Supreme Court New South Wales Medium Neutral Citation: Application by The Trust Company (Re Services) Limited as Responsible Entity for the Paperlinx SPS Trust [2017] NSWSC 1856 Hearing dates: 3 May 2017 Date of orders: 03 May 2017 Decision date: 03 May 2017 Jurisdiction: Equity - Corporations List Before: Brereton J Decision: See [15]. Catchwords: CORPORATIONS – managed investments – schemes of arrangement – judicial advice sought pursuant to (NSW) Trustee Act 1925, s 63 for matters related to trust scheme – whether there is insuperable objection to the scheme. Legislation Cited: (CTH) Corporations Act 2001, s 411, s 601GC(1) (US) United States Securities Act of 1933, s 3(a)(10) (NSW) Trustee Act 1925, s 63(1) Cases Cited: Great Southern Managers Australia Limited, Re [2009] VSC 627 ING Funds Management Limited v ANZ Nominees Limited (2009) 228 FLR 444 Category: Procedural and other rulings Parties: The Trust Company (Re Services) Limited (plaintiff) Spicers Limited Representation: Counsel: M Oakes SC (plaintiff) M Izzo (Spicers Limited) Solicitors: Webb Henderson (plaintiff) Arnold Bloch Leibler (Spicers Limited) File Number(s): 2017/81914 Judgment (ex tempore) 1. HIS HONOUR: The plaintiff The Trust Company (RE Services Ltd) is the responsible entity of the PaperlinX SPS Trust which is a managed investment scheme under Corporations Act Chapter 5C and was established pursuant to a constitution dated 7 February 2007 subsequently amended. There are two classes of unit on issue in the trust, an ordinary unit, which is held by Spicers Ltd, and PaperlinX Step Up Preference Securities, called SPS, of which there are on issue in excess of two million, roughly ten per cent of which are held by Spicers Ltd and the balance by other unit holders. Spicers Ltd and the plaintiff have entered into a scheme implementation agreement dated 19 December 2016 in respect of a proposal which involves Spicers acquiring all of the SPS that it does not already own, in consideration for 545 fully paid ordinary shares in Spicers per SPS. Thus, essentially, the interests of other unit holders in the trust will be extinguished and Spicers will become the only interest in the trust, but in return the other unit holders in the trust will acquire approximately sixty-eight per cent of Spicers. 2. By summons filed on 9 March 2017, Spicers seeks the advice and direction of the court to the effect that it would be justified in convening a general meeting of the Trust Company and a class meeting of the SPS unit holders for considering and if thought fit agreeing to the resolutions set out in the notices of meeting, and that it would be justified in distributing prior to the meetings an explanatory statement and prospectus in the form placed before the court. Originally, advice was also sought that in the event that the resolutions were passed by the requisite majorities the plaintiff would be justified in proceeding on the basis that the making of proposed amendments to the trust constitution would be within the plaintiff's powers as trustee. Although that issue is not entirely irrelevant to whether I give the other advice sought, that particular advice is no longer sought on this application. 3. These applications in respect of trusts schemes proceed by analogy with those in respect of company schemes under Corporations Act, s 411, and at this so-called first hearing the essential question is whether there is any such insuperable objection to the scheme that the court should not even permit it to be put to a meeting for consideration by the unit holders. Because these applications proceed ex parte, the court expects the plaintiff to disclose relevant matters of potential concern to it. Mr Oakes SC has appropriately drawn attention to many of the issues which are usually touched on in this respect and which, for reasons that have been explained in many cases, do not in the present circumstances pose any such insuperable objection as would persuade the court not to grant the advice sought. These include the references to ineligible overseas unit holders, the provision of deemed warranties that the units are fully paid and free from all encumbrances and interests of third parties, and that the transferor has full power and capacity to sell and transfer those securities; performance risk in respect of provision of the scheme consideration, and exclusivity provisions. These are all appropriately disclosed in the explanatory statement. 4. Although the Court is ordinarily not concerned in a detailed way with the commercial merit of a scheme, that being chiefly a matter for the unit holders to consider, it is inevitable and essential that the Court be satisfied that the scheme is not commercially unreasonable. The evidence of the independent experts retained by the plaintiff is that the scheme is both fair and reasonable, and in the best interests of the SPS unit holders. It is fair because, essentially, an SPS unit is in their view worth not more than about $12 and perhaps less, whereas the scheme consideration is worth, at the very least, something in excess of $12 and perhaps as much as $30 or so. The conclusion that the scheme is reasonable necessarily follows from the conclusion that it is fair, but is reinforced by the circumstance that the implied value of the scheme consideration represents a premium on trading prices for the SPS units prior to the announcement of the proposed scheme, and that no superior alternative realisation option is likely to emerge. In those circumstances, I am satisfied that there is no commercial objection to the scheme at least being put to shareholders. 5. The one matter that requires some further consideration involves the releases and indemnities to be provided, "to the fullest extent permitted by law", by the SPS unit holders, which essentially provide for each SPS unit holder to release, to the extent permitted by law, the Trust Company and Spicers in respect of all claims the unit holder might have in respect of or arising out of the Trust Company's or Spicers' action, conduct and decisions other than for fraudulent conduct. 6. In correspondence with the plaintiff's advisers, which correspondence it has asked be placed before the Court, ASIC has offered for the Court's consideration questions as to the extent to which the SPS unit holder releases might be legal and effective. 7. If the unit holder releases are not legal and effective, then that may result in certain unit holders' being better off than if they are not legal and effective. However, because the releases are limited "to the extent permitted by law", this does not impact on the validity and viability of the scheme. The plaintiff has explained why it is appropriate to require such releases essentially, because the taking out of the non-Spicer unit holders from the trust, in return for their acceptance as shareholders in Spicers itself, represents a "restart" of the corporate arrangements and all up settlement of any issues between them. 8. As it seems to me, the unit holder releases are adequately disclosed and explained in the explanatory statement and in those circumstances, that there may be some doubt as to their legality or effectiveness in some respects is not a reason for not permitting the proposed meetings to proceed. 9. On the other hand, if it were plain that the proposed amendments to the constitution could not be effective, that may well constitute an insuperable objection to permitting the scheme meetings to proceed. In the same correspondence, ASIC has raised for the Court's consideration whether the proposed amendments would be within the statutory power conferred by the Corporations Act, s 601GC(1). 10. It may be observed that hitherto, a very wide view has been taken of the breadth of the power of amendment conferred by 601GC. [1] 11. ASIC does not in its correspondence appear to suggest that s 601GC could not authorise the amendments proposed in this case. Rather, it suggests that the power of amendment is subject to (a) the implied limitations that generally attend any power enabling a majority to bind a minority, and (b) are constrained by the doctrine that the exercise of a power for a collateral purpose as distinct from for the purposes for which it was conferred may invalidate it. The import of this is that ASIC appears to be suggesting that depending on the facts and circumstances, the power of amendment conferred by s 601GC may not support the proposed amendments here. 12. So understood, the question is classically one for the second hearing, when any person who wishes to contend that the power has been exercised in a manner so as to oppress a minority or for a collateral purpose can appear and adduce evidence and argument to that effect in opposition to the plaintiff's application for advice, which it proposes to bring then to the effect that it will be justified in acting on and implementing the resolutions (if they be passed). For those reasons, I do not consider that the issues pointed to by ASIC are such as to require the Court to decline to give the advice sought. 13. I should also record at this stage that in its submissions, the plaintiff has informed the Court that it intends to invoke the reliance on the exemption from registration requirements of the United States Securities Act of 1933, set out in s 3(a)(10) of that Act, based on the approval of the scheme by this Court. Reference to that intention also appears in the explanatory statement. 14. The explanatory statement has been the subject of the usual rigorous verification process, which provides the Court with prima facie evidence of proper disclosure. 15. The Court orders that: 1. Pursuant to the Trustee Act 1925 s 63(1) and the Court's inherent jurisdiction: 1. The plaintiff would be justified in convening a general meeting of the members of the PaperlinX SPS Trust ("The Trust")("general meeting") for the purposes of the members considering and if thought fit agreeing to the resolutions set out in the notice of meeting for the general meeting of unit holders in the unit holder booklet at vol 3, tab 38 of exhibit PX02.3 ("unit holder booklet"). 2. The plaintiff would be justified in convening a separate class meeting of only the holders of PaperlinX Stepup Preference Securities ("SPS") ("SPS meeting") for the purpose of SPS unit holders considering and if thought fit agreeing to the resolution set out in the notice of meeting for the SPS meeting of SPS unit holders and the unit holder booklet. 3. The plaintiff would be justified in distributing to the members of the trust prior to the general meeting and SPS meeting ("the meetings"): 1. an explanatory statement prepared by the plaintiff substantially in the form of the unit holder booklet; and 2. a prospectus prepared by Spicers Limited substantially in the form which is placed before the Court in tab 39 of exhibit PXO2.3. 1. The proceedings be stood over to 20 June 2017, at 9.45 before me. 2. Liberty to apply on two days' notice by arrangements with my associate. 1. These orders are to be entered forthwith. ********** Endnote 1. See, eg, ING Funds Management Limited v ANZ Nominees Limited (2009) 228 FLR 444; Great Southern Managers Australia Ltd, Re [2009] VSC 627. 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: 18 May 2018