New South Wales Supreme Court CITATION : Macquarie Communications Infrastructure Group; In the matter of [2009] NSWSC 487 HEARING DATE(S) : 1 May 2009 JURISDICTION : Equity Division Corporations List JUDGMENT OF : Brereton J EX TEMPORE JUDGMENT DATE : 1 May 2009 DECISION : Order convening scheme meeting and approving explanatory statement, subject to minor amendments. Advice that trustee would be justified in convening meeting and circulating explanatory statement, and that proposed amendment to trust constitution within power. CATCHWORDS : CORPORATIONS – Schemes – application for order convening meeting and approving explanatory statement – triple-stapled securities – concurrent corporation, trust and foreign schemes – deemed warranty – necessity for effect to be spelt out in explanatory statement – TRUSTS – Judicial advice – application for judicial advice in respect of proposed trust scheme LEGISLATION CITED : (CTH) Corporations Act 2001, s 441(1), s 601GC (NSW) Trustee Act 1925, s 63 CATEGORY : Principal judgment Re Abacus Funds Management Ltd [2005] NSWSC 1309; (2005) 24 ACLC 211 Re Adelaide Bank Limited [2007] FCA 1582 Re Bank of Adelaide (1979) 22 SASR 481 CASES CITED : Re Macquarie Capital Alliance Ltd [2008] NSWSC 745; (2008) 67 ACSR 484 Re Macquarie Goodman Funds Management Ltd [2004] NSWSC 1197; (2004) 52 ACSR 194 Re Macquarie Private Capital A Limited [2008] NSWSC 323; (2008) 26 ACLC 366 Re Mirvac Limited [1999] NSWSC 457; (1999) 32 ACSR 107 PARTIES : 2233/09 Macquarie Communications Infrastructure Group (plaintiff) 2224/09 Macquarie Communications Infrastructure Management Ltd (plaintiff) FILE NUMBER(S) : SC 2223/09; 2224/09 COUNSEL : Mr T Bathurst QC w Mr D Thomas (plaintiffs) Mr I Jackman SC (CPPIB) SOLICITORS : Freehills (plaintiffs) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BRERETON J Friday 1 May 2009 2223/09 In the matter of Macquarie Communications Infrastructure Group 2224/09 In the matter of Macquarie Communications Infrastructure Management Ltd JUDGMENT (ex tempore) 1 HIS HONOUR: By Originating Process filed on 6 April 2009, Macquarie Communications Infrastructure Limited (MCIL) seeks orders pursuant to (CTH) Corporations Act 2001, s 441(1), for the convening of a meeting of its members to consider a scheme of arrangement. By a Summons filed on the same date, Macquarie Communications Infrastructure Management Limited (MCIML) seeks judicial advice pursuant to (NSW) Trustee Act 1925, s 63, as to the propriety of proposed amendments to the Constitution of the Macquarie Communications Infrastructure Trust (MCI Trust). 2 I am deeply indebted to, and have been much assisted by, the comprehensive written submissions of Mr Bathurst QC and Mr Thomas for the plaintiffs. The scheme of arrangement and the proposed amendments to the trust arise from the proposed acquisition by the Canada Pension Plan Investment Board (CPPIB) – via a vehicle named CPPIB Communications Pty Ltd (called the Bidder) – of triple-stapled securities in MCIL (a company incorporated in Australia), the MCI Trust (a management investment scheme registered in Australia), and Macquarie MCG International Limited (MMCGIL) (a Bermuda exempted mutual fund). Together, those entities constitute the Macquarie Communications Infrastructure Group (MCG). The triple-stapled securities in MCG are traded on the ASX. 3 The current proceedings pertain to the proposed acquisition insofar as it affects MCIL and the MCI Trust. Because the scheme involves the acquisition of shares in an Australian company and units in an Australian trust, application is made under both Corporations Act, s 441 and Trustee Act s 63. A separate application for approval of the scheme with respect to MMCGIL has been made to the Supreme Court of Bermuda, and appears likely to receive the sanction of that Court. This approach is consistent with previous applications in relation to triple-stapled securities [Re Macquarie Capital Alliance Ltd [2008] NSWSC 745; (2008) 67 ACSR 484, [9]-[10]. 4 The MCIL Scheme – the terms of which are set out in the draft scheme booklet – is between MCIL and all its shareholders other than MCIML (which is not a party because it and its MCG securities will be acquired by CPPIB pursuant to an ancillary transaction). If the MCIL Scheme is implemented, scheme shareholders will receive a cash sum which represents a premium of 67 percent on the price at which MCIL shares were trading immediately prior to announcement of the proposal, and a still higher premium on their three months weighted average. The MCIL shares held by scheme shareholders will be transferred to the Bidder simultaneously with the transfer of the MCIT and MMCGIL securities to which they are stapled, and the Bidder will become the registered shareholder of all the transferred shares. In order to secure payment of the consideration, no shares will be transferred to the Bidder until the total aggregate of the scheme consideration has been paid into an account nominated by MCIL to be held on trust pending distribution to individual scheme shareholders. 5 Corporations Act, s 441(1), confers on the Court a discretion to order a meeting of members to be convened and to approve the applicable explanatory statement if satisfied of certain matters. 6 The first requirement is that there is a compromise or arrangement proposed between a Part 5.1 body and its members or any class of them. MCIL is a Part 5.1 body, and it is established that a scheme of arrangement to effect the acquisition of shares of one company by another is a compromise or arrangement within the meaning of s 441(1) [Re Bank of Adelaide (1979) 22 SASR 481; Re Adelaide Bank Limited [2007] FCA 1582 [14]. 7 The second requirement is that application for the order is made in a summary way by the body, or by a creditor or member of the body. Here, MCIL, the "body", has applied by Originating Process for such an order; this requirement is satisfied. 8 The third requirement is that 14 days notice of the hearing of the application, or such lesser period of notice as the Court or ASIC permits, has been given to ASIC. The Originating Process was served on ASIC on 6 April 2009, and a copy of the draft scheme booklet was served on 15 April, more than 14 days before the hearing today. 9 The fourth requirement is that the Court must be satisfied that ASIC has had a reasonable opportunity to examine the terms of the proposed compromise or arrangement and a draft of the explanatory statement, and to make submissions to the Court. The finding that ASIC was served with the Originating Process on 6 April and a draft scheme booklet on 15 April satisfies this requirement. ASIC apparently made some suggestions or requisitions in respect of the explanatory statement, and MCIL responded by providing an amended version which addressed those requirements by letter dated 30 April 2009. ASIC has indicated that it does not currently propose to appear to make submissions nor to intervene to oppose the schemes. 10 The mandatory requirements of s 441(1) having been satisfied, it remains for the Court to consider whether as a matter of discretion the order should be made. Other than those matters which are covered by the mandatory requirements, the fundamental discretionary considerations are, first, whether sufficient and adequate disclosure will be made to the potential scheme participants of the nature and effect of the scheme; and, secondly, the prospects that the Court will ultimately approve the scheme at the second hearing if the statutory majority is achieved at the proposed scheme meeting. 11 So far as adequacy of disclosure is concerned, the scheme booklet checklist furnished by the plaintiff demonstrates compliance by the MCIL scheme with the disclosure requirements of the Corporations Act, the Corporations Regulations, and also with analogous ASIC policy pertaining to bidders' statement disclosures, and with further content requirements arising under ASIC policy. The same checklist also demonstrates, in respect of the trust scheme, compliance with the requirements of the general law, the Corporations Act, and Takeover Panel guidance – which, although not directly applicable, has been considered to provide guidance by analogy. 12 In considering the prospects of the Court ultimately giving its approval to the scheme at the second hearing, I have had regard to the following issues: · First, the risk that the consideration might not be paid, which in this case is addressed by the structure, to which I have already referred, provided by clauses 4.5(b) and 5 of the MCIL Scheme; · Secondly, the "no shop, no talk, and no due diligence" restrictions contained in the Scheme Implementation Agreement, clause 13; · Thirdly, the "break fee" provided for, in certain circumstances, by clause 14.2 of the Scheme Implementation Agreement; · Fourthly, the deemed warranty – by which scheme shareholders are taken to have warranted to MCIL, CPPIB and the Bidder that all their shares are transferred to the bidder on a fully paid basis and free from all mortgages, charges, liens, encumbrances and interests of third parties – imposed by clause 8.3(b) of the MCIL Scheme, and the corresponding provision in the trust scheme; · Fifthly, the ancillary transaction and the independent expert's report in respect of it; · Sixthly, the broker handling fees; · Seventhly, that the schemes are inter-conditional with the Bermuda Scheme, and that it is proposed there be simultaneous meetings in respect of all schemes; and · Eighthly, the attitude so far indicated to the proposed scheme by the Supreme Court of Bermuda, as reported in Mr Hastings' affidavit of 30 April 2009. 13 Subject to the amendments to which I shall next refer, I am satisfied that, at this stage, none of these matters presents an insuperable impediment to ultimate approval of the scheme. 14 The plaintiffs have accepted a number of suggested amendments to the documentation. In respect of the Explanatory Statement to be contained in the Scheme Booklet, in order more accurately to reflect the opinion of the independent expert and the facts, the plaintiffs have agreed to incorporate, in the last bullet point on page 3 after the words "per MCG security" the additional matter, "although in the lower half of the range". In respect of the deemed warranty to which I have referred, in order more clearly to explain to participants its effect, the plaintiffs have agreed to add to paragraph 4.8 of the Explanatory Statement the following matter: "If the warranty is breached, scheme participants may be liable to pay to CPPIB or CCPL any amounts paid by CPPIB or CCPL to acquire clear title to MCG securities". I proposed this as otherwise, although a close reading of clause 4.8 and the deemed warranty itself would make the consequences clear enough to a lawyer, it would not necessarily be apparent to the lay readers that the deemed warranty would potentially result in their incurring a liability to pay amounts to the manager, CPPIB or the Bidder in the event of a breach. In order to address what appears to be a drafting glitch in the scheme documentation, the plaintiffs have agreed that clause 8.3(b) in the MCIL scheme and the corresponding provision in the trust scheme, should be amended, so that the first phrase reads: "MCIL Scheme shareholders are deemed to have warranted to MCIL that all their MCIL share schemes ... ". 15 Subject to those alterations being made, I would be prepared to make the orders in the short minutes of order in the scheme matter. 16 It has become common practice for the responsible entity of a registered scheme to seek judicial advice in respect of trust schemes of the kind involved here [Re Macquarie Capital Alliance Ltd [19]; Re Macquarie Private Capital A Limited [2008] NSWSC 323; (2008) 26 ACLC 366 [3]; Re Abacus Funds Management Ltd [2005] NSWSC 1309; (2005) 24 ACLC 211 [16]; Re Mirvac Limited [1999] NSWSC 457; (1999) 32 ACSR 107]. It is envisaged that, consistent with the usual practice in this field, a further application for judicial advice will be made, at the second hearing, with respect to the implementation of proposed resolutions, if they are approved at the scheme meeting [cf Re Macquarie Goodman Funds Management Ltd [2004] NSWSC 1197; (2004) 52 ACSR 194 [10]. 17 The conclusions that I have already reached in respect of the corresponding MCIL scheme sufficiently establish that the trustee would be justified in convening a meeting of the trust for the purposes proposed. Similarly, my conclusion in respect of the MCIL Scheme that the Explanatory Statement (subject to the amendments to which I have referred) is appropriate, establishes that advice to that effect is warranted. 18 The third aspect of the advice sought is whether MCIL would be justified in proceeding on the basis that the proposed amendments to the MCI Trust Constitution, if approved, would be within the powers of alteration conferred by its Constitution, clause 24, and Corporations Act s 601GC. Cases such as Re Mirvac Limited [45] - [47], show that clause 24.1 is in sufficiently wide terms that amendments such as those proposed would be within its scope. 19 Accordingly, I am prepared to give judicial advice in accordance with the short minutes prepared in the judicial advice proceedings. 20 The plaintiffs have asked that I adjourn the proceedings to Monday, in order to permit the amendments to which reference has been made to be effected, and also to permit the proceedings in the Bermuda Court, which are to return there later this evening Sydney time, to be resolved. 21 Exhibits P1 and P2 will be marked as confidential exhibits and returned to the plaintiff, to be returned to the Court on Monday. I order that the contents of Exhibits P1 and P2, Exhibits PX01 - PX06 inclusive, and Annexure A to the affidavit of Kristen Wonjung Jung sworn 30 April 2009 not be disclosed or published other than to the parties or for the purposes of prosecution of the present application until further order. It is envisaged that that further order will be made when the matter returns before me on Monday. 22 I adjourn the proceedings to Monday 4 May 2009 at 10.30am before me. ********** 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.