Supreme Court New South Wales Medium Neutral Citation: In the matter of Australian Leisure and Entertainment Property Management Limited [2021] NSWSC 1710 Hearing dates: 7 December 2021 Date of orders: 7 December 2021 Decision date: 29 December 2021 Jurisdiction: Equity - Corporations List Before: Black J Decision: Plaintiffs would be justified in giving effect to and implementing proposals and giving effect to consequential constitutional amendments. Catchwords: CORPORATIONS – Arrangements and reconstructions – Schemes of arrangement or compromise – Application under s 411 of the Corporations Act 2001 (Cth) for orders approving scheme of arrangement – Where formal requirements satisfied – Whether scheme of arrangement should be approved. CORPORATIONS – Arrangements and reconstructions – Application under s 63 of the Trustee Act 1925 (NSW) for judicial advice with respect to the implementation of trust scheme Legislation Cited: - Corporations Act 2001 (Cth), ss 411, 601GC - Trustee Act 1925 (NSW), s 63 Cases Cited: - Re Atlas Iron Ltd (No 2) [2016] FCA 481 - Re Australian Leisure and Entertainment Property Management Ltd [2021] NSWSC 1421 - Re Aveo Group Ltd [2019] NSWSC 1679 - Re Central Pacific Minerals NL [2002] FCA 239 - Re Commonwealth Managed Investments Ltd [2014] NSWSC 244 - Re Cromwell Property Securities Ltd [2006] NSWSC 1449 - Re Equinox Resources Ltd (2004) 49 ACSR 692; [2004] WASC 143 - Re Macquarie Goodman Funds Management Ltd (2004) 52 ACSR 194; [2004] NSWSC 1197 - Re Mirvac Ltd (1999) 32 ACSR 107; [1999] NSWSC 457 - Re NRMA Ltd (No 2) (2000) 156 FLR 412; [2000] NSWSC 408 - Re Redcape Property Fund Ltd and Trust Company (RE Services) Ltd (as the responsible entity for the Redcape Property Trust) [2012] NSWSC 486 - Re Seven Network Ltd (2010) 267 ALR 583; 77 ACSR 701; [2010] FCA 400 - Re Toll Holdings Ltd (No 2) [2015] VSC 236 Category: Principal judgment Parties: Australian Leisure and Entertainment Property Management Limited (Plaintiff) Representation: Counsel: J Williams SC (Plaintiff) M Izzo SC (Acquirer) Solicitors: Allens (Plaintiff) Arnold Bloch Leibler (Acquirer) File Number(s): 2021/293217 Judgment 1. By Originating Process filed on 14 October 2021, Australian Leisure and Entertainment Property Management Ltd ("ALE") sought orders under s 411 of the Corporations Act 2001 (Cth) in respect of a company scheme of arrangement and also sought the Court's opinion, advice and direction under s 63 of the Trustee Act 1925 (NSW) in relation to a trust scheme concerning the Australian Leisure and Entertainment Property Trust ("ALE Trust"). By way of background, the ALE Property Group is listed on Australian Securities Exchange ("ASX") and, under the terms of the constitutions of ALE and the ALE Trust, each share in ALE is stapled to a unit in the ALE Trust, and vice versa, to form ALE stapled securities which are quoted and traded on ASX. The ALE Property Group owns a portfolio of 78 freehold hotel properties across the five mainland states of Australia valued at approximately $1.2 billion as at 30 June 2021. All the properties are leased to a third party, Australian Leisure and Hospitality Group Pty Limited, a wholly owned subsidiary of Endeavour Group Limited. The company scheme and trust scheme would together bring about the acquisition of ALE Property Group by a consortium comprising Charter Hall Long WALE REIT ("CLW") and Host-Plus Pty Limited as trustee for the Hostplus Pooled Superannuation Trust ("Hostplus"). 2. On 28 October 2021, I made orders convening scheme meetings and approving a scheme booklet for distribution to shareholders, and gave judicial advice, in respect of a company scheme and trust scheme concerning Australian Leisure and Entertainment Property Management Ltd, for the reasons set out in my judgment delivered on 4 November 2021 (Re Australian Leisure and Entertainment Property Management Ltd [2021] NSWSC 1421). 3. The scheme meetings were then held on 2 December 2021 and ALE securityholders approved the company scheme by a majority in number present and voting and by more than 75% of the votes cast. Approximately 96.74% of shares by value, and approximately 83.95% of ALE securityholders by number present and voting, voted in favour of the company scheme. Three resolutions put to the trust scheme meeting to give effect to the trust scheme were passed by ALE securityholders, with approximately 96.8% of votes cast in favour of each resolution. No ALE securityholder or other person indicated an intention to appear at the second Court hearing on 7 December 2021 or appeared at that hearing to object to the company scheme or the trust scheme. 4. At a second Court hearing on 7 December 2021, I made further orders approving the company scheme and associated orders and gave the further opinion, advice and direction of the Court, under s 63 of the Trustee Act, that ALE was justified in taking certain steps to implement the trust scheme. These are my reasons for doing so. I have drawn on the helpful submissions of Mr Williams, who appears for ALE in the schemes in respect of this judgment. Affidavit evidence 1. At the second Court hearing, ALE relied on the affidavit dated 2 December 2021 of Mr Robert Mactier, who is the chairman and non-executive director of ALE, who addressed the conduct of the scheme meetings and noted that no questions had been raised at those meetings. He indicated the results of voting in respect of the relevant resolutions, all of which achieved the necessary statutory thresholds. His affidavit exhibited, inter alia, a poll report as to the result of voting at the meetings. 2. ALE also relied on the affidavit dated 6 December 2021 of Mr Guy Farrands, who is its managing director. Mr Farrands noted that a permitted distribution, which could have been paid had there been a delay in the implementation of the scheme, will not be made where there was no such delay. Mr Farrands also addressed the outcome of elections in respect of the mix of scheme consideration, as the position stood at the second Court hearing, while recognising that there may be additional developments if new securityholders come onto the register after that date. Mr Farrands also addressed the steps which had been taken in preparation for payment of the scheme consideration. 3. By her affidavit dated 6 December 2021, Ms Kirsten O'Hara, who is a client relationship manager with Link Market Services Ltd in turn addressed the dispatch of scheme materials to securityholders, the dispatch of a "reminder to vote" email, the additional dispatch of scheme materials to new ALE securityholders, the receipt of election forms in respect of the scheme consideration, voting and proxy forms receipted for the scheme meetings and the conduct of the scheme meetings. She also led evidence as to the poll reports recording the outcome of voting at those meetings, and noted that the participation rate by number of ALE securities on issue at those meetings was consistent with participation rates at ALE's annual general meetings, being between 48 and 51% approximately, although the number of ALE securityholders voting at annual general meetings had not been recorded so as to provide a comparative figure. 4. By his affidavit dated 6 December 2021, Mr Vijay Cugati, who is a partner in the firm of solicitors acting for ALE in respect of the schemes, addressed registration of the scheme booklet with the Australian Securities and Investments Commission ("ASIC"), the dispatch of the "reminder to vote" email and noted that no notice had been received that any securityholder would attend the second Court hearing in order to oppose the orders sought in respect of the schemes. No securityholder attended that hearing or opposed such approval. ALE also tendered certificates relating to the satisfaction of conditions precedent in respect of the scheme and a letter dated 7 December 2021 from ASIC to ALE, which advised that ASIC had no objection to the proposed company scheme of arrangement for the purposes of s 411(17)(b) of the Corporations Act. The applicable principles and determination in respect of approval of the ALE company scheme 1. Section 411(4) of the Corporations Act provides that an arrangement is binding if, at a meeting of scheme shareholders, it is passed by a majority of scheme shareholders present and voting (in person or by proxy) and by 75% of votes cast and it is approved by order of the Court. At the second Court hearing, the Court will first determine whether the procedural requirements in respect of the scheme have been satisfied and then exercise its discretion as to whether or not to approve the scheme: Re Central Pacific Minerals NL [2002] FCA 239 at [12]; Re Redcape Property Fund Ltd and Trust Company (RE Services) Ltd (as the responsible entity for the Redcape Property Trust) [2012] NSWSC 486 at [7]; Re Aveo Group Ltd [2019] NSWSC 1679 at [15]. The Court is not bound to approve a scheme merely because it has previously made orders for the convening of meetings and the statutory majorities have been achieved and will have due regard to members' assessment of their interests as manifested in the voting at the scheme meeting, and will recognise that shareholders are generally "the best judges of whether an arrangement is to their commercial advantage", and will therefore "be reluctant to make decisions contrary to the views of security holders expressed at meetings": Re NRMA Ltd (No 2) (2000) 156 FLR 412; [2000] NSWSC 408 at [22]; Re Seven Network Ltd (2010) 267 ALR 583; 77 ACSR 701; [2010] FCA 400 at [31]; Re Atlas Iron Ltd (No 2) [2016] FCA 481 at [5]. 2. In the exercise of its discretion, the Court will generally have regard to whether scheme members have voted in good faith and not for an improper purpose; whether the proposal is fair and reasonable so that an intelligent and honest person who was a member of the relevant class, properly informed and acting alone might approve it; whether the plaintiff has brought to the attention of the Court all matters that could be considered relevant to the exercise of the Court's discretion; whether there has been full and fair disclosure of all information material to the decision; whether minority shareholders would be oppressed by the scheme; whether the scheme offends public policy; and whether the interests of other groups who are not parties to, but are affected by, the scheme are dealt with appropriately: Re Seven Network Limited above at [35]-[40]; Re Aveo Group above at [15]. 3. I am satisfied that the statutory and procedural requirements for the ALE company scheme under s 411 of the Act have been satisfied. There is no reason to think that ALE has not complied with the disclosure requirements in s 412 of the Act in respect of the explanatory statement for the company scheme. In accordance with s 411(4)(a)(ii) of the Act, the resolutions in respect of the company scheme were passed by a majority in number of members present and voting (either in person or by proxy) at the scheme meeting and by more than 75% of the votes cast on the resolution. 4. I noted securityholders' right of election between cash consideration and CLW securities, subject to scaleback arrangements, in my earlier judgment. Those elections have now been made by securityholders and ALE made an announcement to ASX on 25 November 2021 of the results of the election process, including the indicative scaleback arrangements. It appears that, based on the elections at that point, the maximum amount of scrip consideration available exceeds the "Total Scrip Election Amount" (as defined in the Scheme Booklet) and the scaleback arrangements will not apply in relation to the Maximum Scrip Consideration and the scaleback arrangements will apply in relation to the maximum cash consideration. ALE proposed to make a further announcement to ASX on 14 December 2021 confirming the final scaleback arrangement based on the elections that were still valid at the Scheme Record Date (as defined). These matters do not give rise to any reason not to approve the company scheme or give the judicial advice sought in respect of the trust scheme. 5. There is no reason to doubt that the company scheme is fair and reasonable in that an intelligent and honest person who was a member of the relevant class, properly informed and acting alone, might approve it, given shareholders' support for the scheme resolution; the directors' recommendation that shareholders vote in favour of the scheme for the reasons given in the scheme booklet; the independent expert's opinion that the company scheme and trust scheme are in the best interests of ALE securityholders, in the absence of a superior proposal; and the disclosures in the scheme booklet of the potential benefits and disadvantages of the schemes. I referred above to the tender of conditions precedent certificates and a letter from ASIC has been tendered indicating that it has no objection to the scheme under s 411(17)(b) of the Act. There is no reason to think that any other necessary matters have not been brought to the Court's attention. 6. I am satisfied that the Court should also make an order exempting ALE from compliance with s 411(11) of the Act, where the scheme will not modify any rights of shareholders or of creditors or of persons dealing with ALE: Re Equinox Resources Ltd (2004) 49 ACSR 692; [2004] WASC 143 at [22]; Re Toll Holdings Ltd (No 2) [2015] VSC 236 at [18]–[19]. 7. For these reasons, I made the orders sought by ALE in respect of the company scheme at the second Court hearing. Judicial advice in respect of the trust scheme 1. The role of the Court in granting judicial advice at the second Court hearing is of a similar nature to that in schemes under Part 5.1 of the Corporations Act. An application for judicial advice that the responsible entity is justified in giving effect to and implementing a restructuring approved by unitholders can be brought before the Court once unitholders' views, expressed through voting at the relevant meeting or meetings, is known and any unitholder who wishes to appear to oppose the application is given an opportunity to do so: Re Mirvac Ltd (1999) 32 ACSR 107; [1999] NSWSC 457 at [48]; Re Macquarie Goodman Funds Management Ltd (2004) 52 ACSR 194; [2004] NSWSC 1197 at [10]. At the second hearing, the Court will consider whether the procedural requirements for the obtaining of the unitholders' approval have been satisfied, and the Court then gives considerable weight to the level of support for the proposed transaction, and to whether any person appears at the second Court hearing to express any opposition to it: Re Cromwell Property Securities Ltd [2006] NSWSC 1449 at [23]; Re Commonwealth Managed Investments Ltd [2014] NSWSC 244 at [3]. 2. ALE seeks orders pursuant to s 63 of the Trustee Act to the effect that it would be justified in giving effect to and implementing the transactions contemplated by the resolutions passed by unitholders at the trust scheme meeting. Mr Williams submits that ALE has made out a case for the giving of judicial advice to the effect that it is justified in implementing the trust scheme in accordance with the resolutions passed by ALE securityholders at the trust scheme meeting. There is nothing to suggest that those resolutions should not be given effect or that ALE in its capacity as responsible entity of the trust would not otherwise be justified in giving effect to those resolutions and the proposed transaction. For these reasons, I was also satisfied that I should give the judicial advice sought by ALE as responsible entity of the trust and I also made orders to that effect at the second Court hearing. ********** 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: 29 December 2021