000 (plus any undersubscription under a proposed share purchase plan) of new BLY shares in accordance with the terms of the Creditor Share Purchase Option (Ex NRP-1, 3790-3791). 5. Mr Jackman submits, and I accept, that the SSN Noteholders and the SUN Noteholders are creditors for the purposes of the creditors' schemes, having regard to the holding structure of the SSNs and the SUNs as set out at section 2.9 of the creditors' schemes explanatory statement (Ex NRP-1, 3449). The SSN Indenture Notes and the SUN Indenture Notes issued under the SSN Indenture and the SUN Indenture are issued in a "global" form that is common in the US debt capital market and the ownership structure for those notes is addressed in Mr Daloia's evidence to which I referred above. There are three levels of "ownership" or interests in these types of notes, and a global note or notes, representing the entire principal amount of the issue, is held by a central securities depositary which operates a clearing system for transfers of beneficial interests in the global note; "account holders" which are generally banks and brokerage firms then hold beneficial interests in the notes either on their own behalf or on behalf of their clients, who may themselves be the ultimate beneficial holder or intermediaries holding for their clients), and noteholders then hold the ultimate beneficial interests in the global note. As Mr Jackman points out, the SSN Indenture and the SUN Indenture were considered by the Court in respect of the 2017 Restructure, and the ultimate beneficial noteholders of the notes were held to be the scheme creditors for the purpose of those schemes because those noteholders were contingent creditors so far as they had a right to be issued with definitive or certified securities in the event of default: Re Boart Longyear Ltd; (2017) 121 ACSR 328; [2017] NSWSC 567 at [29]. I accept that, for the same reasons the ultimate beneficial noteholders of the SSN Indenture Notes and the SUN Indenture Notes are properly the scheme creditors for the purposes of the each of the creditors' schemes. 6. Mr Jackman also points out that the steps to implement the creditors' schemes are set out in a restructuring implementation deed ("RID") to be entered into if the creditors' schemes are approved (First Pincus Affidavit [214]; Ex NRP-1, 3613-3698), which is Schedule 2 of each of the creditors' schemes. Clause 5.1 of each of the creditors' schemes irrevocably authorises each secured scheme administrator or unsecured scheme administrator to take all steps and do all other things necessary or advisable to give effect to the relevant creditors' scheme and the RID. Mr Jackman points out that the RID will give effect to certain of the steps necessary to the restructure of the BLY Group including the creditors' schemes and to formalise the consents, instructions, directions, waivers, conditions precedent, steps and timing required to implement the restructuring (Ex NRP-1, 3617). I see no difficulty with that approach, which has been adopted in creditors' schemes of arrangement in England and Wales and Scotland, to which Mr Jackman refers: Re Syncreon Group BV [2019] EWHC 2412 (Ch) at [10]; Re Virgin Atlantic Airways Limited [2020] EWHC 2376 (Ch) at [17]; Re New Look Financing Plc [2020] EWHC 2793 at [27]; Re Selecta Finance UK Limited [2020] EWHC 2689 (Ch); and Re Obrascon Huarte Lain, S.A [2021] EWHC 1431 (Ch) at [43]-[44]. 7. I have also had regard to the process which is proposed for the dispatch of information concerning the proposed creditors' schemes to the relevant scheme creditors, including to SSN Noteholders and SUN Noteholders, and for the collation of votes at the secured creditors' scheme meeting and the unsecured creditors' scheme meeting. Applicable principles in respect of the creditors' scheme 1. I now turn to the applicable principles, and I have drawn on Mr Jackman's helpful outline of submissions, and on my recent summaries of those principles in Re Coca-Cola Amatil Ltd [2021] NSWSC 270 and Re BINGO Industries Limited [2021] NSWSC 798 in that respect. In FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69, Street J (with whom Hutley and Samuels JJA agreed) described the approach to be adopted in deciding whether to convene a scheme meeting, as follows: "The approach taken upon a summons is that the court will not ordinarily summon a meeting unless the scheme is of such a nature and cast in such terms that, if it achieves the statutory majority at the creditors' meeting the court would be likely to approve it on the hearing of a petition which is unopposed." 1. Mr Jackman also refers to Farrell J's summary of relevant matters in Re Associated Advisory Practices Limited [2013] FCA 761 at [22]: "The Court will not ordinarily convene a meeting of members to consider a scheme of arrangement unless the Court is satisfied that the scheme is of such a nature and cast in such terms that, if it receives the statutory majority at the meeting of members, the Court would be likely to approve the scheme on the hearing of an unopposed application: Re Central Pacific Minerals NL [2002] FCA 239 at [8]; Re CSR Ltd (2010) 183 FCR 358 at [12]; Australian Securities Commission v Marlborough Gold Mines Limited (1993) 177 CLR 485 at 504. By granting leave to convene the meeting, the Court does not give its imprimatur to the proposed scheme or foreshadow its approval at the second court hearing for the purposes of s 411(4)(b): Re Foundation Healthcare Ltd (2002) 42 ACSR 252 at [36]; Australian Securities Commission v Marlborough Gold Mines Limited at 504-505. The question for the Court is whether it is reasonable to suppose that sensible business people might consider the arrangement proposed as being beneficial to members: In re Alabama, New Orleans, Texas and Pacific Junction Railway Company [1891] 1 Ch 213 at 243; Re CSR Ltd at [80]. The Court does not need to be satisfied that no better scheme could have been proposed: Re Foundation Healthcare Ltd at [44]. Ultimately, the question is for the members themselves: see FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72." 1. Mr Jackman also refers to my summary of those principles in Re Ellerston Global Investments Ltd [2020] NSWSC 879 at [25]-[27] as follows: "It is, of course, well-established that the Court will order the convening of a scheme meeting and approve a draft explanatory statement if it is satisfied that the plaintiff is a Part 5.1 body; the proposed scheme is an arrangement within the meaning of s 411 of the Corporations Act; the scheme booklet will provide proper disclosure to members; the scheme is bona fide and properly proposed; ASIC has had a reasonable opportunity to examine the terms of the scheme and the scheme booklet and make submissions and has had 14 days' notice of the proposed hearing date; the procedural requirements of the Supreme Court (Corporations) Rules 1999 (NSW) have been met; and there is no apparent reason why the scheme should not, in due course, receive the Court's approval if the necessary majority of votes is achieved: Re Staging Connections Group Ltd [2015] FCA 1012 at [19]- [20]; Re Atlas Iron Ltd [2016] FCA 366; (2016) 112 ACSR 554 at [30]; Re Duet Finance Ltd [2017] NSWSC 415 at [15]; Re Villa World Ltd [2019] NSWSC 1207 at [15]. The Court will not ordinarily summon a meeting at the first court hearing unless the scheme is of such a nature and cast in such terms that, if it receives the statutory majority at the meeting, the Court would be likely to approve it on the hearing of a petition which is unopposed: F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72, approved in Australian Securities Commissions v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485 at 504. In Re Foundation Healthcare Ltd [2002] FCA 742; (2002) 42 ACSR 252 at [36] and [44] (cited with apparent approval in Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358 at [58]), French J observed that: "... by granting leave to convene the meeting, the court does not give its imprimatur to the proposed scheme. If the arrangement is one that seems fit for consideration by the meeting of members or creditors and is a commercial proposition likely to gain the court's approval if passed by the necessary majorities, then leave should be given: Re ACM Gold Ltd (1992) 34 FCR 530; 107 ALR 359; 7 ACSR 231; 10 ACLC 573 (O'Loughlin J). The court is not required to give close consideration to the effects of the scheme upon individual members of the classes of members or creditors affected. So to do would be to "introduce burdensome and to a large extent ineffectual consideration at this interlocutory stage": Re Jax Marine Pty Ltd [1967] 1 NSWR 145 at 148 (Street J). ... The court at the stage of ordering a meeting to approve a scheme does not ordinarily go very far into the question of whether the arrangement is one which warrants the approval of the court ... That question is to be answered when the scheme returns to the court for final approval. That is not to exclude the possibility that a scheme may appear on its face so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further." 1. Mr Jackman also rightly points out that, at the first Court hearing, the Court is not concerned with whether final approval should be given to the scheme but whether the scheme is one which is adequately explained to those who have a financial interest in it, and whether there is any obvious flaw in the scheme, such that it would be inappropriate for it to be submitted for shareholders' consideration: Re Abacus Funds Management Ltd (2006) 24 ACLC 211; [2005] NSWSC 1309 at [23]; Re Villa World Ltd (2019) 139 ACSR 550; [2019] NSWSC 1207 at [18]. The Court need not be satisfied that no better scheme could have been proposed, and is concerned with whether sensible business people might consider the arrangement proposed is of benefit to members: Re Centrebet International Ltd [2011] FCA 870 at [29]; Re SAI Global Ltd [2016] FCA 1312 at [18]; Re BIS Finance Pty Ltd [2017] NSWSC 1713 at [22]. 2. As Mr Jackman points out, each of the Plaintiffs is here a Part 5.1 body. Several of them are companies incorporated under the Corporations Act and two of them are registered foreign companies under Part 5B.2 of the Act. I am satisfied that each of the creditors' schemes is a compromise between each of the Plaintiffs and relevant secured and unsecured creditors by which the secured or unsecured claims of those creditors will be compromised in favour of equity in BLY. As Mr Jackman points out, the creditors' schemes explanatory statement contains extensive and detailed disclosures to the creditors the subject of the proposed schemes, and has been verified to ensure that the material contained in it is not misleading (Third Pincus Affidavit [6]-[35]). I am also satisfied that the creditors' schemes are bona fide and properly proposed, where they are part of a wider restructuring of the BLY Group in accordance with the terms of the RSA. ASIC has confirmed that it has had a reasonable opportunity to examine the terms of the creditors' schemes and the creditors' schemes explanatory statement (Ex P1). 3. Having regard to the evidence to which I have referred above, I am satisfied that the proposed creditors' schemes are of such a nature and cast in such terms that, if they receive the statutory majorities at the meeting of members, the Court would be likely to approve them on the hearing of an unopposed application. I have regard to BLY's difficult financial position and the independent expert reports in that regard. The terms of the creditors' schemes, while complex, are sufficiently disclosed in the information to be provided to secured and unsecured creditors. Deal protection measures 1. As is common practice in scheme applications, Mr Jackman draws attention to several particular matters that warrant the Court's attention in exercising the discretion conferred on it by s 411(1) of the Act in respect of the creditors' schemes. First, Mr Jackman notes that cl 4.1 of the RSA imposes a number of restrictions and obligations on BLY in relation to negotiations with third parties, such as "no shop" and "no talk" restrictions, a "notification of approach" obligation and a "matching right". He submits and I accept that exclusivity restrictions in the form of cl 4.1 of the RSA are now commonplace in schemes of arrangement and are not inconsistent with Takeovers Panel Guidance 7: Lock-up devices; Re Villa World Ltd above at [23]. The Court will be concerned to ensure that any exclusivity period should be for no more than a reasonable period capable of precise ascertainment; an exclusivity clause directed at dealing with an unsolicited alternative proposal should be subject to a fiduciary carve out; and the provisions must be clearly disclosed in the explanatory statement sent, in respect of the creditors' schemes, to creditors: Re Arthur Yates & Co Ltd (2001) 36 ACSR 758; [2001] NSWSC 40 at [9]; Re TPG Telecom Limited [2020] NSWSC 772 at [22]. 2. To the extent that these issues arise in respect of the RSA, Mr Jackman submits, and I accept, that the restrictions and obligations under cl 4.1 of the RSA are confined to an "Exclusivity Period" from the Commencement Date (12 May 2021) until the End Date (being the earlier of completion, termination or 31 October 2021), and that is a reasonable period in the circumstances; the "notification of approach" requirement is subject to the BLY board's fiduciary and statutory duties; there is evidence that cl 4.1 was the product of arm's length negotiations between separately advised and represented parties and that BLY's board considered that it was appropriate to agree to that clause taking into account, amongst other things, the significant support for the recapitalisation and redomiciliation by supporting creditors, who together have the largest debt claim against the BLY Group (First Pincus Affidavit [108]-[109]); and the restrictions and obligations in clause 4.1 of the RSA are disclosed in section 5.2 of the creditors' schemes explanatory statement (Ex NRP-1, 3453-3454). Performance risk in respect of the creditors' schemes 1. In Re Ellerston Global Investments Ltd above at [29], I referred to a practice that has developed to address performance risk, by which the transfer of shares in a scheme company to an acquirer is conditional on the payment of the consideration to target shareholders, and I referred to the many cases which have endorsed that practice. Mr Jackman points out that the consideration under each of the creditors' schemes is shares in BLY and the RID provides that the claims of scheme creditors are only released following the issue of BLY shares to the relevant creditor (Ex NRP-1, 4870-4877). 2. Mr Jackman also notes that each of the creditors' schemes imposes obligations on several third parties, who are not parties to the secured creditors' scheme or the unsecured creditors' scheme, including the collateral agents of any security under the relevant facility; the note trustees under the relevant facility; the scheme administrators; and other members of the BLY Group that are guarantors, and these obligations will be supported by deeds poll which will be executed prior to the second Court hearing. Mr Jackman submits, and I accept, that performance risk can be managed by binding a non-party to the scheme to perform its obligations under the scheme by way of deed poll: Re Simavita Holdings [2013] FCA 1274 at [43]. He also notes that the "Obligors Deed Poll" is to be executed by, amongst others, a number of subsidiaries of BLY incorporated in foreign jurisdictions, and it is not presently proposed to lead evidence of due execution of the deed poll by these entities where they are not providing any consideration to the scheme creditors, and so do not give rise to any real performance risk from the scheme creditors' perspective. I have no difficulty with that approach. Classes of scheme creditors 1. Mr Jackman points out that it is proposed that all TLA Purchasers, TLB Purchasers and SSN Noteholders with a secured claim against the Plaintiffs under the Term Loan A, Term Loan B or SSN Indenture Notes will vote together in one class on whether to approve the secured creditors' scheme; and all TLA Purchasers, TLB Purchasers, SSN Noteholders and SUN Noteholders with an unsecured claim against the Plaintiffs under the Term Loan A, Term Loan B, SSN Indenture Notes or SUN Indenture Notes will vote together in one class on whether to approve the unsecured creditors' scheme. 2. Mr Jackman refers to the decision in First Pacific Advisors LLC v Boart Longyear Ltd above at [80] as authority that three questions need to be answered when considering the composition of a class for the purposes of convening a scheme meeting under s 411 of the Act, namely, what are the rights which existing creditors (or members) have against the company and to what extent are they different; to what extent are those rights differently affected by the scheme; and does the difference in rights or different treatment of rights make it impossible for the creditors (or members) in question to consider the scheme as one class? He also points out that, in considering whether there are any differences in rights or different treatment of rights which would make it impossible for creditors to consult together, the context in which the scheme is propounded is important and, where the only alternative to the scheme is an insolvent liquidation, the relevant comparator is their rights as creditors in an insolvent liquidation of the company; First Pacific Advisors LLC v Boart Longyear Ltd above at [81]-[86]. 3. As Mr Jackman also points out, in the 2017 Restructure concerning creditors of several companies within the BLY Group, which arose when the BLY Group was previously in financial difficulty, the Court held that TLA and TLB Purchasers and SSN Noteholders should meet as a single class of creditors for the purpose of the relevant scheme, where insolvent liquidation was the only alternative to the proposed scheme and the differences in the terms of the Term Loan A, Term Loan B and the SSN Indenture Notes would not prevent creditors from consulting with one another; the TLA and the TLB notes were issued by the same entity; BLM is the issuer of the SSN and a guarantor of the TLA and TLB; the issuer of the TLA and TLB Notes is a guarantor of the SSN; several BLY companies are all guarantors of the TLA, TLB and SSN; and security for the amounts secured in relation to the TLA, TLB and SSN are held over common pools of assets. It seems to me that each of these factors support the view that TLA Purchasers, TLB Purchasers and SSN Noteholders with a secured claim against the Plaintiffs under the Term Loan A, Term Loan B or SSN Indenture Notes should also vote together in one class in this scheme. 4. Mr Jackman also points out that the scheme creditors, other than the SUN Noteholders, are all partly secured and partly unsecured in respect of amounts owing under the Term Loan A, Term Loan B and SSN Indenture Notes. He submits and I accept that, having regard to the differences in rights between secured and unsecured creditors and the differences in outcome should the schemes be effectuated, then scheme creditors should vote the secured portion of their debt in the secured creditors' scheme and vote the unsecured portion of their debt in the unsecured creditors' scheme. 5. Mr Jackman recognises that, in respect of the unsecured creditors' scheme, there is arguably a class issue as the SUN Noteholders are subordinated to the unsecured claims of the TLA Purchasers, TLB Purchasers and SSN Noteholders. He submits that, although there may be a difference in rights between the SUN Noteholders and the TLA Purchasers, TLB Purchasers and SSN Noteholders, the Creditors' Scheme IER has expressed the view that all unsecured scheme creditors are likely to receive no return in a Controlled Insolvency Scenario (as defined) or a return of US 0.2 cents in the dollar in an Uncontrolled Insolvency Scenario (as defined) (Ex NRP-1, 3989, 4040). On balance, it seems to me that the difference in rights in respect of the SUN Noteholders is not such as to make it impossible for the unsecured creditors to consider the scheme as one class. Ineligible Persons 1. Mr Jackman also points out that cl 8.1 of each of the creditors' schemes provide a process for dealing with the BLY shares that would otherwise be issued but for the fact that the scheme creditor is an Ineligible Person (as defined) who has not appointed a Designated Recipient (as defined) in accordance with the creditors' scheme to receive the BLY shares (Ex NRP-1, 3590-3591, 3784-3785). In that situation, the BLY shares will be issued to a nominee appointed by BLY which will as soon as reasonably practicable offer such shares for sale and remit to BLY the proceeds of sale after deducting any reasonable brokerage or selling costs, taxes and charges and, after all such shares are sold, BLY must pay to each scheme creditor who is an Ineligible Person (as defined) the proportion of the net proceeds of sale received by BLY from the nominee. Mr Jackman submits, and I accept, that this treatment of scheme creditors who are Ineligible Persons under the creditors' schemes does not constitute a separate class for either of the creditors' schemes meetings: Re Hills Motorway Ltd (2002) 43 ACSR 101 at [9]-[13]; Re TPG Telecom Limited above at [21]. Unidentified scheme creditors and Subordinate Claim Holders 1. Mr Jackman also draws attention to, and I have had regard to, the treatment of unidentified scheme creditors and Subordinate Claim Holders (as defined) under the creditors' schemes. I recognise that the unsecured creditors' scheme releases the claims of Subordinate Claim Holders, except to the extent of the net proceeds of any policy of insurance that responds to the subordinate claim (First Pincus Affidavit [144]). Mr Jackman draws attention to correspondence that BLY has received from a BLY shareholder alleging that that she has suffered a loss on the value of her BLY shares (Ex NRP-1, 4629-4656) and other BLY shareholders may well be in the same position. Having said that, Ms Pincus' evidence is that she is otherwise not aware of any other Subordinate Claims, Subordinate Claim Holders or of any circumstance which might reasonably be expected to give rise to such a claim (and that each member of the BLY board has confirmed that they are not aware of any other Subordinate Claims, Subordinate Claim Holders, or of any circumstance which might reasonably be expected to give rise to such a claim (First Pincus Affidavit [147]). 2. Mr Jackman points out that s 411(5A) of the Act provides that, if a scheme is approved by the Court, the holders of subordinate claims (within the meaning of s 563A(2) of the Act) are bound by the scheme despite the fact that those creditors have not voted on the scheme at a meeting convened under s 411(1) of the Act. Section 563A(2) defines subordinate claim to mean a claim for a debt owed by the company to a person in that person's capacity as a member of the company (whether by way of dividend, profits or otherwise), or any other claim that arises from buying, holding, selling or otherwise dealing with shares in the company. Mr Jackman also submits, and I accept, that the purpose of s 411(5A) of the Act is, inter alia, to ensure that debt for equity reconstructions are not frustrated by the survival of subordinate shareholder claims ranking ahead of the reconstructed equity: Re Atlas Iron Ltd (2016) 112 ACSR 554; [2016] FCA 366 at [41]-[46]. 3. Mr Jackman also recognises that s 600H(1)(b) of the Act provides that a holder of a subordinate claim may be entitled to vote in their capacity as a creditor of the company at a meeting ordered under s 411(1) of the Act, if the Court so orders. In determining whether to exercise its discretion to so order, the Court "might be expected to have regard to whether the person might reasonably be considered to possess a real financial interest in the external administration" of the company: Re Atlas Iron Ltd above at [46]; Re Boart Longyear Ltd (2017) 121 ACSR 328; [2017] NSWSC 567 at [87]. Mr Jackman points to Mr Hill's opinion in the Creditors' Schemes IER that, if the creditors' schemes are not implemented the return to unsecured scheme creditors would be nil in a Controlled Solvency Scenario (assuming a going concern sale of the business in a distressed state) and US 0.2 cents in the dollar in an Uncontrolled Insolvency Scenario (Creditors' Schemes IER, section 8.2). It follows that, where s 563A(1) of the Act postpones the payment of subordinate claims until after all other debts payable by and claims against the company are satisfied, subordinate claim holders would receive no return in a winding up of BLY. 4. On that basis, I accept that the treatment of Subordinate Claim Holders does not provide any reason not to convene the scheme meeting in respect of the unsecured creditors' scheme and that any issues affecting Subordinate Claim Holders in relation to the unsecured creditors' scheme can be deferred to the second Court hearing and addressed in exercising the Court's discretion whether to approve the unsecured creditors' scheme: see Re Atlas Iron Ltd at [50]. Appointment of scheme administrators 1. BLY proposes that the scheme administrators for each of the creditors' schemes are Mr Hill and Mr McGrath of FTI, and I recognise that Mr Hill prepared the Creditors' Schemes IER. Mr Jackman submits and I accept that Mr Hill's proposed future engagement as scheme administrator does not compromise the independence of his report and I note that his proposed engagement has been disclosed in the creditors' schemes explanatory statement. I see no difficulty with that approach: Re Atlas Iron Ltd above at [61]; Re Boart Longyear Ltd (2017) 121 ACSR 328; [2017] NSWSC 567 at [89]. Restraint of further proceedings in any action or other civil proceeding under s 411(16) of the Act 1. The Plaintiffs also seek an order under s 411(16) of the Act, in respect of the creditors' schemes, that all further proceedings in any action or other civil proceeding by or on behalf of any of the scheme creditors or any Subordinate Claim Holder (as defined) against any or all the Plaintiffs (whether directly or indirectly) be restrained except by leave of the Court and subject to such terms as the Court imposes. Mr Jackman points out that such an order restrains any proceedings whether by action or other civil proceeding against the company the subject of the scheme of arrangement, whether or not such action or proceeding has already been commenced, and the purpose of such an order is to promote the orderly and efficient consideration of a scheme of arrangement: Re Glencore Nickel Pty Ltd (2003) 44 ACSR 210; [2003] WASC 18 at [67]; Re Boart Longyear Limited (2017) 318 FLR 226; [2007] NSWSC 537 at [11]. Mr Jackman also points out that, in exercising its discretion under s 411(16) of the Act, the Court would have regard to matters including whether a compromise or arrangement has been proposed between a Part 5.1 body and its creditors or any class of them; the risk that individual steps taken by creditors could give rise to a preference or bring about the frustration of the procedure provided by s 411 to bring about a compromise of creditors' claims against a company, potentially forcing that entity into voluntary administration or into winding up; the degree of creditor support for the proposed scheme of arrangement; and the likely return to creditors under the proposed scheme compared to the return likely to be received under a winding up: Re Boart Longyear Limited (2017) 318 FLR 226; [2017] NSWSC 537 at [12]-[13]. 2. Mr Jackman submits, and I am persuaded that, the Court should make the order sought under s 411(16) of the Act. I am satisfied that the secured creditors' scheme and the unsecured creditors' scheme have been "proposed" within the meaning of s 411(16), and creditors and Subordinate Claims Holders have been aware of the substance of the proposed schemes since at least 13 May 2021, when BLY made an announcement concerning the RSA to ASX, and I note that the draft explanatory statement (which included the draft independent expert report on the creditors' schemes) was submitted to ASIC on 22 June 2021 (Ex NRP-1, 3399-3401). There is plainly substantial creditor support for each of the schemes, where the secured creditors who are parties to the RSA and support the secured creditors' scheme hold 99.8% of the total secured debt that is subject to that scheme (First Pincus Affidavit [103]) and the unsecured creditors who are parties to the RSA and support the unsecured creditors' scheme hold 98.1% of the total secured debt that is subject to that scheme (First Pincus Affidavit [103]). The Creditors' Schemes IER indicates that scheme creditors are likely to receive a better return under the proposed creditors' schemes than in a winding up of BLY and the restraint sought by the Plaintiffs is limited to those creditors who are subject to each of the creditors' schemes. Mr Jackman also submits, and I accept, that, given the high percentage of total debt held by the supporting creditors, any action or proposed action by creditors subject to the creditors' schemes is likely to be for a smaller debt compared to the size of the debt held by supporting creditors, and a smaller debt of a scheme creditor or Subordinate Claim Holder should not be permitted to frustrate or delay the progress of the proposed creditors' schemes or potentially cause BLY to go into external administration. Proposed relief under Chapter 15 of the US Bankruptcy Code 1. Mr Jackman also points out that, under cl 6.1(b) of the RSA, the Plaintiffs are required to seek and they intend to seek recognition of the creditors' schemes and ancillary relief from the United States Bankruptcy Court (First Pincus Affidavit [240]). Mr Jackman submits that the purpose of seeking that recognition is to prevent the scheme creditors and Subordinate Claim Holders, if the creditors' schemes are approved, from commencing proceedings in the United States. As Mr Jackman points out, unless a stay of potential proceedings is ordered in the United States, any stay granted by this Court under s 411(16) of the Act may ultimately be ineffective because proceedings may well be brought in the United States: Re Boart Longyear Limited (2017) 318 FLR 226 at [18]; Re BIS Finance Pty Ltd above. 2. Mr Jackman points out that Ms Pincus was appointed by BLY's board and the board of each of the other Plaintiffs to act as their authorised representative for the purpose of seeking Chapter 15 relief from the US Bankruptcy Court in relation to the creditors' schemes if approved by this Court (First Pincus Affidavit [240]) and that BLY has instructed its US counsel to commence proceedings under Chapter 15 of Title 11 of the United States Code in the United States Bankruptcy Court if this Court approves the creditors' schemes (First Pincus Affidavit [242]). He also submits, and I accept, that articles 1(b) and 25 of the Model Law in Schedule 1 of the Cross-Border Insolvency Act 2008 (Cth) provide the Court with jurisdiction to make an order appointing Ms Pincus as a "foreign representative" of the proceedings for the purposes of making an application to the United States Bankruptcy Court: Re Boart Longyear Limited (2017) 318 FLR 226; [2017] NSWSC 537 at [19]-[20]. Alternatively, as a superior court of general jurisdiction, the Court has an inherent jurisdiction to make such an appointment to give effect to the international regime for cooperation between Australian and foreign courts in relation to Australian insolvency proceedings: Re Boart Longyear Limited (2017) 318 FLR 226; [2017] NSWSC 537 at [23]. I am satisfied that order should be made. Exemption under s 3(a)(10) of the Securities Act 1933 1. If the creditors' schemes are approved by the Court, BLY intends to rely on the Court's approval of each of them for the purpose of qualifying for exemption from the requirements of the Securities Act 1933, US provided for by s 3(a)(10) of that Act in connection with the BLY shares that will be issued pursuant to the creditors' schemes. One of the requirements for the exemption under that section is that BLY, as the issuer of the securities, advises this Court before the hearing that it will rely on the exemption if the Court approves the schemes: Re Permanent Trustee Co Ltd (2002) 43 ACSR 601 at [11]-[20]. I note this matter and Mr Jackman's submission that further consideration of the application of the exemption and the inclusion of a notation on any orders made by this Court approving the schemes will be addressed in submissions at the second Court hearing. The terms of the redomiciliation scheme 1. Mr Jackman points out that the proposed redomiciliation of the BLY Group to Canada will be effected by BLY becoming a wholly owned subsidiary of Boart Longyear Ltd, a newly formed holding company incorporated in Ontario, Canada ("New BLY Parent") (Third Pincus Affidavit [40]-[41]), and the New BLY Parent will apply to be listed on the ASX and BLY will be de-listed from the ASX (First Pincus Affidavit [159]). If the redomiciliation scheme is approved, Eligible Scheme Shareholders (as defined) will be entitled to one share in New BLY Parent in the form of a New BLY Parent CDI for each BLY share held by an Eligible Scheme Shareholder on the Re-domiciliation Scheme Record Date (First Pincus Affidavit [163]; Ex NRP-1, 4839). A Scheme Shareholder cannot elect to receive cash instead of a New BLY Parent CDI (Ex NRP-1, p 4677). New BLY Parent CDIs represent a beneficial interest in one New BLY Parent share, and New BLY Parent CDIs will be traded on the ASX using CHESS and will have the same economic benefits (such as dividends, bonus issues, rights issues) as a New BLY Parent share and substantially the same voting rights (Ex NRP-1, 4676). Ineligible Foreign Shareholders (as defined) are not entitled to receive New BLY Parent CDIs, and the New BLY Parent CDIs that would have been issued to the Ineligible Foreign Shareholder will be transferred to a sale agent who will sell them on the ASX and remit the net proceeds to each Ineligible Foreign Shareholder (after deducting fees, brokerage, taxes and charges) (First Pincus Affidavit [164]; Ex NRP-1, 4839-4840). 2. Subject to the creditors' schemes becoming effective, the redomiciliation scheme being approved by BLY shareholders and shareholder approval, BLY will also undertake a selective buy-back by which BLY will offer scheme shareholders who hold BLY shares worth less than A$3,000 the opportunity to participate in a selective buy-back of their shares (Ex NRP-1, 4913-4915), subject to a maximum aggregate amount that BLY will spend on the Selective Buy-Back (as defined) of US$500,000 (Ex NRP-1, 4914). Mr Jackman points out that the Selective Buy-Back is intended to give those BLY shareholders who hold small parcels of shares the opportunity to offer to sell their shares to BLY, where they will be substantially diluted if the recapitalisation is implemented and, if the redomiciliation proceeds, they may not wish to hold CDIs in a Canadian company (Ex NRP-1, 4677). Shareholders who are eligible to participate in the Selective-Buy Back have the opportunity to offer to sell their shares to BLY at the price of A$2.48 per share which is the same price as the implied issue price of shares under the creditors' schemes (Ex NRP-1, 4677). 3. Mr Jackman also addressed the proposed treatment of options and warrants in respect of the redomiciliation scheme. He notes that the redomiciliation constitutes a "Redomiciling Event" under the existing warrant deed polls and the New Warrant Deed Poll, pursuant to which the holder of the warrant or the New Warrant will receive "Substitute Property" being the New BLY Parent CDIs (First Pincus Affidavit [172]). Under the BLY Options Plans, the BLY board has determined that, if the redomiciliation scheme became effective, the securities to be issued on the exercise of the BLY Options will be New Parent CDIs in substitution for BLY shares (First Pincus Affidavit [173]). It is also a condition precedent to the redomiciliation scheme that, by the time of the second Court hearing in respect the redomiciliation scheme, New BLY Parent has executed an Assumption Deed Poll (First Pincus Affidavit [174]), by which, subject to the redomiciliation scheme becoming effective, it covenants in favour of the holders of each of the warrants to perform the obligations of BLY under the existing warrant deeds poll and the New Warrant Deed Poll and also covenants in favour of the holders of BLY Options to perform the obligations of BLY under the BLY Options Plans (First Pincus Affidavit [175]). If the creditors' schemes are approved and implemented, but the redomiciliation scheme is not approved and implemented, the BLY options and existing warrants will remain on issue, subject to dilution, and the New Warrants that will be issued by BLY under the unsecured creditors' scheme will also remain on issue (First Pincus Affidavit [176]). 4. I have also had regard to the evidence and Mr Jackman's submissions as to the despatch of the redomiciliation scheme materials, in electronic form or hard copy in accordance with common practice. Applicable principles in respect of the redomicilation scheme 1. I have referred to the applicable principles in respect of determining whether to convene a meeting as to the redomiciliation scheme above. The evidence establishes that BLY is a Part 5.1 body and I am satisfied that the redomiciliation scheme is an arrangement between BLY and its members by which BLY proposes to provide BLY shareholders a New BLY Parent share held in the form of a New BLY Parent CDI in exchange for their BLY shares. The redomiciliation scheme explanatory statement also contains extensive and detailed disclosures to BLY shareholders and has been verified to ensure that the material contained in it is not misleading (Third Pincus Affidavit [6]-[35]). I am also satisfied that the redomiciliation scheme is bona fide and properly proposed, where it is part of the wider restructuring of the BLY Group in accordance with the terms of the RSA, and ASIC has confirmed that it had a reasonable opportunity to examine the terms of the redomiciliation scheme and the redomiciliation scheme explanatory statement. I accept that the redomiciliation scheme is such that, if it receives the requisite statutory majorities at the redomiciliation scheme meeting, the Court would likely approve it on the hearing of a petition which is unopposed. Particular matters in respect of the redomiciliation scheme 1. Mr Jackman also draws attention to several particular matters that warrant the Court's attention in exercising the discretion conferred on it by s 411(1) of the Act in respect of the redomiciliation scheme. Mr Jackman points out that, if the redomiciliation scheme is approved, cl 3.2 of the redomiciliation scheme (Ex NRP-1, 4839) provides that the obligation of New BLY Parent to provide the redomiciliation scheme consideration to scheme shareholders will be discharged by New BLY Parent issuing one New BLY Parent share for each BLY share to the "Authorised Nominee", CHESS Depository Nominees Pty Limited; in the case of scheme shareholders who are not Ineligible Foreign Shareholders (as defined), issuing or causing the issue to each such scheme shareholder of one New BLY Parent CDI for each scheme share to be transferred to New BLY Parent by or on behalf of that scheme shareholder; or, in the case of Ineligible Foreign Shareholders, issuing or causing the issue to the sale agent of one New BLY Parent CDI for each scheme share to be transferred to New BLY Parent by or on behalf of that Ineligible Foreign Shareholder. Mr Jackman points out and I accept that the obligations of New BLY Parent are supported by the Scheme Deed Poll which will be executed prior to the second Court hearing (Ex NRP-1, 4855). 2. Mr Jackman submits, and I accept, that shareholders who are Ineligible Foreign Shareholders (as defined) do not constitute a separate class for the purpose of the redomiciliation scheme meeting: Re Hills Motorways Ltd above at [9]-[13]; Re TPG Telecom Ltd above at [21]. He also recognises that creditors who are not BLY shareholders on the Redomiciliation Scheme Voting Entitlement Record Date (as defined) are not entitled to vote on the redomiciliation scheme. He submits, and I accept, that no difficulty arises from that matter where, as the Redomiciliation IER indicates, a BLY shareholder will hold the same proportional economic interest in the assets of the BLY Group after the redomiciliation as they did after Primary Recapitalisation Transaction and will have similar rights and entitlements as a holder of a New BLY Parent CDI as they previously had as a BLY shareholder (Section 4; Ex NRP-1, 4781). Mr Jackman also points out that cl 6.3 of the RSA deals with the proposed redomiciliation of BLY as a step in the restructure of the BLY Group, and the Court can readily infer that the parties to the RSA who do not already hold BLY shares would know of and support the redomiciliation on that basis. The proposed redomiciliation scheme was also disclosed in the ASX announcement made on 13 May 2021 concerning the RSA and in section 7 of the creditors' schemes explanatory statement (Ex NRP-1, 3468-3472). Orders 1. In proceedings 2021/209335, concerning the creditors' schemes, the Plaintiffs sought and I made an order excluding the application of rr 75-10 to 75-155 of the Insolvency Practice Rules (Corporations) 2016 (Cth), other than specified provisions in accordance with common practice as to scheme meetings: Re The Trust Company Limited [2013] NSWSC 1680 at [21]; Re Watpac Limited [2018] FCA 656 at [33]. I also accept the Plaintiffs' submission that r 75-100(4) of the Insolvency Practice Rules (Corporations) should be modified to require any appeal by a scheme creditor against a decision of the chairperson to admit or reject a TLA Proof of Debt Form, TLB Proof of Debt Form, SSN Account Holder Letter or SUN Account Holder Letter (as applicable) to be made within 48 hours with the appeal to be heard concurrently with the second Court hearing. I also made an order varying the form of notice of advertisement of the second Court hearing prescribed by r 3.4 of the Supreme Court (Corporations) Rules 1995 (NSW) to permit that advertisement to be published prior to the date of the scheme meeting. 2. I note that order 6 in proceedings 2021/209360, in respect of the redomiciliation scheme, provides for specified methods of dispatch of the redomiciliation scheme explanatory statement to BLY shareholders, order 9 largely excludes the operation of r 2.15 of the Supreme Court (Corporations) Rules and order 11 dispenses with compliance with r 3.4 of the Supreme Court (Corporations) Rules in relation to the time at which the advertisement of the second Court hearing will be published. 3. For the reasons set out above, I made the orders sought by BLY and the other Plaintiffs at the conclusion of the first Court hearing on 29 July 2021. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 13 August 2021