Supreme Court New South Wales Medium Neutral Citation: In the matter of Wiggins Island Coal Export Terminal Pty Ltd [2018] NSWSC 1342 Hearing dates: 15 August 2018 Decision date: 30 August 2018 Jurisdiction: Equity - Corporations List Before: Black J Decision: Orders made convening scheme meetings and approving the scheme booklet for distribution to shareholders. Catchwords: CORPORATIONS – arrangements and reconstructions – schemes of arrangement or compromise – application under s 411 of the Corporations Act 2001 (Cth) for orders convening meetings of members to consider and, if thought fit, approve a proposed scheme of arrangement – whether requirements to order scheme meetings are satisfied. Legislation Cited: - Corporations Act 2001 (Cth) s 411, 412 Cases Cited: - Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485 - Centro Properties Ltd v PricewaterhouseCoopers [2011] NSWSC 1465; (2011) 86 ACSR 584 - F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 - First Pacific Advisors LLC v Boart Longyear Ltd [2017] NSWCA 116; (2017) 121 ACSR 136 - Nicron Resources Ltd v Catto (1992) 8 ACSR 219 - Re Apcoa Parking Holdings GmbH [2015] 4 All ER 572 - Re Atlas Iron Ltd (2016) 112 ACSR 554 - Re BIS Finance Pty Ltd [2017] NSWSC 1713 - Re Boart Longyear Ltd [2017] NSWSC 567 - Re Centrebet International Ltd [2011] FCA 870 - Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358 - Re David Jones Ltd (No 3) [2014] FCA 753 - Re DUET Finance Ltd [2017] NSWSC 415 - Re Foundation Healthcare Ltd [2002] FCA 742; (2002) 42 ACSR 252 - Re Global Garden Products Italy SpA [2016] EWHC 1884 (Ch) - Re HIH Casualty and General Insurance Ltd [2006] NSWSC 485; (2006) 200 FLR 243 - Re Opes Prime Stockbroking Ltd [2009] FCA 813; (2009) 179 FCR 20 - Re SAI Global Ltd [2016] FCA 1312 - Re Seat Pagine Gialle SpA [2012] EWHC 3686 (Ch) - Re Viralytics Ltd [2018] FCA 637 - Sovereign Life Assurance Co v Dodd [1892] 2 QB 573 Category: Principal judgment Parties: Wiggins Island Coal Export Terminal Pty Ltd (Plaintiff) Representation: Counsel: J Lockhart SC/M Izzo (Plaintiff) J R Williams (Senior Financiers) Solicitors: Ashurst (Plaintiff) Allens (Senior Financiers) File Number(s): 2018/246651 Judgment 1. The Plaintiff, Wiggins Island Coal Export Terminal Pty Limited ("WICET"), sought orders under s 411(1) of the Corporations Act 2001 (Cth) to allow it to convene a meeting of creditors to consider and, if thought fit, approve a proposed scheme of arrangement between it and lenders ("Senior Financiers") under a Senior Syndicated Facilities Agreement dated 9 September 2011, as amended from time to time ("Senior SFA"). WICET also seeks orders approving the draft explanatory statement for the scheme for distribution. I made those orders at the conclusion of the hearing on 15 August 2018 and indicated that I would deliver reasons for doing so. In these reasons, I have drawn on the helpful submissions of Mr Lockhart SC, who appeared with Mr Izzo for WICET. 2. By way of background, WICET operates the Wiggins Island Coal Export Terminal ("Terminal") in the Port of Gladstone, Queensland. The Terminal is operated on a "cost recovery" basis rather than for profit, and the revenue received by WICET for operating the Terminal is intended to cover the expected costs of WICET and its holding company ("HoldCo") (Allard 9.8.18 [8]). WICET recovers its costs through a terminal handling charge ("Terminal Handling Charge"), expressed as a dollar rate per tonne, which is payable by shippers who use the Terminal ("ToP Shippers"). These shippers enter into take or pay agreements with WICET ("Take or Pay Agreements"), and those agreements require payment of the terminal handling charge in accordance with a methodology ("Terminal Handling Charge Methodology") contained in a shareholders agreement entered into by the shareholders in HoldCo ("Shareholders Agreement"). The amounts recovered pursuant to the Terminal Handling Charge are presently not sufficient to cover the costs of WICET and HoldCo, broadly, because the Terminal Handling Charge Methodology limits the amount that WICET can charge ToP Shippers for finance costs, by a cap ("THC Finance Cap") that is indexed quarterly (Allard 9.8.18 [40]–[41]). This has become significant because WICET had initially entered into Take or Pay Agreements with eight ToP Shippers, by which the entire 27 Mtpa nominal capacity of the Terminal was contracted, but three ToP Shippers have since become insolvent, and only 16 Mtpa of annual capacity is currently contracted to ToP Shippers. Although the operating cost component of the Terminal Handling Charge is paid by the five remaining shippers, including operating costs that would otherwise have been paid by the insolvent ToP Shippers, WICET is unable to recover its finance costs in full because of the THC Finance Cap (Allard 9.8.18 [42]–[44]). 3. The scheme has been proposed because WICET is presently not in a position to repay an amount of approximately USD2,578 million in debt ("Senior Debt") which will fall due under the Senior SFA on 30 September 2018 ("Balloon Maturity Date"). The proposed scheme would effect a restructure of the Senior Debt which involves, among other things, extending the maturity date for the Senior SFA to 30 September 2026 ("Amended Balloon Maturity Date"). At the time of the first court hearing, 18 of the 23 Senior Financiers, which together represent 90.65% by value of WICET's Senior Debt, had undertaken to vote in favour of the scheme by executing a Restructuring Support Deed ("Senior RSD"). 4. WICET has also issued notes ("GiLTS") under a GiLTS Note Trust Deed and GiLTS Subscription Agreement (Ex AA-1, 1700–1733), which are due to mature on 30 September 2020. The amount owing to GiLTS noteholders ("Junior Financiers") is approximately $383 million ("Junior Debt") (Allard 9.8.18 [51] – [52]). WICET also owes approximately $575 million under a loan agreement with HoldCo ("HoldCo Loan Debt"), due to mature on 6 September 2046 (Allard 9.8.18 [56]–[57]; Ex AA-1, 1734–1754). 5. The rights and subordination arrangements ("Intercreditor Terms") as between the holders of Senior Debt, Junior Debt and the HoldCo Loan Debt are set out in a Security Trust and Intercreditor Deed ("STID") (Ex AA-1, 1755–1984) and Schedule 2 to the STID provides that, subject to an exception noted below, the Junior Debt and HoldCo Loan Debt are not repayable until the Senior Debt has been repaid. 6. On 21 June 2018, an amendment was made to the THC Finance Cap in accordance with an amendment mechanism stipulated in the Shareholders Agreement (Allard 9.8.18 [72]). From 1 October 2018, subject to amendment of the Senior SFA as contemplated by the proposed scheme, the THC Finance Cap will be USD 15 million (subject to CPI escalation each quarter) plus a fixed USD amount of USD 3.35 million for the term of the Senior SFA (as amended pursuant to the scheme) until the Senior Debt is reduced to zero or refinanced in full. The effect of this change is to increase the limit to the amount that WICET can charge the remaining ToP Shippers for finance costs. The proposed scheme 1. The proposed scheme will effect changes to the Senior SFA by means of an Amendment and Restatement Deed ("SSFA Amendment Deed") (Ex AA-1, 117–328). The principal changes are summarised in the draft explanatory statement as that the Balloon Maturity Date is extended from 30 September 2018 to 30 September 2026; the scheduled repayments of principal, which are currently paid quarterly, are replaced with minimum fixed quarterly repayment amounts (to be set out in Schedule 11 of the Senior SFA) and a quarterly true up repayment instalment; provision is made for approval of a change of the benchmark for the interest rate from LIBOR to a successor benchmark; cl 17.15, which permits adjustments to be made to the THC Finance Cap if a "THC Adjustment Event" occurs, is deleted; a requirement is introduced for a USD 50 million working capital reserve account, a $10 million working capital reserve account and a Project Investment Account to be maintained by WICET; the current hedging policy contained in the Senior SFA is deleted and replaced with a provision which enables WICET to draw $68 million from the debt service reserve account to hedge its interest rate exposure; amounts currently required to be held in a debt service reserve account are to be applied to specified payments; and provision is made for the Senior Financers to declare all or any of WICKET's debt due and owing if the aggregate of the ToP Shippers' tonnage annual entitlements falls below a nominated level, and good faith negotiations do not lead to substitute tonnage being obtained or acceptable amendments being made to the finance documents. 2. Mr Lockhart and Mr Izzo submit, and I accept, that the principal effects of the changes made by the proposed scheme will be that, first, default by WICET upon non-payment of the Senior Debt on the Balloon Maturity Date (30 September 2018) is avoided by extending the maturity to September 2026. Second, a report prepared by Deloitte indicates that the repayment profile for the Senior Debt would be accelerated, by increasing each principal repayment amount, by comparison with the existing facility terms, with that profile changing from a 7 year term with amortisation payments reflecting a 30 year profile (from the completion date of 30 September 2016) to an 8 year term with amortisation payments reflecting a projected 11.3 year profile. Third, an effect of the increase in each principal repayment amount is that all of the finance cost component of the Terminal Handling Charge will be applied to the payment of the Senior Debt, until the Senior Debt is repaid, and no amounts will be available to repay principal and interest under the GiLTS or the HoldCo Loan Agreement until after the Amended Balloon Maturity Date. That may or may not be a matter that gives rise to other rights in respect of the GiLTS or the HoldCo Loan Agreement or is relevant to whether the proposed scheme should be approved at the second hearing. Mr Lockhart and Mr Izzo point out that the proposed amended Senior SFA also makes several other changes to delete redundant provisions, amend provisions to comply with lender regulatory requirements or make them consistent with current market standard bank documents. 3. It is a condition precedent to the scheme taking effect that certain amendments are made to the Intercreditor Terms, as set out in an amendment deed ("STID Amendment Deed"), which is Annexure C to the draft explanatory statement for the proposed scheme (Ex AA-1, 329–415). Mr Lockhart and Mr Izzo draw attention to two sets of amendments. First, cl 6.1 of the Intercreditor Terms generally prohibits holders of the Junior Debt from taking action to demand or receive payment of the Junior Debt, and is subject to an exception in clause 6.1(c)(ii)(E)(II) which permits the taking of enforcement action to recover the Junior Debt, although the Senior Debt has not been repaid, if the Junior Debt is not repaid on its final maturity date and, after using reasonable endeavours over a six month period to refinance that debt on terms acceptable to the Senior and Junior Financier Debt Representatives, the debt is not refinanced. Mr Lockhart and Mr Izzo submit that the ability of holders of the Junior Debt to take enforcement action does not alter the priority of payment and the proceeds of any such enforcement would be applied in accordance with the agreed order of priority. It is proposed that this provision be amended, outside the scheme but as a condition precedent to its taking effect, so that it cannot be invoked until the later of the final maturity date of the Junior Debt or the date that is 6 months after the eighth anniversary of satisfaction or waiver of the conditions precedent to the SSFA Amendment Deed. 4. Second, the Intercreditor Terms contain (in cll 11.2 and 11.4) two sets of cashflow waterfalls which prescribe the order in which different creditors are to be paid out of WICET's AUD and USD proceeds accounts respectively ("Cashflow Waterfall"). Mr Lockhart and Mr Izzo point out that, broadly speaking, the Cashflow Waterfall provides for payment of, first, operating costs; next, senior finance costs; next, principal under the Senior SFA; next, if certain conditions are satisfied, certain permitted payments in respect of the Junior Debt and the HoldCo Loan Debt. The Intercreditor Terms are proposed to be amended, again outside the proposed scheme but as a condition precedent to it, so that the Cashflow Waterfall is divided into different waterfalls for payment of operating costs from the operating cost component of the Terminal Handling Charge (from an AUD proceeds account) and finance costs from the finance cost component of the Terminal Handling Charge (from a USD proceeds account). 5. The proposed amendments to cll 6.1 and 11 of the Intercreditor Terms are to be made by the STID Amendment Deed will be effected in reliance on cl 12 of the Intercreditor Terms which, WICET contends, when read in conjunction with cl 6.1(i)(i), permits WICET and the Intercreditor Agent (as defined) to make amendments to the Intercreditor Terms in the context of a restructuring of the Senior Debt following, or in order to avoid, an Event of Default (as defined). Mr Lockhart and Mr Izzo submit that amendments made in this way do not require the consent of the GiLTS holders, although it is a condition precedent to the SSFA Amendment Deed taking effect that at least 50.1% of the GiLTS holders have instructed the GiLTS Notes trustee to approve the amendments (SSFA Amendment Deed, cl 4 and Schedule 2). I will address that question further below. 6. Mr Lockhart and Mr Izzo also point out that the USD working capital reserve account and the AUD working capital reserve account included in the proposed amended Senior SFA have been funded initially by an amount of AUD $76 million transferred from the proceeds account, which is the subject of the waterfall provisions in the Intercreditor Terms, and that amount will continue to be applied for purposes stipulated in the Cashflow Waterfall. They note that a proposed new cl 17.8 in the amended Senior SFA contains undertakings requiring the funds in the new working capital reserve accounts to be applied to the payment of operating costs and Senior Debt finance costs where there are not otherwise funds available for these purposes. Any issue arising in respect of the effect of that amendment on Junior Debt or other creditors would be a matter for the second hearing, or for other proceedings by those creditors. Mr Lockhart and Mr Izzo point out that the proposed amended STID contains a number of other changes to delete redundant provisions, amend provisions to comply with lender regulatory requirements or make them consistent with current market standard bank documents and otherwise "generally tidy up" the document. Proposed explanatory statement and independent expert's report 1. Section 3 of the proposed explanatory statement contains an overview of the explanatory statement and the proposed scheme; sections 4 and 5 contain an overview of WICET's operations and its capital structure; sections 6 and 7 set out the background to the proposed scheme and provide an overview of its outcome and its key steps; section 8 provides a summary of the independent expert's report, to which I refer below; sections 9 and 10 indicate reasons creditors may consider voting for or against the scheme; and sections 11 – 13 refer to voting procedures and additional information. Mr Lockhart and Mr Izzo point out, and I accept, that the draft explanatory statement discloses the information required to be disclosed by s 412(1)(a) of the Corporations Act and reg 5.1.01 (including Schedule 8) of the Corporations Regulations 2001 (Cth). 2. The proposed explanatory statement also contains an independent expert's report dated 10 August 2018 ("IER") prepared by Ms Janna Robertson of Deloitte (Robertson 10.8.18, Ex JR-1, 1–342), which addresses the position if there is no scheme and the position if the proposed scheme proceeds. Ms Robertson expresses the view that, in the absence of a scheme, and upon WICET's failure to repay the Senior Debt when it falls due on 30 September 2018, there will be an Event of Default under the Senior SFA, so that the Senior Debt will be immediately due and payable; the directors of WICET are likely to appoint voluntary administrators on the ground that WICET is unable to refinance its maturing facilities and therefore is unable to repay its debts when they fall due; and this will likely lead to the Senior Financiers appointing a receiver (Ex JR-1, [6.2]-[6.5]). Ms Robertson also expresses the view that a receiver would likely then invoke a "Term Out" provision in cl 17.15 of the Senior SFA, which allows the repayment profile of the Senior Debt to be accelerated on occurrence of a "THC Adjustment Event" (as defined to include a failure to refinance the Senior Debt on the Balloon Maturity Date). Under that clause, the THC Finance Cap would be adjusted so that the Senior Debt is then repaid in 6.5 years, assuming contracted capacity of 27 Mtpa. Ms Robertson expresses the view that, on the current 16 Mtpa contracted capacity, that provision would allow Senior Financiers fully to recover principal and interest over 12.6 years. Ms Robertson also observes that, while a receiver would likely concurrently pursue a sales process, this would not likely be successful where WICET does not itself own the Terminal assets and a sale of WICET under the current project structure is unlikely to generate a price that is more attractive to Senior Lenders than reliance on the Term Out provision. 3. Ms Robertson also expresses the view that the effect of implementation of the scheme would be to secure WICET's solvency because, under its cost recovery model, WICET would then have sufficient income to meet all operating and finance costs as they fall due over the term of the Senior Debt, other than the principal outstanding at the Amended Balloon Maturity Date, and would have reasonable prospects of refinancing that debt on maturity. Ms Robertson reaches that view on the basis that neither the GiLTS holders nor HoldCo have a right to demand repayment of interest or principal over the term of the Senior Debt. She also recognises the possibility that a payment default by remaining ToP Shippers could result in a breach of covenant or payment default by WICET under the Senior SFA, but notes that there is no evidence of any imminent shipper default. Ms Robertson concludes that, if the Senior SFA is amended under the proposed scheme, Senior Financiers would receive a full recovery of principal and interest over 8 years in the event of refinance of the Senior Debt on its maturity, or 11.3 years if there is no refinance. 4. Ms Robertson assesses the present value of cash flows available to Senior Financiers if no scheme is implemented as $3,256 million and the present value of cash flows if the scheme is implemented as $3,075 million. It appears that the cash flows in the absence of a scheme are higher because these include default interest, although Senior Lenders might reasonably prefer to avoid the uncertainties and risks of a default at the cost of a somewhat lower realisation, and it appears the substantial majority of Senior Lenders take that view. The applicable principles 1. As Mr Lockhart and Mr Izzo point out, the Court will order the convening of the scheme meeting and approve the proposed explanatory statement if it is satisfied that the Plaintiff is a Part 5.1 body; the proposed scheme is an arrangement within the meaning of s 411 of the Corporations Act; the scheme booklet will provide proper disclosure to creditors; the scheme is bona fide and properly proposed; the Australian Securities & Investments Commission ("ASIC") has had a reasonable opportunity to examine the terms of the scheme and the scheme booklet and make submissions and has had 14 days' notice of the proposed hearing date; the procedural requirements of the Supreme Court (Corporations) Rules 1999 (NSW) have been met; and there is no apparent reason why the scheme should not, in due course, receive the Court's approval if the necessary majority of votes is achieved: Re Atlas Iron Ltd (2016) 112 ACSR 554 at [30]; Re DUET Finance Ltd [2017] NSWSC 415 at [15]; Re BIS Finance Pty Ltd [2017] NSWSC 1713 at [20]. 2. Mr Lockhart and Mr Izzo rightly point out that the Court's approach at a first court hearing is 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": F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72; Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485 at 504. They also point to the observation of French J in Re Foundation Healthcare Ltd (2002) 42 ACSR 252; [2002] FCA 742 at [36] and [44], approved in Re CSR Ltd [2010] FCAFC 34; (2010) 183 FCR 358 at [58], that: "It is however important to bear in mind that, by granting leave to convene the meeting, the court does not give its imprimatur to the proposed scheme. If the arrangement is one that seems fit for consideration by the meeting of members or creditors and is a commercial proposition likely to gain the court's approval if passed by the necessary majorities, then leave should be given: Re ACM Gold Ltd (1992) 34 FCR 530 ; 107 ALR 359 ; 7 ACSR 231 ; 10 ACLC 573 (O'Loughlin J). The court is not required to give close consideration to the effects of the scheme upon individual members of the classes of members or creditors affected. So to do would be to "introduce burdensome and to a large extent ineffectual consideration at this interlocutory stage": Re Jax Marine Pty Ltd [1967] 1 NSWR 145 at 148 (Street J). … The court at the stage of ordering a meeting to approve a scheme does not ordinarily go very far into the question of whether the arrangement is one which warrants the approval of the court … That question is to be answered when the scheme returns to the court for final approval. That is not to exclude the possibility that a scheme may appear on its face so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further." 1. Mr Lockhart and Mr Izzo also point out, and I accept, that the Court is not required to be satisfied that no better scheme could have been proposed, and will give attention at a first hearing to whether it is reasonable to suppose that sensible businesspeople might consider the arrangement proposed to be of benefit to members or creditors: Re Centrebet International Ltd [2011] FCA 870 at [29]; Re SAI Global Ltd [2016] FCA 1312 at [18]; Re DUET Finance Ltd above at [14]. They also observe, and I also accept, that the Court's function under s 411 of the Corporations Act is to consider only the scheme put forward to it and not to speculate what other compromises or arrangements might have been devised, and it will proceed on the basis that, if the proposed scheme does not take effect, there will be no scheme and the situation will be one in which the rights and obligations that would have been affected by the scheme are not altered; and the Court will not seek to prompt an applicant to take some other course by declining to convene a scheme meeting or approve a scheme on discretionary grounds: Nicron Resources Ltd v Catto (1992) 8 ACSR 219 at 236; Centro Properties Ltd v PricewaterhouseCoopers [2011] NSWSC 1465; (2011) 86 ACSR 584 at [28]-[31]; Re BIS Finance Pty Ltd above at [22]. Relevant features of the proposed scheme 1. It is uncontroversial that WICET is a Part 5.1 body (Ex AA-1, 1988-2016). I am satisfied that the nature of the scheme as set out in Annexure B to the proposed explanatory statement involves an element of compromise between WICET and its Senior Lenders and provides prima facie evidence that there is an "arrangement" within s 411 of the Corporations Act: Re Atlas Iron Ltd above at [48]. I am also satisfied that WICET has committed itself to propounding the scheme and that the scheme is bona fide and has been properly proposed. Mr Darryl McDonough and Ms Alana Allard consent to act as chairman and alternative chairman of the scheme meeting, in accordance with r 3.2 of the Supreme Court (Corporations) Rules. There is evidence of verification of factual information in the proposed scheme booklet and of notification to ASIC. 2. As Mr Lockhart and Mr Izzo point out, ss 411(3) and 412(1) of the Corporations Act require the disclosure of information explaining the "effect" of the scheme and information that is "material" to a member's decision whether or not to agree to it. The information should be presented in a form that is intelligible to reasonable members of the class to whom it is directed, and contain information that is realistically useful having regard to the complexity of the proposal: Re HIH Casualty and General Insurance Ltd [2006] NSWSC 485; (2006) 200 FLR 243 at [81]-[83]; Re BIS Finance Pty Ltd above at [28]. I am satisfied that the proposed explanatory statement, to which I have referred above, meets these requirements. 3. Mr Lockhart and Mr Izzo also rightly drew attention to the question whether creditors would need to vote in different classes at the scheme meeting. In Sovereign Life Assurance Co v Dodd [1892] 2 QB 573 at 583, Bowen LJ set out the well-established formulation of when separate classes of creditors were required for a scheme of arrangement as follows: It seems plain that we must give such a meaning to the term "class" as will prevent the section being so worked as to result in confiscation and injustice, and that it must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest. 1. In First Pacific Advisors LLC v Boart Longyear Ltd [2017] NSWCA 116; (2017) 121 ACSR 136 at [80], Bathurst CJ (with whom Beazley P and Leeming JA agreed) observed that that formulation involved three questions: First, what are the rights which existing creditors (or members) have against the company and to what extent are they different. Second, to what extent are those rights differently affected by the scheme. Third, does the difference in rights or different treatment of rights make it impossible for the creditors (or members) in question to consider the scheme as one class. 1. The creditors which would be bound by the scheme are lenders under the Senior SFA, and their respective rights are identical and the scheme does not affect them differently. Three Senior Financiers, or their affiliates, hold both GiLTS and Senior Debt (Allard 9.8.18 [80]–[81]). Mr Lockhart and Mr Izzo submit that the proposed scheme itself does not affect the rights of GiLTS holders, although they recognise that the proposed amendments to the STID, which are a condition precedent to effecting the scheme, affect those rights by delaying the time at which GiLTS holders can enforce their debt. Irrespective of that matter, they submit, and I accept, that different classes of creditors are not required where the proposed amendments to the STID are not such as to make it impossible for Senior Financiers who have GiLTS to consult with those who do not, particularly where the likely alternative to the scheme is an insolvency in which the Senior Debt would be repaid in full over a lengthy period before any return was available to GiLTS holders. It seems to me to be sufficient in those circumstances that WICET tag the votes of these three Senior Financiers, as it proposes to do, so account can be taken of the exercise of those votes at the second court hearing. Other relevant matters 1. Mr Lockhart and Mr Izzo also draw attention to several matters which may be relevant to the exercise of the Court's discretion under s 411 of the Corporations Act, although they submit, and I accept, that these matters are potentially relevant at the second rather than the first court hearing and are not such that the Court would not approve the scheme if it secured the applicable majorities at a scheme meeting. 2. First, Mr Lockhart and Mr Izzo point out that, as I noted above, the present value of the cash flows which Senior Financiers would potentially receive in a receivership relying on the Term Out provision is higher than the amount they would receive under the scheme. Nonetheless, they submit, and I accept, that the Senior Lenders may, acting in their own interests, prefer a scheme which would potentially bring about repayment of the borrowed funds in 8 years (if the debt is refinanced at the end of its term) or 11.3 years (if it is not) rather than a longer period of 12.6 years in a receivership, and avoids the risks of in insolvency of WICET and a receivership, which include a potential risk to WICET's right to occupy the leased area on which it operates the Terminal. As I noted above, the level of existing support by Senior Lenders for the proposed scheme, indicated by their execution of the Senior RSD, suggests that a substantial majority of Senior Lenders by number and value in fact prefer the proposed scheme to its alternatives. 3. As I noted above, proposed amendments to cll 6.1 and 11 of the Intercreditor Terms are conditions precedent to giving effect to the proposed scheme and are to be made by the STID Amendment Deed will be effected in reliance on cl 12 of the Intercreditor Terms which, WICET contends, when read in conjunction with cl 6.1(i)(i), permits WICET and the Intercreditor Agent to make amendments to the Intercreditor Terms in the context of a restructuring of the Senior Debt following, or in order to avoid, an Event of Default. Mr Lockhart and Mr Izzo submit that amendments made in this way do not require the consent of the GiLTS holders, although it is a condition precedent to the SSFA Amendment Deed taking effect that at least 50.1% of the GiLTS holders have instructed the GiLTS Notes trustee to approve the amendments (SSFA Amendment Deed, cl 4 and Schedule 2). At the Court's request, Mr Lockhart and Mr Izzo made supplementary submission setting out the steps in WICET's reliance on cll 6.1 and 12 of the Intercreditor Terms in greater detail. 4. The availability of the approach adopted by WICET depends upon whether the Intercreditor Agent may agree to the relevant amendments on the instructions of the majority of Senior Lenders and without the consent of the Junior Financier Debt Representative acting on the instructions of the Majority GILTS Holders (as defined). That depends upon whether the amendment is within the circumstances specified in cl 6.1(i) of the Intercreditor Terms, and WICET contends that it is not, because it is within an exception to that paragraph that is applicable to an amendment made in the context of a restructuring of the Senior Debt in order to avoid an Event of Default. 5. The availability of the approach adopted by WICET also depends upon whether that result is displaced by cl 6.1(i)(v) of the Intercreditor Terms, which prohibits an amendment to the terms of the finance documents without the consent of the Junior Financier Debt Representative if it relates to any provisions relating to payment of Junior Debt, including the application of amounts from the Cashflow Waterfall for that purpose. It seems to me that there is force in WICET's submission that cl 6.1(i)(v) of the Intercreditor Terms does not apply, because the amendments do not address payment of the Junior Debt, which has at all times been subordinated to the Senior Debt, but only the triggering of enforcement action that would not bring about such payment and the manner in which amounts are deposited to particular accounts, without diminishing the amount available for the payment of Junior Debt. Mr Lockhart and Mr Izzo fairly accept that contrary arguments may be available to that put by WICET, but submit that WICET's view is the better view, or is at least sufficiently arguable that the Court would not decline to order a first scheme meeting because of any availability of a contrary view. 6. I consider that it is preferable not to address this question in any greater detail, where it may be in issue at the second scheme hearing, if there is opposition to the scheme, or in any challenge to the transaction brought in any separate proceedings. These steps are taken outside the scheme and it seems to me that WICET's view is at least a reasonably arguable view of the relevant provisions. The possibility that alternative views might be put (although no creditor sought to put them at this first hearing) is not reason to decline to order a first scheme meeting and is not such that the Court could not approve the scheme at a second scheme hearing if it was approved by the requisite majority of creditors. This is not a scheme that is clearly bound to fail, or where issues as to construction of cll 6.1 and 12 of the Intercreditor Terms plainly have the result that the conditions precedent to the scheme could not be satisfied, or would plainly lead the Court to refuse to approve the scheme. The first scheme meeting is not otherwise the occasion to resolve difficult questions as to which reasonable minds may differ: Re Opes Prime Stockbroking Ltd [2009] FCA 813; (2009) 179 FCR 20 at [20]; Re CSR Ltd above at [59]. 7. Mr Lockhart and Mr Izzo also recognise that the proposed scheme effects amendments to the terms of the Senior SFA, some of which could otherwise be effected only by consent of all the Senior Lenders. They submit, and I accept, that amendments to the terms of finance documents frequently occur through the mechanism of schemes of arrangements agreed to by the requisite majorities of creditors and approved by the Court: Re BIS Finance Pty Ltd above at [38]. 8. Mr Lockhart and Mr Izzo also point out that the Senior RSD provides that, from the date it becomes effective, the parties shall, inter alia, take all reasonable steps to implement the restructuring contemplated in it, including attending the scheme meeting and voting in favour of the scheme. They submit, and I accept, that support agreements of this kind are now common in the context of creditors' schemes: Re Apcoa Parking Holdings GmbH [2015] 4 All ER 572; Re Atlas Iron Ltd above at [16]; Re Boart Longyear Ltd [2017] NSWSC 567 at [9], [88]. 9. Mr Lockhart and Mr Izzo also note that WICET has agreed to pay a consent fee to each Senior Financier provided each Senior Financier executes the Senior RSD by 16 August 2018 (unless extended) and the restructuring contemplated in the Senior RSD is completed (Ex AA-1, 505–547, 1985). That consent fee is payable only if each Senior Financier has executed the Senior RSD; is not payable if that condition is not satisfied by 16 August 2018, unless that date is extended; and, if that occurs, there will be no need for a scheme of arrangement since all of the Senior Financiers will have executed the Senior RSD. Mr Lockhart and Mr Izzo submit, and I accept, that the Court would take the same approach as has been taken in the English case law, which has accepted the payment of consent fees which are (as here) relatively small compared to the size of the outstanding debt, and not likely to influence the view of a creditor with substantial objections to a scheme on commercial grounds: Re Seat Pagine Gialle SpA [2012] EWHC 3686 (Ch) at [14]–[22]; Re Global Garden Products Italy SpA [2016] EWHC 1884 (Ch) at [51]–[53]. I also accept that the consent fee does not raise any issue of collateral benefit where the opportunity to receive it is offered to all Senior Financiers: Re David Jones Ltd (No 3) [2014] FCA 753 at [13]. 10. Mr Lockhart and Mr Izzo also draw attention to the fact that HoldCo has issued 550,000 redeemable preference shares in the capital of HoldCo known as "WIPS", and the proceeds received from the issue of these shares were advanced to WICET under the HoldCo Loan (Allard 9.8.18 [24]–[25]). The WIPS were issued under a subscription agreement with HoldCo ("WIPS Subscription Agreement") and terms of issue in schedule 3 to that agreement ("WIPS Terms of Issue") (Ex AA-1, 1093–1141). By cl 1.9 of the WIPS Terms of Issue, Holdco promises, to the maximum extent permitted by law, to pay dividend entitlements to WIPS holders when and to the extent that HoldCo has funds legally available for payment. In other proceedings in this Court, two WIPS holders have contended that HoldCo has failed to pay dividend entitlements arising from the WIPS Terms of Issue since December 2016; WICET has not properly applied the Cashflow Waterfall and HoldCo has failed to enforce its right to receive interest payments under the HoldCo Loan Agreement; WICET has failed to correctly set or vary the Terminal Handling Charge; and WICET has failed to calculate and charge to each ToP Shipper the correct true up payment referrable to the Terminal Handling Charge for the quarter ending 30 June 2015. The WIPS holders claim payment of $186.9 million or damages in those proceedings; judgment for amounts totalling $23.8 million plus accrued interest on unpaid dividends or damages or an order for the payment of $35.8 million in dividends; and other relief. 11. Mr Lockhart and Mr Izzo submit that WICET does not consider that these proceedings would prevent the scheme from proceeding; the proceedings are being defended; and, if WICET was met with a judgment it could not pay, that would affect its solvency position but would put it in no different position to the receivership scenario contemplated in the independent expert report. On the face of it, it seems to me that the position as between the WIPS holders and HoldCo is likely to be a matter for determination in those other proceedings or in any application for interlocutory relief brought by the WIPS holders in those or other proceedings, which may require an undertaking as to damages. If it were relevant to the approval of the scheme, it is a matter that would only be relevant at a second hearing and not in determining whether to convene the scheme meeting. 12. Mr Lockhart and Mr Izzo also point out that the scheme does not effect changes to the GiLTS Note Trust Deed, the WIPS Subscription Agreement or WIPS Terms of Issue and that, as I noted above, the changes made to the Intercreditor Terms are to be made pursuant to the powers of amendment in those terms. They submit that it will be open to the Court at the second court hearing to take into account any objection made by any GiLTS or WIPS holders, to the extent that they contend that the implementation of the scheme has an impact on them: Centro Properties Ltd v PricewaterhouseCoopers above at [22]-[27]. That matter does not arise at this point and it is preferable that I do not address any question whether the GiLTS holders and WIPS holders are worse off than they would be without a scheme, where they have not appeared or sought to be heard at this hearing. Orders 1. The orders proposed by WICET modify the operation of r 2.15 of the Supreme Court (Corporations) Rules in several respects. That rule provides that, subject to any direction to the contrary, regs 5.6.11–5.6.36A of the Corporations Regulations apply to meetings ordered by the Court. Mr Lockhart and Mr Izzo point out that regs 5.6.11–5.6.36A have now been substantially repealed as of 1 September 2017, by the Corporations and Other Legislation Amendment (Insolvency Law Reform) Regulation 2016 (Cth); and that, by reason of s 10 of the Acts Interpretation Act 1901 (Cth), the reference to those regulations is construed as a reference to the re-enacted provisions, found in the Insolvency Practice Rules (Corporations) 2016 (Cth). I will make orders dispensing with the corresponding provisions of the Insolvency Practice Rules (Corporations), adopting the same course as Gleeson J in Re Viralytics Ltd [2018] FCA 637 at [37]–[40]. I will also make directions permitting service of notice of the scheme booklet on Senior Financiers by serving it in electronic form to the email addresses specified for each Senior Financier in a letter dated 14 August 2018 from the Senior Financiers' solicitors to WICET's solicitors, consistent with a now common practice: Re Viralytics Ltd above at [35]. 2. For these reasons, I made orders in the form initialled by me and placed in the file at the conclusion of the first hearing on 15 August 2018. ********** 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: 04 September 2018