New South Wales Supreme Court CITATION : In the matter of Macquarie Capital Alliance Ltd & anor [2008] NSWSC 745 HEARING DATE(S) : 16 and 17 July 2008 JUDGMENT DATE : 22 July 2008 JURISDICTION : Equity JUDGMENT OF : Austin J DECISION : Orders made for convening scheme meeting and providing judicial advice to the trustee CATCHWORDS : CORPORATIONS - scheme of arrangement - TRUSTS - judicial advice - proposal for interlinked scheme of arrangement and amendment of managed investment scheme constitution so that "stapled securities" would be acquired for cash or new stapled securities - applications for orders under Corporations Act, s 411(1) and for judicial advice under Trustee Act 1925, s 63 - Macquarie Capital interested as investor and manager in existing structure and proposed new ownership structure - concurrent scheme for Bermudan company - part of consideration from trust distribution - arrangements for meetings of shareholders and unitholders - credit or performance risk - no-shop and reimbursement fee provisions LEGISLATION CITED : Corporations Act, s 411 Trustee Act 1925 (NSW), s 63 FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 Furs Ltd v Tomkies (1936) 54 CLR 583 Macquarie Private Capital A Ltd [2008] NSWSC 323 Mincom Ltd v EAM Software Finance Pty Ltd (2007) 61 ACSR 266 CASES CITED : Orion Telecommunications Ltd [2007] FCA 1389 Re APN News & Media Ltd (2007) 62 ACSR 400 Re Bolnisi Gold NL (No 2) (2007) 65 ACSR 510 Re Mirvac Ltd (1999) 32 ACSR 107 Re Permanent Trustee Company Ltd (2002) 43 ACSR 601 Re Tempo Services Ltd (2005) 53 ACSR 526 Macquarie Capital Alliance Ltd (P1) PARTIES : Macquarie Capital Alliance Management Ltd as the Responsible Entity for Macquarie Capital Alliance Trust (P2) Macquarie Advanced Investment Company Pty Ltd (by leave) FILE NUMBER(S) : SC 3597/08 COUNSEL : M Oakes SC (P1 & P2) T Bathurst QC (Macquarie Advanced Investment Company Pty Ltd) SOLICITORS : Minter Ellison (P1 & P2) Allens Arthur Robinson (Macquarie Advanced Investment Company Pty Ltd IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST AUSTIN J TUESDAY 22 JULY 2008 3597/08 IN THE MATTER OF MACQUARIE CAPITAL ALLIANCE LTD AND MACQUARIE CAPITAL ALLIANCE MANAGEMENT LTD JUDGMENT 1 HIS HONOUR: The plaintiffs have made an application for orders under s 411(1) of the Corporations Act 2001 (Cth) for the convening of a meeting of shareholders to consider a proposed members' scheme of arrangement, and for orders in respect of a proposal for a "trust scheme". I heard the application on 16 and 17 July 2008, and made the orders sought. I now set out my reasons for judgment. 2 Macquarie Capital Alliance Group (MCAG) is the name used to identify a triple stapled security structure quoted for trading on the Australian Stock Exchange. The stapled securities are made up of shares in Macquarie Capital Alliance Ltd (MCAL), an Australian public company, shares in Macquarie Capital Alliance International Ltd (MCAIL), a company registered in Bermuda, and units in the Macquarie Capital Alliance Trust (MCAT), an Australian registered managed investment scheme. The responsible entity of MCAT is Macquarie Capital Alliance Management Ltd (MCAML), a wholly owned subsidiary of Macquarie Group Ltd (MQG), which is a listed Australian public company. 3 MCAG is, in effect, a listed private equity fund, established to provide investors with an opportunity to co-invest with Macquarie Capital and Macquarie Capital clients. Macquarie Capital is an operating group within the Macquarie Group. 4 The proceeding before me relates to the proposed sale of MCAG, by schemes of arrangement and a trust scheme, which will take the fund private. The buyers will be a consortium ("the Consortium") comprising investment vehicles managed by seven international investors ("the New Investors"), and Macquarie Capital, and in addition, existing MCAG securityholders will have a qualified opportunity (explained below) to take a minority position. Macquarie Group entities will perform the management function. 5 It is necessary to set out the proposed ownership structure in more specific terms, because an issue has arisen about related party transactions, addressed later. The proposed ownership structure will be as follows: (i) the shares in MCAL will be wholly owned by Macquarie Advanced Investment Company Pty Ltd (MAIC), referred to in the draft Scheme Booklet as the Bidder; (ii) MAIC will be wholly owned by a Bermuda mutual fund company called Macquarie Advanced Investment Ltd (MAIL), the manager of which will be Macquarie International Advisory Services Pty Ltd (MIASPL), a wholly owned subsidiary in the Macquarie Group; (iii) the shares in MCAIL will be acquired by MAIC as nominee for a Bermuda mutual fund company called Macquarie Advanced Investment International Ltd (MAIIL), the adviser to which will be Macquarie Advanced Investment Partners GP Ltd (MAIPGPL), a wholly owned subsidiary in the Macquarie Group; (iv) the units in MCAT will be acquired by MAIC as nominee for Macquarie Advanced Investment Trust (MAIT), a registered managed investment scheme under the Corporations Act, the responsible entity of which will eventually be Macquarie Advanced Investment Management Ltd (MAIML), a wholly owned subsidiary in the Macquarie Group; (v) the shares in MAIL, the shares in MAIIL, and the units in MAIT will be stapled and the stapled security structure will be known as Macquarie Advanced Investment Group (MAIG); (vi) Macquarie Capital (through a wholly-owned Macquarie Group subsidiary) will hold 0.2% of the MAIG securities; (vii) up to 99.8% of the MAIG securities will be held by MAIP International Holdings Ltd (MAIPIHL), through a subsidiary; (viii) as explained below, MAIG securities will be offered to existing MCAG securityholders as an alternative to cash, subject to limits one of which is that the total holding of MAIG securities by former MCAG securityholders is not to exceed 20%; (ix) to the extent that the former MCAG securityholders opt for MAIG securities rather than cash, MAIPIHL's percentage interest in MAIG securities will be reduced to less than 99.8%; (x) assuming zero participation in the scrip alternative, the New Investors will have an indirect interest in 74.7% of MAIPIHL (and hence about 74.6% of the MAIG securities), but these figures will be adjusted if the scrip alternative is taken up; (xi) the New Investors' interest will be held through a limited partnership called Macquarie Advanced Investment Partners LP, the general partner and manager of which will be MAIPGPL; (xii) assuming zero participation in the scrip alternative, Macquarie Capital will hold 25.3% of MAIPIHL (and hence an indirect interest in up to about 25.2% of the MAIG securities), in addition to a direct holding of 0.2% of the MAIG securities, as mentioned above, but Macquarie Capital's interest in MAIPIHL and its indirect interest in MAIG securities will be adjusted if the scrip alternative is taken up. 6 The draft Scheme Booklet contains a substantial section (section 7) dealing with the MAIG fee structure, and comparing it with the MCAG fee structure. 7 The cash consideration for the proposed acquisition values MCAG at approximately $836.3 million. The current investments of MCAG are: · a 39% interest in European Directories SA, a geographically diversified directory group in Europe; · a 65% interest in Red Bee Media, a European business specialising in the delivery and promotion of digital media; · a 60% interest in Air-serv, which owns and operates tyre inflation, jet wash and vacuum vending machines in the US, Canada, the UK and continental Europe; and · a 46% interest in Regis Group, a private aged-care operator in Australia. 8 MCAG's investments are subject to various rights under shareholder and funding agreements, which are triggered by such events as a change of control of MCAG or its manager or cessation of involvement by a Macquarie Group manager. According to the draft Scheme Booklet, the continuing involvement of Macquarie Capital as investor and manager means that the shareholder and lender rights concerning MCAG's investment interests will not be triggered if the proposal is implemented. 9 The proposed acquisition of the MCAG securities is to be implemented by three interdependent schemes. Before this Court are: (a) a scheme of arrangement under s 411 of the Corporations Act between MCAL and its members; and (b) a "trust scheme" in relation to MCAT, in which MCAML as responsible entity of MCAT seeks judicial advice under s 63 of the Trustee Act 1925 (NSW) in relation to proposed amendments to the constitution of MCAT. 10 Concurrently, a scheme of arrangement between MCAIL and its members is proposed under the Companies Act of Bermuda. An application has been made to the Supreme Court of Bermuda, which made orders on 15 July 2008 for the convening of a meeting of the members of that company, to be held in Sydney in conjunction with the other proposed meetings. 11 Under the proposal, by force of the schemes and associated implementation steps: (a) MCAG securityholders will transfer their securities to MAIC, and hence to the ownership structure described above; (b) MCAG stapled securities will cease to be quoted on the ASX; (c) MCAG securityholders will receive, for each MCAG stapled security, either wholly cash consideration of $3.40 per security or a wholly scrip alternative, at the election of the securityholders (that is, no "mix and match" option); (d) the scheme consideration will be apportioned across MCAL shares, MCAIL shares and MCAT units by allocating a specific amount in dollars and cents to each; (e) MCAG securityholders who opt for the scrip alternative will receive one MAIG security for each MCAG security; (f) securityholders who do not make an election will be deemed to have elected the cash offer; (g) Macquarie Capital, which holds approximately 18% of the MCAG securities, will elect the cash consideration; (h) some overseas securityholders will be ineligible for the scrip alternative, in the usual manner; (i) MCAT will make a capital distribution pro rata to all its unitholders, which will provide up to $0.40 per security of the cash consideration for MCAG securityholders who opt for cash; (j) the remainder of the cash consideration will come from the Bidder, MAIC, and will be provided indirectly by the New Investors and Macquarie Capital; (k) for securityholders who choose the scrip alternative, the capital distribution that they would otherwise have received in cash will instead be held in a separate trust account called the "Escrow Account", to be used at the discretion of MAIG for working capital and any follow-on investments in existing assets; (l) the New Investors and Macquarie Capital have committed additional capital ("the Additional Amount") for follow-up investments and working capital for MAIG; (m) when capital calls are made on the New Investors and Macquarie Capital in respect of the Additional Amount, equivalent capital calls can be made on the escrow amounts of other MAIG securityholders so that the proportionate capital contributions are maintained until funds in the Escrow Account have been fully depleted; (n) the scrip alternative will not be available unless MCAG securityholders representing 5% of those securities opt for scrip; (o) if those opting for scrip represent more than 20%, scrip will be scaled back on a pro-rata basis so that no more than 20% of MAIG's issued capital will be held by former MCAG securityholders. 12 Investors who will opt for the cash consideration will wish to focus on the question whether the scheme consideration is adequate. The Scheme Booklet discloses that the $3.40 price is substantially less than the directors' valuation of $4.28 as at 31 December 2007. On the other hand it is substantially higher than the trading price of the MCAG securities on 13 June 2008, where the closing price was $2.10. There is disclosure of recent business developments concerning the MCAG investments in section 3 of the draft Scheme Booklet. 13 The draft Scheme Booklet goes to some lengths to disclose potential disadvantages of the scrip alternative. Because of the 5% minimum take-up requirement, the scrip alternative may not eventuate. If it does, MAIG securities will be unquoted and illiquid and part of a minority position, vis-a-vis the Consortium. MAIG may make future capital calls, which may dilute the proportionate interest of securityholders who elect the scrip alternative, relative to the Consortium, if they do not participate or are not invited to participate. There will be a different management fee structure compared with the listed MCAG, and under that fee structure if the MAIT responsible entity is removed and not replaced by another Macquarie Group entity, management fees will continue to be payable. There will also be a different regulatory regime, as both of the corporate entities issuing the shares that will be part of the stapled securities will be registered in Bermuda, although the unit trust will be a registered managed investment scheme regulated under the Corporations Act. The independent expert who has reported on the proposal, Deloitte Corporate Finance Pty Ltd ("Deloitte"), has concluded, after considering these matters, that a value discount of not less than 30% is likely to apply to a MAIG security. 14 It is intended that over time, MCAG's assets will be sold by MAIG and any available proceeds will be returned to MAIG securityholders. MAIG is unlikely to make new investments, other than follow-on investments in existing assets. 15 Macquarie Capital currently owns 28.3% of the Red Bee Media assets, and will transfer that holding to MAIPIHL, conditionally on the schemes becoming effective. The consideration for that transfer, together with the cash proceeds of Macquarie Capital's transfer of MCAG securities under the schemes, will be applied by Macquarie Capital to its investment in MAIPIHL. Macquarie Capital has committed to MAIPIHL total capital of USD236 million. The Consortium has agreed to invest in Macquarie Global Opportunities Partners (MGOP), an existing unlisted private equity fund managed by Macquarie Capital, and has committed total capital of USD808 million to its investments in MAIP and MGOP. It has entered into a subscription agreement to subscribe for interests in MAIP and provide capital commitments at call by MAIPGPL. The Australian schemes 16 The Court's task at the first hearing of an application under s 411 is to apply the approach enunciated by Street CJ (with whom Hutley and Samuels JJA agreed) in FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69, where his Honour said (at 72) 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 receives the statutory majority at the … meeting the court would be likely to approve it on the hearing of a petition which is unopposed". The Court performs its task by reviewing the scheme documents carefully and raising any queries with counsel (in this case senior counsel) for the plaintiff company. In the present case I was also aided by an appearance, with leave, by senior counsel for the Bidder, MAIC. 17 Typically the first hearing is an ex parte application by the plaintiff company. As Barrett J remarked in Re Permanent Trustee Company Ltd (2002) 43 ACSR 601 at [7], "an applicant in this kind of situation, like an applicant ex parte for an injunction, carries the responsibility of bringing to the court's attention all matters that could be considered relevant to the exercise of discretion." The fact that in the present case there was an appearance on behalf of the Bidder does not detract from the force of that observation. The Bidder typically does not, and did not in this case, appear in the role of a contradictor. Contradiction, if it occurs, comes principally from either dissenting members or the regulator, neither of whom is likely to seek to appear at the first hearing. 18 Considered in isolation, the scheme of arrangement between MCAL and its members is a reasonably straightforward transfer scheme to the transferee, MAIC, for the scheme consideration, under s 411 of the Corporations Act. But there are some issues to be addressed arising principally out of its interdependency with the Bermudan scheme and the trust scheme, and the complex ownership structure behind MAIC involving "related party" considerations. 19 The trust scheme also takes a form that has become relatively common, since this Court's decision in Re Mirvac Ltd (1999) 32 ACSR 107. MCAML, the second plaintiff, is the responsible entity for the MCAT managed investment scheme, and by s 601FC(2) of the Corporations Act it holds the property of the scheme on trust for the scheme members. According to the Mirvac decision, Court has jurisdiction to give judicial advice to MCAML under the Trustee Act 1925 (NSW). Under s 601GC, the constitution of a registered scheme may be modified by special resolution of the members, or by the responsible entity if the responsible entity reasonably considers the change will not adversely affect the members' rights. 20 Two resolutions will be put to the MCAT unitholders. One is an amendment resolution, by which the unitholders will be invited to approve, by special resolution, amendments to the MCAT Constitution, to authorise all actions necessary or desirable for the transfer of the MCAT units to MAIC as nominee for MAIT. The proposed amendments are set out in a Supplemental Deed annexed to the draft Scheme Booklet and tendered on the application. The amendments purport to take effect under clause 24 of the Trust Deed and s 601GC(1)(a), which confers ample power of amendment. 21 The need for the second resolution arises because MCAT is a listed managed investment scheme, to which Chapter 6 of the Corporations Act applies by virtue of s 604. Item 7 of s 611 permits the acquisition of a relevant interest in issued units of a listed trust if the acquisition will take the acquirer above the 20% of voting power set by s 606. Item 7 requires that the acquisition be approved by resolution passed at a general meeting of the members of the scheme, with certain voting restrictions and disclosure requirements. Consequently, MCAT unitholders will be invited to approve the acquisition by MAIT of all the MCAT units pursuant to an ordinary resolution, for the purposes of item 7. 22 Additionally, MCAML as responsible entity and trustee of the trust scheme obtained judicial advice at the first hearing that it is justified in convening a meeting of the members of the scheme to consider the proposed resolutions, and in proceeding on the basis that the making of the amendments to the constitution of the scheme in the manner proposed in the draft Supplemental Deed, following approval by special resolution of the members of the scheme, would be within the powers of alteration contained in the constitution and s 601GC. 23 If the resolutions are passed by the requisite majorities, MCAML will apply for further judicial advice to the effect that it is justified in acting upon the amendment resolution and the acquisition resolution and in doing all things and taking all necessary steps to implement the trust scheme. 24 The combination here of schemes of arrangement and a trust scheme has a general similarity with the schemes considered by Barrett J in Macquarie Private Capital A Ltd [2008] NSWSC 323 (first court hearing) and [2008] NSWSC 535 (second court hearing), a judgment I have found particularly useful in considering the present schemes. However, there are some noteworthy differences. In that case a substantial holder of stapled securities, which was an associate of the responsible entity of the managed investment that was part of the stapling arrangement, signified that it intended to vote on the acquisition proposal. That raised a question about the possible application of s 253E of the Corporations Act. In the present case Macquarie interests have signified that they will not vote, and so that issue does not arise. In that case the schemes were all governed by Australian law, whereas here, one of the three schemes is to be implemented under the Companies Act of Bermuda. Here, there is a scrip alternative to the cash consideration, but on the other hand the cash consideration is a fixed amount, which is not, as in that case, subject to adjustment according to a formula. Some common issues include, as will be noted, matters to do with a break fee, and "no shop" and "no talk" arrangements. 25 Having regard to the principle enunciated by Barrett J in the Permanent Trustee Case, senior counsel for the plaintiff has drawn the Court's attention to a number of matters, whilst making the overall submission that no aspect of the schemes should be of concern to the Court. Six matters have been identified, which I shall consider in turn : (a) the interests of Macquarie entities on both sides of the transaction; (b) the sources of the cash consideration; (c) Australian schemes interdependent with a Bermudan scheme; (d) arrangements for the scheme meetings; (e) the minimum and maximum take-up requirements for the scrip alternative, and the scale back arrangements; (f) break fee, no shop and no talk arrangements, and other matters addressed in the Macquarie Private Capital case. Macquarie entities on both sides of the transaction 26 In general terms (and as more fully particularised above), the proposal involves Macquarie Capital participating with the Consortium of New Investors in an investment in MAIG securities through MAIPIHL, and additionally Macquarie Capital will make a small direct investment in MAIG securities. Macquarie Capital will also have management function at all levels, including the role of general partner in the vehicle through which the New Investors will invest. This raises an issue about potential conflicts of interest, and in particular the potential conflict of interest that may arise for Macquarie representatives on the board of MCAG in recommending the proposed schemes to MCAG securityholders in circumstances where Macquarie entities will participate in the proposed ownership structure and also benefit from the management and fee structure. 27 The issue is not the kind of issue considered by the High Court in Furs Ltd v Tomkies (1936) 54 CLR 583, where a senior executive of the acquired entity negotiated for himself some advantageous arrangements with the acquiring entity. Here it is, broadly speaking, a case of continuation of Macquarie management and investment interests after the transaction is implemented. That will occur in the context that the current MCAG investment structure was established, according to the evidence, to give investors in MCAG the opportunity to co-invest with Macquarie Capital in a Macquarie-managed fund. In a transaction the purpose of which is to take MCAG private, it is hardly surprising that the co-investor with MCAG securityholders proposes to retain investment and management interest. 28 Moreover, unlike Furs v Tomkies, this is a case where there is disclosure to securityholders of the Macquarie investment and management arrangements in the acquiring structure. I have seen no reason in the tendered documentation to question the adequacy of the disclosure. True it is that the proposed ownership structure and Macquarie's continuing participation in management are matters of some complexity. It seems to me, however, that investors in the MCAG securities have, by their decision to invest in a stapled security structure which provides an opportunity for co-investing with Macquarie Capital, subjected themselves to a complex investment structure and should be taken to be capable of assessing a proposal which maintains that level of investment complexity. 29 According to the draft Scheme Booklet, the directors have explored a range of options for the purpose, they say, of maximising value for securityholders. The options have included a sell-off of individual assets, refinancing, further capital management, and a "whole of fund solution" (the present proposal). The present proposal was developed by MCAG management with a view to retaining the value of existing debt packages for MCAG assets. Management approached approximately 20 institutional investors who specialise in secondary or late stage private equity investments, to ascertain their interest in participating in a proposal to take MCAG private. There was, according to the Scheme Booklet, a process involving separate arm's length negotiations with each potential third party investor, as part of a competitive process to maximise value, then a due diligence process and detailed negotiations, out of which the Consortium was formed to take the proposal further. 30 The involvement of Macquarie entities in the proposed ownership and management structure led to the establishment of an independent board committee ("IBC") of MCAG, to consider the proposal and any alternative proposals that might be received. The IBC consisted of the independent directors of MCAG, identified in the Scheme Booklet as Ken Moss, Robin Crawford, Rodney Birrell and Anthony Nagel. The IBC engaged Deloitte to provide an independent expert's report on the proposal. The protocols and procedures adopted for the IBC, and the exclusion of the MCAG directors associated with the Macquarie Group, are explained in detail in the affidavit of Mr Moss sworn on 16 July 2008. He deposed that the conflicts protocol adopted by the MCAG boards has strictly governed the interaction between MCAG and the Bidder, and any other third party making the proposal, and it has also governed the conduct of the process of due diligence that has been undertaken for the purposes of the proposal. 31 Deloitte's independent expert's report is an annexure to the Scheme Booklet. Deloitte has valued MCAG at $3.19 to $3.62 per MCAG security. The methodology adopted to value MCAG was to aggregate the estimated fair market value of the four underlying MCAG investments after deducting the present value of the management fee. Deloitte has concluded that the interdependent schemes are fair and reasonable and in the best interests of non-associated MCAG securityholders. 32 Having regard to Deloitte's opinion, the independent directors of MCAG have unanimously recommended that in the absence of a superior proposal, MCAG securityholders should vote in favour of the schemes at the proposed meetings. On the face of the Scheme Booklet, it appears that the establishment of the IBC was an appropriate precaution to adopt for the purpose of addressing the issues raised by Macquarie's involvement in the proposed ownership and management structure. 33 There are various voting restrictions in place for the scheme meetings. In the first place, the Bidder and its associates are excluded from voting on the acquisition resolution at the trust scheme meeting, which (as I have said) is a resolution under item 7 of s 611. MCAML, the responsible entity of MCAT, and its associates (including other Macquarie Group entities) are excluded from voting at the trust scheme meeting (other than where the interest they hold in MCAG securities is held on behalf of a third party who provides voting instructions). Additional voting restrictions have been adopted in view of the presence of Macquarie interests in the proposed ownership and management structure. Macquarie Group and "Specified Macquarie Executives" will not vote at any of the scheme meetings (again, other than where the interest they hold in MCAG securities is held on behalf of a third party who provides voting instructions). The Specified Macquarie Executives are identified in the Scheme Booklet, and include the Macquarie executives on the MCAG boards. 34 In a separate report to MCAG's independent directors, Deloitte has reviewed certain transactions (which it calls the "related party transactions"). They include arrangements for management and performance and other fees at various levels in the ownership structure, and the transfer by Macquarie Capital of 28.3% interest in the Red Bee assets as noted above. I have received Deloitte's report on the related party transactions as a confidential exhibit, on the ground that it includes disclosure of fee structures that are commercial in confidence. However, it is important to record Deloitte's conclusion: "Based on the work that we have undertaken, as summarised in this Report, nothing has come to our attention that causes us to believe that the Related Party Transactions are not on arm's length, commercial terms or that the fee arrangements are not consistent with or at least no more favourable to Macquarie Group Ltd than the fee arrangements of comparable funds. Further, nothing has come to our attention which causes us to believe that the Related Party Transactions have a bearing upon the conclusions reached in the Independent Expert's Report that we have prepared in relation to the Offer." 35 In terms of the FT Eastment standard, and having particular regard to the precautions that have been taken concerning the IBC, voting restrictions and the second Deloitte report, I see no reason for doubting that the schemes are of such a nature and cast in such terms that, if they receive the requisite approvals at the proposed meetings, the Court would be likely to make the requisite orders at the second hearing if there is no opposition. Sources of cash consideration 36 The plaintiffs have drawn attention to the fact that part of the cash consideration will be a capital distribution from MCAT. That is not, in principle, problematic. Section 11 of the Trust Deed makes provision for income distributions to members, and in clause 11.9, capital distributions. It will be up to the responsible entity, MCAML, to ensure that what is done falls within the trustee's powers conferred by the trust instrument. The distribution will be made pro-rata in favour of all unitholders, including those who elect to scrip alternative. By making that election, they will authorise payment into the Escrow Account of the distribution to which they would otherwise be entitled and so pro rata entitlements are maintained. Interdependent Australian schemes and Bermudan scheme 37 I see no problem in the Australian schemes being made dependent upon implementation of the Bermudan scheme by the approval of shareholders and the Supreme Court of Bermuda. The approval will be a certain event about which there can be evidence, facilitated, as it happens, by the fact that the meeting will be in Sydney. Nor has any difficulty been identified arising out of the fact that the corporate entities whose securities will be stapled to form the MAIG securities will be formed under and regulated by the law of Bermuda. There is substantial disclosure in the draft Scheme Booklet about relevant Bermudan laws. Scheme meetings 38 The arrangements for the conduct of the meetings will follow what is now a fairly well trodden path in the case of schemes involving stapled securities, subject to modifications necessary to cater for the Bermudan company. 39 The MCAG securityholders will meet in Sydney, and after an introductory session there will be, sequentially, meetings of the shareholders of the two companies and the unitholders of the trust. Because of the stapling arrangements, each MCAG securityholder will be a shareholder of both companies and also a unitholder, and therefore entitled to attend each of the three meetings. The only shareholders of the two companies, and the only unitholders, will be MCAG securityholders. 40 The Australian scheme meeting and the trust scheme meeting will have the same chairman. The chairman of the Bermudan scheme meeting will be a different person because the constitution of that company requires that the chairman of the meeting be a director of the company. But the meeting will be in Sydney, and I understand that the chairman of the Bermudan company will be present by video-conference link to London. 41 I do not see any inherent difficulties with the proposed arrangements. Minimum and maximum take-up requirements 42 The minimum and maximum take-up requirements seem to me to be adequately disclosed in paras 4.2 to 4.8 the draft Scheme Booklet. I can see no objection in principle to such arrangements provided that (as is the case) the conditions at the minimum and maximum ends are clearly defined and capable of prompt ascertainment. If the minimum take-up is not satisfied there will be no scrip alternative, but that consequence is pointed out in the draft Scheme Booklet. Other issues 43 In recent years courts have from time to time expressed concern about credit or performance risk. Concerns would arise if a scheme of arrangement had the effect that holders of securities were divested of their securities before the consideration for the divestment was provided to or in trust for them: see, for example, or Re Tempo Services Ltd (2005) 53 ACSR 526; generally, see Ford's Principles of Corporations Law, LexisNexis, looseleaf, [24.071] under heading "Credit or performance risk". Here the timing of the cash consideration is such that it must be sequentially provided before the transfer of the MCAG securities takes place. That is achieved, in the MCAL scheme, under clauses 4.6 and 5.16. By clause 4.6 the transfer of the MCAL scheme shares on the implementation date is expressed to be subject to the Bidder paying the scheme consideration in accordance with clause 5 and providing MCAL with written confirmation of that payment. Clause 5.16 says that the obligations of the Bidder to pay the aggregate cash consideration will be satisfied by the Bidder, before 12 p.m. on the implementation date, depositing that consideration into an account in the name of the Target, defined as MCAL, MCAIL and MCAT. Additionally, there is a Deed Poll made by the Bidder applicable to all three schemes, by which the Bidder covenants in favour of each scheme participant to perform its obligations under the schemes. 44 The Scheme Implementation Agreement in the present case, dated 14 June 2008, contains various exclusivity provisions, operating from that date until the effective date of the schemes or the date the agreement is terminated, whichever is the earlier. 45 There is (to summarise approximately) a "no-shop" clause prohibiting the Target (MCAL, MCAML and MCAIL) from soliciting or facilitating any competing transaction (clause 12.1), a clause preventing the Target from permitting anyone to undertake due diligence without the Bidder's consent or making available confidential information that might lead to a competing transaction (clause 12.2), and a clause requiring the Target to notify the Bidder should it become aware of negotiations regarding a competing transaction (clause 12.3). These are subject to a "fiduciary carve-out", where the independent directors believe that the competing transaction is a superior competing transaction or they have determined in good faith and acting reasonably, after receiving written advice, that failing to respond to the competing transaction would be likely to give rise to a breach of fiduciary or statutory obligations (clause 12.4). In my opinion these clauses are reasonable and do not give rise to difficulties of the kind identified by the drafting used in some of the earlier cases (see Ford's Principles of Corporations Law, [24.071], heading "Lock-up devices (break fees, no-talk and no-shop arrangements)". 46 There is a fee payable in various circumstances under clause 13.2, including where a competing transaction is announced and completed within 12 months of the scheme meeting. But it is not a "naked no vote" fee (cf Re Bolnisi Gold NL (No 2) (2007) 65 ACSR 510). That is, no fee is payable in the event that the requisite approvals are not obtained from the MCAG securityholders. Furthermore, it is a "reimbursement fee", defined to mean the actual costs (not including opportunity costs) reasonably incurred by or on behalf of the Bidder up to a maximum of $8 million. Mr Moss said that the cap on the reimbursement fee equated to approximately 0.9565% of the equity value of the Bidder's cash offer, and therefore conformed to the guidance as to quantum of a break fee contained in the Takeovers Panel's Guidance Note 7. 47 Mr Moss has deposed to the circumstances in which the IBC were prepared to concede these restrictions. He pointed out that MCAG had already made approaches to various institutional investors to determine interest in a possible control transaction, before negotiations commenced with the Bidder. He confirmed that the restrictions were negotiated following ordinary arm's length commercial negotiations between the IBC and the Bidder, each separately advised. He said that the IBC formed the view that the Bidder's proposal was in the best interests of MCAG securityholders. 48 In my view Mr Moss's evidence, which conforms to the suggestions made by Lindgren J in Re APN News & Media Ltd (2007) 62 ACSR 400 at [55], is sufficient to satisfy the Court's requirements as to such provisions. The restrictions are adequately disclosed in the draft Scheme Booklet (see Frequently Asked Question 20, section 4.19.3, Schedule 2, item 10, and Annexure B, item 8). 49 No issue was raised as to whether evidence should be adduced on the question whether the Australian members' scheme was proposed for the purpose of avoiding the operation of Chapter 6, although there is in fact some evidence on that subject in Mr Moss's affidavit. On that subject, I respectfully agree with the observations of Barrett J in Macquarie Private Capital A Ltd [2008] NSWSC 323, at [24]ff, and the observations of Gyles J in Orion Telecommunications Ltd [2007] FCA 1389 at [5] (cf Mincom Ltd v EAM Software Finance Pty Ltd (2007) 61 ACSR 266). Conclusion 50 In light of these matters, I agree with the overall submission made on behalf of the plaintiffs that the matters to which attention has been drawn have not given rise to anything that should be of concern to the Court in terms of the FT Eastment principle. I have therefore made the orders sought at the first scheme 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.