Supreme Court New South Wales Medium Neutral Citation: In the matter of Redcape Property Fund Limited and The Trust Company (RE Services) Limited as the Responsible Entity for the Redcape Property Trust [2012] NSWSC 486 Hearing dates: 20 April 2012 Decision date: 20 April 2012 Jurisdiction: Equity Division - Corporations List Before: Black J Decision: Detailed orders approving share scheme and approving an alteration to the terms of the scheme made. Advice given to responsible entity in respect of trust scheme. Catchwords: CORPORATIONS - Scheme of arrangement - Application or approval of share scheme pursuant to s 411(4)(b) of Corporations Act 2001 (Cth) Legislation Cited: - Corporations Act 2001 (Cth) ss 411(1), 411(4)(b), 411(6), 411(11), 411(12), 411(17)(b), 601GC, 601GC(1)(b) - Foreign Acquisitions and Takeovers Act 1975 (Cth) - Trustee Act 1925 (NSW) s 63 Cases Cited: - ING Funds Management Ltd v ANZ Nominees Ltd [2009] NSWSC 243; (2009) 228 FLR 444 - Re Central Pacific Minerals NL [2002] FCA 239 - Re Centro Properties Ltd [2011] NSWSC 1465 - Re Centro Properties Ltd [2011] NSWSC 1171 - Re Centro Retail Ltd [2011] NSWSC 1175; (2011) 255 FLR 28 - Re Investorinfo Ltd [2005] FCA 1848; (2005) 24 ACLC 44 - Re Mosaic Oil NL (No 2) [2010] FCA 1186; (2010) 80 ACSR 281 - Re Permanent Trustee Co Ltd [2002] NSWSC 1177; (2002) 43 ACSR 601 - Re Prime Infrastructure Holdings Ltd [2010] NSWSC 1104 - Re Professional Investment Holdings Ltd (No 2) [2010] FCA 1336 - Re Seven Network Limited (No 3) [2010] FCA 400; (2010) 77 ACSR 701 Category: Principal judgment Parties: Redcape Property Fund Limited (Plaintiff) The Trust Company (RE Services) Limited (Second Plaintiff) Representation: Counsel: P. Whitford SC/D. Mackay (Plaintiffs) N. O'Bryen SC (Consortium) Solicitors: Minter Ellison (Plaintiffs) Arnold Bloch Leibler (Consortium) File Number(s): 12/24555 Judgment - EX TEMPORE 1This is the second hearing in respect of a proposed scheme of arrangement between Redcape Property Fund Limited ("RPF") and the holders of its ordinary shares and an associated trust scheme under which it is proposed that the vehicle associated with the investor consortium ("Consortium") will acquire all ordinary units in the Redcape Property Trust ("Trust") through amendments to the Trust's constitution. Ordinary shares in RPF are stapled to ordinary units in the Trust under their respective constitutions and trade as staple securities on Australian Securities Exchange Limited ("ASX"). The stapled entity is known as the Redcape Property Fund ("Fund"). 2RPF seeks orders at this hearing approving the share scheme under s 411(4)(b) of the Corporations Act 2001 (Cth) and also approving an alteration to the terms of the scheme. RPF also seeks orders under s 411(12) of the Corporations Act exempting it from s 411(11) of the Act in respect of the shares scheme. 3The Second Plaintiff, The Trust Company (RE Services) Limited seeks an order under s 63 of the Trustee Act 1925 (NSW) that it is justified in acting on resolutions of members of the Trust and doing all things and taking all necessary steps to put the proposal into effect in accordance with its terms. The Second Plaintiff also seeks advice under s 63 of the Trustee Act that a proposed amendment to a Supplemental Deed is within its powers of alteration contained in the Trust constitution and s 601GC(1)(b) of the Corporations Act. 4The principal activities of the Fund are the acquisition, holding and disposal of freehold titles of Australian hotels and bottle shops which are leased to tenants on a long term basis. The schemes which are before me are part of wider arrangements between RPF, the Second Plaintiff, Redcape Services Pty Limited (the investment manager of the Fund) and the Consortium for a recapitalisation of the Fund. Those broader arrangements contemplate the acquisition by the Consortium of stapled securities in the Fund from securityholders at a price of 2.59 cents per security, the purchase and compromise of senior and junior debt and a subscription for additional units in the Trust by the Consortium. The recapitalisation proposal arises in circumstances that the Fund owes senior and junior debt to secured lenders of $745 million (as at 31 December 2011) and an event of default has arisen under its financing documents as a result of the appointment of receivers and managers and voluntary administrators to a major tenant of the Fund. 5On 24 February 2012 Ward J made orders, inter alia, that RPF convene a meeting of members under s 411(1) of the Corporations Act for the purposes of considering the scheme. Her Honour also gave a direction under s 63 of the Trustee Act that, inter alia, the Second Plaintiff as responsible entity of the Trust was justified in convening a meeting of members to consider certain resolutions and justified in proceeding on the basis that amending the Trust constitution in the manner proposed in the Supplemental Deed, if approved by members by special resolution, would be within the powers of alteration contained in the Trust constitution and s 601GC of the Corporations Act. 6The share scheme meeting and trust scheme meeting were subsequently held and the relevant resolutions were passed by majorities comfortably exceeding the requisite statutory majorities. My attention has been drawn to the fact that a relatively smaller proportion of individual shareholders attended the meeting; however that matter gives rise to no particular concern in this matter given the large number of shares participating in the meeting and the substantial support for the scheme indicated by the voting percentages: compare Re Professional Investment Holdings Ltd (No 2) [2010] FCA 1336 at [7]. 7So far as the share scheme is concerned, the Court must be satisfied at the second Court hearing that the relevant procedural requirements have been satisfied and must then exercise a discretion whether to approve the scheme in accordance with well-established principles: Re Seven Network Limited (No 3) [2010] FCA 400; (2010) 77 ACSR 701; Re Mosaic Oil NL (No 2) [2010] FCA 1186; (2010) 80 ACSR 281. The Court will recognise that properly informed securityholders are generally the best judges of their own commercial interests and will give substantial weight to securityholders' views expressed at the meetings, although the Court must nonetheless be satisfied that the proposed arrangement is fair and reasonable and that securityholders have voted in good faith and for proper purposes: Re Central Pacific Minerals NL [2002] FCA 239 at 13; Re Seven Network at [35]-[36]; Re Centro Properties Ltd [2011] NSWSC 1465 at [34]-[37]. The Court will also have regard to the adequacy of disclosure made to securityholders and whether the proposed arrangement is contrary to public policy: Re Seven Network at [38]-[40]; Re Centro Properties at [38]-[44]. Similar considerations apply to applications for judicial advice under s 63 of the Trustee Act in respect of an associated trust scheme. 8There is no suggestion in this matter that securityholders have voted other than with regard to their commercial interests, in good faith and for a proper purpose. The conclusion that the proposed arrangement is fair and reasonable is supported by an independent expert's report which was placed before securityholders at the meetings which expressed that view. The substantial majorities which voted in favour of the schemes at the meetings also support the view that the arrangement is fair and reasonable. There is no suggestion that relevant information was not disclosed and a due diligence process was adopted to minimise the risk of non-disclosure or misleading information. There is no reason of public policy why a scheme should not be adopted in circumstances where an entity faces a risk of insolvency; Re Centro Properties Ltd [2011] NSWSC 1171 at [57]. No shareholder, member of the Trust or other interested person has indicated an intention to appear or has appeared to oppose the scheme. 9There is evidence before me dealing with the procedural matters which need to be established at a second Court hearing. There is evidence to establish that the scheme booklet and independent expert's report were provided to securityholders in the Fund. The scheme booklet and orders made at the first Court hearing were lodged with Australian Securities and Investments Commission ("ASIC") after that hearing and the application for approval of the scheme was advertised in accordance with the Rules. There is evidence as to the despatch of the scheme booklet to securityholders and the proxy process for the relevant meeting, the holding of the meetings and, as I have noted above, the passage of the resolution by the requisite majorities. ASIC has advised for the purposes of s 411(17)(b) of the Corporations Act that it has no objection to the shareholder scheme. There is also evidence that other necessary regulatory approvals, including approval under the Foreign Acquisitions and Takeovers Act 1975 (Cth), have been obtained. 10I should briefly deal with the question of conditions precedent to the schemes. The share scheme is conditional on the satisfaction or waiver of certain conditions precedent as specified in cl 3.1 of the Implementation Agreement. That clause required those conditions precedent be satisfied or waived by 8 am on the Second Court Date (as defined). That term is defined in the Implementation Agreement as the first day on which application is made to the Court for an order under s 411(4)(b) of the Corporations Act or, if adjourned, the day on which the adjourned application is heard. The matter was mentioned but did not proceed to a hearing on 3 and 17 April 2012 at which point two conditions precedent had not been satisfied. The first day on which the relevant application is made for the order under s 411(4)(b) of the Corporations Act, is today and there is evidence that the relevant conditions precedent have now been satisfied or waived. 11The Plaintiffs also seek two amendments to the schemes as a result of delays which have arisen in satisfaction of the conditions precedent, and the consequential delay in the second Court hearing. Those amendments relate to the definitions of "Record Date" and "Implementation Date" which, in their unamended form, would have delayed implementation of the scheme until after a waiver of the default given by lenders to the Fund on 1 May 2012. The proposed amendments will avoid that result and, in effect, accelerate implementation of the schemes. There is evidence that ASX has no objection to the proposed amended timetable on certain conditions which have been complied with. 12The Court has power to approve a compromise or arrangement subject to such alterations or conditions as it thinks just. That power extends to alterations of a kind which do not substantially affect the details of the scheme and, in particular, can be used where an amendment improves the smooth working of the scheme without affecting its substance, in a manner which is consistent with the reasonable contemplation of securityholders at the time they agreed to it: Re Permanent Trustee Co Ltd [2002] NSWSC 1177; (2002) 43 ACSR 601 at [21]; Re Investorinfo Ltd [2005] FCA 1848; (2005) 24 ACLC 44 at [7]; Re Prime Infrastructure Holdings Ltd [2010] NSWSC 1104; Re Professional Investment Holdings Ltd (No 2) at [36]ff. In my view, the amendments sought in respect of the share scheme preserve the efficacy of the scheme and are not outside the reasonable contemplation of securityholders who approved it and the Court may therefore approve the scheme with those amendments. 13The Second Plaintiff proposes to make corresponding amendments to the definitions of "Record Date" and "Implementation Date" contained in the Supplemental Deed. In my view, those amendments are within the Second Plaintiff's power of modification under s 601GC(1)(b) of the Corporations Act. The evidence before me establishes that the Second Plaintiff reasonably considers that the change will not adversely affect members' rights: ING Funds Management Ltd v ANZ Nominees Ltd [2009] NSWSC 243; (2009) 228 FLR 444 at [92]-[105]; Re Centro Retail Ltd [2011] NSWSC 1175; (2011) 255 FLR 28. In my view, the Second Plaintiff has established, first, that it reasonably considers that the amendments do not affect members' substantive rights, which are properly characterised as a right to receive consideration in the manner specified in the scheme, which is not changed by the amendments. If that view were incorrect, the amendments are not adverse to those rights so far as they promote the implementation of the trust scheme which received members' support prior to the expiry of the bank waiver. I will accordingly provide a direction to the Second Plaintiff under s 63 of the Trustee Act that it is justified in proceeding on that basis. 14Accordingly, I make the following orders: In respect of the First Plaintiff: The Court orders that: 1. Pursuant to ss 411(4)(b) and 411(6) of the Corporations Act 2001 (Cth) (Act), the scheme of arrangement between the First Plaintiff and its ordinary shareholders (Share Scheme) be approved, subject to the alterations to the definitions of "Record Date" and "Implementation Date" appearing in cl 1.1, so that the Share Scheme so approved and altered, is in the form tendered in the proceeding and identified as Exhibit P6. 2. Pursuant to s 411(12) of the Act, the First Plaintiff be exempted from compliance with s 411(11) of the Act in relation to the Share Scheme. In respect of the Second Plaintiff The Court directs that: 3. The Second Plaintiff as responsible entity for the Trust is justified in proceeding on the basis that the amendment to the definitions of "Record Date" and "Implementation Date" in the Supplemental Deed contained in the Scheme Booklet, so that the Supplemental Deed (as amended) is in the form of the document tendered in this proceeding and identified as Exhibit P7, would be within the powers of alteration of the Second Plaintiff contained in the Trust constitution and in s 601GC(1)(b) of the Act. 4. The Second Plaintiff as responsible entity for the Trust is justified in acting upon the resolutions of the members of the Trust set out in the Scheme Booklet, as approved, and in doing all things and taking all necessary steps to put the proposal described in the form of Supplemental Deed (as amended) tendered in this proceeding and identified as Exhibit P7 into effect in accordance with its terms. In respect of both plaintiffs 5. These orders be entered forthwith. ********** 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: 11 May 2012