Supreme Court New South Wales Medium Neutral Citation: In the matter of Wollongong Coal Limited and Jindal Steel & Coal Australia Pty Ltd [2020] NSWSC 73 Hearing dates: 11 and 12 February 2020 Date of orders: 14 February 2020 Decision date: 14 February 2020 Jurisdiction: Equity - Corporations List Before: Gleeson J Decision: Schemes approved Catchwords: CORPORATIONS – schemes of arrangement – creditors schemes – second court hearing – approval under Corporations Act 2001 (Cth) s 411(4)(b) – where schemes involve restructure of secured lending facilities – where governing law of one facility changed shortly prior to creditors vote – use of conditions subsequent in complex restructuring arrangements – where one scheme objected to by two shareholders – whether guarantees given by scheme company contravene Corporations Act s 208 – schemes approved Legislation Cited: Corporations Act 2001 (Cth), ss 208, 209, 210, 211, 212, 213, 214, 215, 216 Supreme Court (Corporations) Rules 1999 (NSW), rr 1.10, 3.4 Cases Cited: Antony Gibbs & Sons v L'Societe Industrielle et Commerciale des Metaux (1890) LR 25 QBD 399 Central Pacific Minerals NL (2002) FCA 239 Centro Properties Ltd v PricewaterhouseCoopers [2011] NSWSC 1465; (2011) 86 ACSR 584 In the matter of BIS Finance Pty Limited; In the matter of Artsonig Pty Limited [2017] NSWSC 1713 In the matter of OJSC International Bank of Azerbaijan [2018] EWHC 59 (Ch) Leawell Pty Ltd as trustee for the Garton Smith Trust, In the matter of Watershed Premium Wines Ltd v Watershed Premium Wines Ltd [2009] FCA 26 POS Media v B Family [2003] NSWSC 147 Re APCOA Parking Holdings GmbH (No 2) [2014] EWHC 3849 (Ch) Re Bluebrook Ltd [2009] EWHC 2114 (Ch); [2010] 1 BCLC 338 Re Boart Longyear Ltd (No 2) [2017] NSWSC 1105; (2017) 122 ACSR 437 Re Buka Minerals NL (1983) 8 ACLR 507 Re Bulong Nickel Pty Ltd [2002] WASC 226; (2002) 26 WAR 466 Re Glencore Nickel Pty Ltd [2003] WASC 18; (2003) 44 ACSR 210 Re Glendale Land Development Ltd (in liq) [1982] 2 NSWLR 563 Re Independent Practitioner Network [2008] FCA 1593; (2008) 26 ACLC 1,249 Re NRMA Limited [2000] NSWSC 82; (2000) 33 ACSR 595 Re Permanent Trustee Co Ltd [2002] NSWSC 1177; (2002) 43 ACSR 601 Re Seven Network Limited (No 3) (2010) 77 ACSR 701 Re Transcomm Credit Co-operative Ltd [2016] VSC 835 Category: Principal judgment Parties: Wollongong Coal Ltd (First plaintiff) Jindal Steel & Power (Australia) Pty Limited (Second plaintiff) NRE Resources Pty Ltd / Gujarat NRE India Pty Ltd (Interested persons) Representation: Counsel: C R C Newlinds SC / R J May (Plaintiffs) B J Gillard (Solicitor) (Interested persons) Solicitors: DLA Piper Australia (Plaintiffs) Gillard Consulting Lawyers (Interested persons) File Number(s): 2019/384003 Judgment 1. GLEESON J: Two companies in a group called Jindal Steel & Power, an Indian steel and energy company, have applied to the Court for the purpose of approval of schemes of arrangement with their secured creditors to effect a restructuring, which is considered necessary to enable those companies to avoid formal insolvencies and their associated value destruction for all creditors. 2. The scheme companies are Jindal Steel & Power (Australia) Pty Limited (JSPAL) and Wollongong Coal Ltd (Wollongong Coal); both are registered under the Corporations Act 2001 (Cth). Wollongong Coal is an ASX-listed coal mining company. It shares have been voluntarily suspended from trading since 13 December 2018. 3. JSPAL is wholly owned by Jindal Steel & Power (Mauritius) Ltd (JSPML), which in turn is wholly owned by Jindal Steel & Power Ltd (JSPLI), the ultimate parent company of the Jindal Group. JSPML holds 60.38 per cent of the shares in Wollongong Coal. The balance of the shares is held by the public. 4. JSPAL borrows funds from JSPML and on-lends those funds to Wollongong Coal. JSPAL also borrows funds from outside lenders and on-lends those funds to Wollongong Coal, under two facilities known as the Axis facility and the SBI facility. Those facilities are in default. Wollongong Coal is a guarantor of the Axis and the SBI facilities. 5. At the first court hearing on 20 December 2019, Black J made orders convening scheme meetings for the class of secured creditors who were lenders respectively under the Axis facility and the SBI facility, such meetings to be held concurrently, for the purpose of considering and if thought fit, agreeing to (with or without modification) the respective schemes between the scheme companies and the scheme creditors. 6. The scheme meetings were held on 30 January 2020. The resolutions agreeing to the proposed schemes were overwhelmingly passed by the requisite majorities referred to in s 411(4)(a) of the Corporations Act. 7. At the second court hearing two shareholders of Wollongong Coal, NRE Resources Pty Ltd and Gujarat NRE India Pty Ltd, were given leave to be heard in the proceeding as interested persons without becoming a party, pursuant to r 2.13(1) of the Supreme Court (Corporations) Rules 1999 (Corporations Rules). Their objections to the court approving the scheme in respect of Wollongong Coal are addressed below. 8. Before addressing the issues are raised by the approval applications, it is necessary to briefly explain the background to the proposed schemes, the broad terms of the proposed restructuring of the two facilities and the objective of the schemes Background 1. Wollongong Coal carries on the business of mining and producing coal for sale and export near Wollongong on the south-coast of New South Wales. Through two wholly-owned subsidiaries it owns two coal collieries known as Russell Vale and Wongawilli. Those collieries have not operated consistently for a number of years. The Russell Vale colliery has been placed on care and maintenance since 2015 following environmental and health safety concerns. Operations at Wongawilli have been intermittent in recent years and Wongawilli has been placed on care and maintenance since May 2019. As a consequence, Wollongong Coal has struggled to finance their operations and has had difficulties making payments under its facilities with its secured lenders. 2. In July 2019, Wollongong Coal filed a final Amened Underground Expansion plan seeking regulatory approval to carry out an underground mining at Russell Vale. Subject to the schemes being approved, the directors of Wollongong Coal expressed confidence in the explanatory statement accompany the proposed schemes that mining operations will resume at Russell Vale in late 2020 or early 2021. The date that the directors of Wollongong Coal now expect mining operations will resume is March 2021. Existing facilities 1. The Explanatory Statement sent to lenders on 23 December 2020 stated that the existing facilities which are secured comprised: 1. The MCB facility which was entered into by Wollongong Coal in 2012. The principal outstanding is $US10,417,500. This facility is not in default, however, the principal outstanding was due for repayment on the earlier of 31 December 2019 and the date on which any restructuring of indebtedness and other obligations of JSPAL becomes effective. The MCB facility is not the subject of the proposed schemes; however, it is a condition of the schemes that this facility is repaid by 31 December 2019 or such later date as may be agreed between Wollongong Coal and the lender under this facility. 2. The SBI guarantee facilities which were entered into in 2006 and 2007, pursuant to which mining security deposits had been issued by SBI (Sydney) in favour of the New South Wales Minister of Mineral Resources for the Russell Vale and Wongawilli mines, with an a cumulative limit of $AUD56,100,000. This guarantee facility is supported by guarantees from Wollongong Coal, Wongawilli Coal Pty Ltd and JSPML. As of 30 November 2019, the undrawn commitment was approximately $AUD9,000,000. The facility is not in default. The facilities are required to be renewed by Wollongong Coal and Wongawilli Coal each year and need to be renewed or replaced by 20 February 2020. These guarantee facilities are not the subject of the proposed schemes, however, the schemes contemplate the sale of non-mining assets in order to fully cash-collateralise the guarantee facilities. 3. The SBI facility pursuant to which JSPAL, as borrower, and Wollongong Coal, among others, as guarantor, entered into a $US98,690,000 facility agreement in 2015 with SBI (Sydney) and SBI (Mauritius) Limited as the original lenders. The governing law of the SBI facility is New South Wales law: cl 25. As at 30 November 2019, the SBI facility had an aggregate outstanding amount of $US78,301,339. The facility is in default. On 19 September 2019, a notice of demand and acceleration was issued to JSPAL as borrower and Wollongong Coal, among others, as guarantor. An initial forbearance agreement entered into by the parties has been replaced by the restructuring support agreement.; 4. The Axis facility pursuant to which JSPAL, as borrower, and Wollongong Coal, among others, as guarantor, entered into a $US69,000,000 facility agreement in 2015 with Axis Bank Ltd as the original lender (with an option to increase the facility by $US561,000,000). The governing law of the SBI facility was changed to New South Wales law on 19 December 2019, by a Consent letter between the Obligors and the Majority Lenders under the SBI facility. As at 30 November 2019, the Axis facility had an aggregate amount outstanding of approximately $US291,857,860. The facility is in default. 1. The MCB facility was repaid by four instalments between 9 January and 20 January 2020, being the agreed extended date for repayment. 2. JSPML has provided ongoing financial support and funding to the Wollongong Coal Group by way of equity contributions and unsecured inter-company loans. JSPML has also provided support letters to the directors of Wollongong Coal and guaranteed its secured facilities under the MCB facility and the SBI guarantee facilities. JSPML is a guarantor of the SBI and Axis facilities. As at 17 October 2019, in addition to its equity contributions of $AUD342,150,000, JSPML had made three inter-company loans to Wollongong Coal: an secured working capital loan facility (interest free) of $AUD347,027,784; an unsecured working capital loan facility (interest free) of $AUD 41,059,243.47; and an unsecured loan facility (interest free) of $US10,197,394.83. 3. On 11 November 2019, JSPAL and Wollongong Coal and nine lenders under the SBI and Axis facilities, referred to as the Consenting Creditors, entered into a Restructuring Support Agreement to give effect to the proposed restructuring by way of the schemes. Under the Restructuring Support Agreement as amended on 19 December 2019, the Consenting Creditors have agreed to support the schemes and their implementation on the terms of the Restructuring Support Agreement. The Consenting Creditors comprise all of the lenders under the SBI facility and a majority in number and 78.94 in value of the lenders under the Axis facility. 4. On 4 February 2020, the intercompany loan agreement between WCL and Jindal Steel & Power (Mauritius) Ltd was amended to increase the facility limit from $400 million to $440 million. Across its intercompany loans, WCL currently has "headroom" of approximately $67,848,740 noting that it is required to make an equalisation payment of $US23,104,510 on 15 February 2020 under the proposed schemes. Proposed schemes 1. The effect of the schemes is to restructure the existing SBI and Axis facilities by offering the secured lenders the opportunity to participate in one of two rescheduled facilities described as Rescheduled Facility A (which provides for various reductions of principal amounts outstanding upon certain milestones occurring) or Rescheduled Facility B (which extends the repayment schedule). 2. In outline, Rescheduled Facility A is subject to a reduction of up to 29 per cent in the amount of principal upon certain milestones being met. It will be repaid before Rescheduled Facility B and has a higher coupon rate with a margin of 4.5 per cent. 3. Rescheduled Facility B facility will rank pari passu in respect of guarantees and security provided with Reschedule Facility A, but will be repayable in full and without any reduction in the principal amount, in three equal payments amount to one-third of the total outstanding under Rescheduled Facility B, such payments to be made on 30 September 2026, 30 September 2027 and 30 September 2028. Rescheduled Facility B has a lower margin than Rescheduled Facility A of 3 per cent and lenders will not be able to exercise their rights to enforce a security interest while the principal amount is outstanding under Reschedule Facility A. 4. The schemes will also facilitate the proposed sale of non-mining assets, which are currently secured, the proceeds of which would be available for the recommencement of mining operations in certain circumstances and subject to approval. 5. The objective of the schemes as stated in the Explanatory Statement is as follows: 1. creating a sustainable capital structure for the scheme companies to enable them to meet their obligations to their secured creditors; 2. providing the scheme companies breathing room pending regulatory approvals to re-commence mining operations and consequently generate revenue and improve cash flow; 3. improving realisation value of non-mining assets; 4. curing the defaults under the secured facilities which will facilitate additional direct and indirect financial support from JSPML and JSPLI; 5. regularising the terms of the SBI facility and the Axis facility to minimise the risk of inadvertent defaults on either secured facility while complying with the other in the context of asset sales; and 6. providing a better return for scheme creditors than in a liquidation or enforcement scenario. 1. The Explanatory Statement sets out advantages and disadvantages of the schemes and risks relating to the schemes. It is sufficient to briefly mention the following. The advantages of the scheme are said to include improvement of the solvency position of Wollongong Coal and JSPAL given that those companies do not currently have sufficient assets and/or funding available to repay existing loan facilities owing to the scheme creditors which are due in the short to medium term. Another advantage is said to be maximisation of value realisation of surplus assets and additional funding to restart mining operations as the schemes will permit the scheme companies to sell their surplus assets not on a forced sale basis. 2. Disadvantages of the schemes include that the ability of the scheme companies to operate as going concerns over the longer term is highly dependent on a number of factors, including, but not limited to, the ongoing support from JSPLI, the ability to obtain the necessary approvals to restart mining operations, and the price of coal and other market factors, which may impact the prices ultimately obtained for surplus assets sold to fund operations and repay scheme creditors. The risk factors related to the schemes are said to include the risk of obtaining regulatory approval to recommence mining at Russell Vale and Wongawilli. This is acknowledged to be "uncertain and may not occur". Addendum to Explanatory Statement 1. The Explanatory Statement was sent to all lenders under the Axis and SBI facilities on 23 December 2019. On 16 January 2020, the lenders were provided with a further document entitled "Addendum to the Explanatory Statement: Supplementary Information & Amendments to explanatory statement dated 23 December 2019" dated 16 January 2020 (Addendum) with six schedules. As its name implies, the Addendum set out supplementary information by way of disclosure in the Explanatory Statement and details of amendments proposed by the Consenting Creditors (see above at [14]) to the scheme meeting materials that were satisfactory to the scheme companies. Some of the changes related to the drafting of the transaction documents contemplated by the proposed restructuring. Some of the changes related to the terms of the proposed schemes; the latter changes were essentially of a typographical nature and did not change the substance of the schemes. 2. The Addendum informed the lenders that the scheme companies would be seeking approval of, and the scheme creditors would be asked to consider, whether to agree to or not, the proposed schemes as described in the scheme meeting materials, as amended. Scheme resolutions 1. In relation to the JSPAL scheme, the result of the voting was that 95 per cent (19 lenders) present and voting, holding 89.85 per cent ($US325,516,616.43) of the value of the debt, voted in favour of the scheme. All 8 lenders under the SBI facility voted in favour; 18 lenders under the Axis facility voted in favour and one lender holding 12.95 per cent of that facility abstained. That lender was Bank of Baroda. 2. In relation to the Wollongong Coal scheme, the result of the voting was that 94.74 per cent (18 lenders) present and voting, holding 89.41 per cent ($US310,650,905.69) of the value of the debt, voted in favour of the scheme. Again, all 8 lenders under the SBI facility voted in favour; 17 lenders under the Axis facility voted in favour and one lender (Bank of Baroda), holding 13.66 per cent of the value of the debt present and voting, abstained. 3. The small difference in the voting between the two schemes was a consequence of one lender (Canara Bank) under the Axis facility, who had submitted a proof of debt for the JSPAL scheme, failing to lodge a proof of debt for voting purposes in relation to the Wollongong scheme. 4. Although the terms of the scheme resolutions put to the scheme meetings as recorded in the minutes of the meetings do not expressly refer to the changes to the schemes outlined in the Addendum, the affidavit evidence of Mr Christopher Hill, the chairperson of the meetings, establishes that Mr Hill made plain at the meetings what had been already stated in the Addendum, that is, the lenders were voting upon the schemes, as amended by the Addendum. I am satisfied that the resolutions passed at the scheme meetings were in respect of the proposed schemes as amended, by the Addendum. Legal principles 1. The role of the Court at the second hearing is supervisory. The Court is concerned to be satisfied that all procedural requirements have been met, that the majority of creditors have acted in good faith and not for any illegitimate purpose, and that the scheme is fair and reasonable: Re Seven Network Limited (No 3) (2010) 77 ACSR 701 at [31]-[40]. As to the last matter, whilst the Court must form a favourable view of the arrangement, the Court will generally take the view that creditors are the best judges of whether an arrangement or compromise is to their commercial advantage: Re Permanent Trustee Co Ltd (2002) 43 ACSR 601 at [9]-[10] (Barrett J); Central Pacific Minerals NL (2002) FCA 239 at [12], [14] (Emmett J). Procedural matters 1. Subject to one matter, the affidavit evidence shows that all the procedural requirements have been complied with. The meetings were convened in accordance with the orders made on 20 December 2019, and, as indicated, the schemes were agreed to by the requisite majorities of lenders referred to in s 411(4)(a). 2. The notice of hearing published in the Sydney Morning Herald and the Australian newspapers was published on 5 February 2020. Senior counsel for the scheme companies accepted that the notice was required to be published on 4 February 2020 to satisfy the requirement of r 3.4(3)(b) of the Corporations Rules which provides that the notice be published at least five days before the day fixed for the hearing of the application. 3. An order is sought pursuant to r 1.10 of the Corporations Rules abridging the time for publication of the notice required by r 3.4(3)(b) to 5 February 2020. Such an order was made in Re Transcomm Credit Co-operative Ltd [2016] VSC 835 where only two days' notice was given of the second court hearing under r 3.4. In that case, Robson J made orders nunc pro tunc abridging the time for publication in r 3.4(3)(d) on the basis that the Explanatory Statement contained the date of the second court hearing. 4. Here, the notice was late by only one day; the Explanatory Statement and the Addendum both contained references to the second court hearing date; there is evidence that on 4 February 2020 the solicitor for the scheme companies emailed a copy of the notice of hearing to creditors appearing in the Form 507 for both JSPAL and Wollongong Coal; and that also on 4 February 2020, Wollongong Coal made an announcement to the ASX annexing a copy of the notice of hearing. In the circumstances, it is appropriate to make the order sought abridging the time for publication. Absence of objection by lenders 1. The English solicitors for Bank of Baroda, which abstained from voting at the meeting of lenders under the Axis facility, raised a number of queries in relation to the schemes in correspondence with the solicitors for the scheme companies. Ultimately, the solicitors for Bank of Baroda indicated by letter dated 13 February 2020 that their client did not object to the schemes. 2. No lender under the SBI or Axis facilities has appeared to oppose the schemes. The court may thus be satisfied that no lender desires to raise any matter of objection so far as approval of the schemes is concerned. This, coupled with the expression of lenders' wishes through voting, is a powerful indicator of lenders' own views as to where their interests lie. That is especially so in this case where the lenders may be taken to be sophisticated creditors. Independent expert report 1. The independent expert report of PricewaterhouseCoopers Securities Ltd (PwC), included in the Explanatory Statement, states that the proposed schemes are fair and reasonable. Mr Richard Stewart, a co-author of the report, has deposed that he holds the opinions expressed in the report. 2. The PwC report includes the following summary of the conclusions in sections 6 and 7: 6 In our opinion, if the schemes are not implemented, it is unlikely that WCL, JSPAL and their subsidiaries if the Schemes would have sufficient liquidity or ability to raise further capital to repay debts owing to the Secured creditors, and it is therefore likely that they would enter external administration. 7 In our opinion, the likely outcome of WCL and JSPAL and their subsidiaries if the Schemes are approved and implemented will be as follows: a) provide additional time to maximise the value of surplus assets and obtain the approvals required to restart mining operations; b) provide additional liquidity required to restart mining operations; c) maximise the prospects of continued financial support from JSPML and/or JSPL; d) improve their solvency positions. 1. The PwC report also expressed the following opinions as to the likely return to lenders under the SBI and Axis facilities in three scenarios as follows: 1. $0.48 to $1.00 for each existing dollar of claim if the schemes are implemented, assuming Wollongong Coal and JSPAL continue operating as going concerns; 2. $0.19 to $0.26 for each existing dollar of claim if the schemes are implemented, assuming Wollongong Coal and JSPAL are wound up within six months of the second court hearing date; 3. $0.08 to $0.16 for each existing dollar of claim if the schemes are not implemented. ASIC 1. ASIC had an opportunity to examine the PwC report before the first court hearing. It did not appear at that hearing to argue that the report was unreliable or defective or flawed. 2. In addition, there has been tendered an email dated 11 February 2020 from ASIC stating that based on the materials provided to that date, ASIC did not propose to make any submissions at the second court hearing (Ex 1). Issues for consideration 1. Four issues arise on the present applications. (1) Conditions precedent and subsequent 1. The first issue which arises is the use of conditions precedent and subsequent in the schemes. There are three groups of conditions or steps that need to be undertaken before the proposed restructure of the SBI and Axis facilities will take effect. 2. First, Sch 3 of the schemes headed "Pre-Ed Conditions" contains nine conditions precedent that are required to be met prior to the schemes becoming effective and legally binding on the lenders. Two of those conditions relate to court approval and lodgment of an office copy of the court orders with ASIC (Conditions 7 and 8). As to the remaining seven conditions, there has been tendered evidence establishing that those conditions have been satisfied. 3. Second, Sch 4 to the schemes headed "Pre-settlement Date Conditions Precedent" contains five conditions precedent that are required to be met before the transactions contemplated by the schemes are able to be implemented. Condition 1 concerns the occurrence of the Effective Date which is defined to mean the date upon which the Pre-Ed Conditions are satisfied. Conditions 2 and 3 relate to obtaining of regulatory approval, including that JSPLI has made an application for RBI Approval. The latter condition is a reference to written approval of the Reserve Bank of India approving the issuance of a new guarantee by JSPLI in respect of the SBI and Axis facilities as amended. Condition 4 relates to the payment of the MCB facility on or before 31 December 2019 or such later date as may be agreed between Wollongong Coal and the lenders under the MCB Facility. As indicated, this condition has been satisfied. Condition 5 relates to certain payments to be made by JSPAL to the lenders under the SBI and Axis facilities in respect of amortisation payments owing to certain of the lenders, interest accrued, and outstanding fees, costs and expenses. 4. Third, cl 5.3 of the schemes headed "Scheme Steps" sets out the steps required to be undertaken by the scheme companies, the other Obligors, the scheme creditors, the Representative Parties, and the Scheme Administrators from the Effective Date in order to implement the transactions contemplated by the schemes, and enter the secured facility amendment documents with the lenders who are scheme creditors. It is not necessary to set out the detail of those steps. It is sufficient to observe that the schemes provide for a Termination Date which is defined as the date on which the schemes ceased to have effect in accordance with cl 15 as follows: 15. Termination of Schemes 15.1 The Termination Date shall be: (a) the CP Satisfaction Long Stop Date, if the Pre-Settlement Date Conditions Precedent are not satisfied or waived in accordance with the terms of this Scheme Document on or before 11.59 pm on the CP Satisfaction Long Stop Date; or (b) the Settlement Long Stop Date, if the Settlement Date does not occur on or before 11.59 pm on the Settlement Long Stop Date. 15.2 For the purposes of this Scheme Document: (a) "CP Settlement Long Stop Date" shall mean 15 March 2020, or such later date as may be agreed between the Companies and Secured Scheme Creditors representing at least a majority in number and three fourths in value of the aggregate Scheme Claims of the Secured Scheme Creditors, provided that in any event such later date occurs on or before 29 March 2020; and (b) "Settlement Long Stop Date" shall mean 16 March 2020, or such later date as may be agreed between the Companies and Secured Scheme Creditors representing at least a majority in number and three fourths in value of the aggregate Scheme Claims of the Secured Scheme Creditors, provided that in any event such later date occurs on or before 30 March 2020. 1. The effect of cl 15.2 is that the schemes could still terminate after court approval, if the conditions subsequent are not fulfilled by 15 March and 16 March 2020 respectively, or in the event of an extension of the relevant long stop dates being agreed between the scheme companies and the scheme creditors, by no later than 29 March and 30 March 2020 respectively. 2. In Re NRMA Limited [2000] NSWSC 82; (2000) 33 ACSR 595, Santow J observed at [61] that most, though not all, schemes qualify for approval only after all conditions are satisfied, other than the formality of the lodgment of the court order. NRMA involved a proposed scheme for the corporate restructuring of a mutual insurance company and an associated motoring company. One of the objections considered by Santow J at the first court hearing was the use of conditions subsequent in the proposal. His Honour concluded at [61]-[62]: [61] I expressed initial concern, at the fact that these schemes were to be approved by the court when further steps in each proposal had still to occur, being each of the events set out as conditions subsequent. That is not the conventional scheme route. Most though not all schemes qualify for approval only after all conditions are satisfied (other than the formality of lodgment of the court order). Here the schemes could still terminate after court approval, if a condition subsequent were not fulfilled by 31 December 2000 though on the basis that the status quo is then to be restored, save for unimportant exceptions. [62] However, an analysis of how these conditions subsequent operate has allayed that concern. With minor exceptions which do not matter, if any of the conditions — whether precedent or subsequent — do not occur — then the status quo is fully restored without adverse consequence. In Appendix A, I have elaborated the analysis which supports that conclusion. 1. Santow J reviewed the authorities and elaborated the reasoning which led him to that conclusion in Appendix A to the judgment at (22)-(33). It is convenient to extract from Appendix A (28)-(29): (28) The use of conditions subsequent to bring about termination of a scheme of arrangement needs to be distinguished from a scheme containing machinery which could lead to variation of its terms. Courts will generally not approve schemes which carry within themselves machinery for variation of their own terms: see, for example, Re R M Eastmond Pty Ltd and the Companies Act (1972) 4 ACLR 801; Re Telford Inns Pty Ltd (1985) 3 ACLC 660; Re Leamon Consolidated (Vic) Pty Ltd (1985) 10 ACLR 263. The reason for that is stated in Leamon (at 265): In my opinion, a scheme … ought not to be approved unless the creditors and the court can see very clearly at the time the scheme is proposed what it is that they are being asked to accept, and, in the case of the court, what it is that it is being asked to approve. (29) Clarity and certainty are thus the touchstones. Provided that clarity and certainty are present on the face of the scheme and no new decision making process intrudes after court approval, it does not matter that different results may emerge in different (but clearly identified) eventualities. A key question is whether the scheme is, according to its own terms, self-executing in the sense that certain results follow in certain defined events. 1. Thus, a condition precedent which prevents the scheme coming into operation unless it is satisfied may be acceptable, although each case must of course be considered on its own merits. The inclusion of conditions subsequent in complex restructuring arrangements is not unusual. 2. Here, I am satisfied that the conditions subsequent to the operation of the schemes satisfy the touchstones of clarity and certainty, referred to by Santow J in NRMA. Adopting the language of Santow J, the schemes are, accordingly to their own terms, self-executing in the sense that certain results follow in certain defined events. Insofar as the scheme companies and scheme creditors may extend the relevant long-stop dates, cl 15.2(a) and (b) provide certainty that any permitted extension of time case can be no longer than 14 days and the relevant long-stop dates contain a definite date for satisfaction of the conditions. 3. Given the complexity of the steps required to be taken to implement the restructuring transactions, I accept that there are good commercial reasons for proceeding in this way. In the event that the conditions subsequent are not satisfied, the result will be to restore the status quo without any adverse consequence. (2) Change of governing law under the Axis Facility 1. The second issue which arises is whether the change of the governing law of the Axis facility to New South Wales law, immediately prior to the first court hearing, on terms that the governing law is to revert to the law of England on 16 March 2020, is a reason for declining to approve the schemes, given that the change was effected in reliance of provisions in the Axis facility agreement which make certain majority decisions binding on the minority: cf In Re APCOA Parking Holdings GmbH (No 2) [2014] EWHC 3849 (Ch), where a similar issue arose in different circumstances. There a creditor who objected to the change of law under the facilities agreement, unsuccessfully contended that the new governing law and jurisdiction clauses, which had been effected solely to take advantage of the English court's sanction jurisdiction, were an insufficient connection to exercise of that jurisdiction in respect of the foreign scheme companies. 2. The terms of the Axis facility agreement provide for the making of amendments with the consent of the Majority Lenders and Obligors under cl 39.1, other than with respect to certain listed provisions which required the consent of all lenders. A change of governing law is not a provision that requires the consent of all lenders. 3. The amendment to the governing law of the Axis facility occurred on about 19 December 2019, when a number of parties executed a document entitled "Facility Agreement – Consent Letter". The evidence establishes that the Majority Lenders, as relevantly defined in the Axis facility, being lenders whose participation in the loans then outstanding aggregate more than 66.67 per cent of the loans then outstanding, agreed to that amendment. In fact, the value of the participations in the loans then outstanding of the Majority Lenders who agreed to the amendment was approximately 78 per cent. 4. The amendment to the governing law clause deleted cl 41 of the Axis facility agreement and replaced it with the following: 41.1 Subject to clause 41.2, this agreement and any non-contractual obligations arising out of or in connection with it are governed by the laws of New South Wales. 41.2 Clause 41.1 shall be deleted and replaced with the following provisions with effect from 16 March 2020: This Agreement and any non-contractual obligations arising out of or in connection with it are governed by English law. 1. This change in the governing law of the Axis facility agreement and its temporal limitation was disclosed in the Explanatory Statement in Annexure 12 which summarised the Terms Sheet and Annexure 13 which summarised the amendments to the secured facility documents (Ex RS-2 at CB Vol 3, pp 2104, 2119-2120). 2. The question is whether the fact that the change is effected in reliance of provisions in an agreement which make certain majority decisions binding on the minority, raises any concern as to oppression of the minority lenders under the Axis facility who did not agree to the change. In my view, no concern arises in the present case. 3. First, the provisions of the Axis facility requiring unanimity in defined circumstances and not in others are to be taken as confirming that unanimity is not required for the change in governing law. 4. Second, consistently with party choice and autonomy, the changed choice of law of the Axis facility is not alien or indiscriminate, given the location of the debtor, JSPAL and one of the guarantors, Wollongong Coal, in this jurisdiction. 5. Third, the validity of the change of the governing law of the Axis facility was not questioned by any lender under the Axis facility. As indicated, no lender has raised an objection to the schemes which are premised on the change of governing law under the Axis facility. 6. Fourth, Bank of Baroda, the lender under the Axis facility who abstained from voting on the schemes, has now indicated through its solicitor's letter of 13 February 2020 that it does not oppose the schemes (MFI-1). 7. In view of the above it is not necessary to consider whether the rule in Gibbs case, should be applied in Australia: Antony Gibbs & Sons v L'Societe Industrielle et Commerciale des Metaux (1890) LR 25 QBD 399. The effect of the rule in Gibbs case is that English law does not recognise a foreign insolvency restructuring such as a scheme of arrangement to the extent to which it seeks to discharge debts that arose pursuant to a contract governed by English law, without such restructuring being subject to an equivalent English restructuring proceeding. The rule in Gibbs case is controversial and has been subject to both judicial and academic criticism. Notwithstanding those criticisms, the rule seems to remain in place, at least in England: In the matter of OJSC International Bank of Azerbaijan [2018] EWHC 59 (Ch) at [51], [54] (Hildyard LJ). 8. Nor is it necessary to consider whether the rule in Gibbs case, assuming it applies in Australia, gives rise to a need for dual schemes of arrangement for Australian scheme companies whose debt obligations are governed by foreign law, accepting that an Australian court has power to approve a scheme even if the effect will be to modify or discharge obligations under a contract which stipulates that it is to be governed by the law of another forum: Re Bulong Nickel Pty Ltd [2002] WASC 226; (2002) 26 WAR 466 at [15]; Re Glencore Nickel Pty Ltd [2003] WASC 18; (2003) 44 ACSR 210 at [39]-[40]; In the matter of BIS Finance Pty Limited; In the matter of Artsonig Pty Limited [2017] NSWSC 1713 at [37]. (3) Amendment to the Schemes 1. The third issue which arises is that the court is asked to approve the schemes, subject to one alteration in cl 8.1(a) to fill in the blanks as to the identity of the person to be appointed as the Independent Adjudicator under the schemes. 2. The proposed appointee is Mr David Walter, solicitor, a partner of Baker McKenzie. There is evidence that he has executed a deed poll dated 12 February 2020 undertaking to be bound by the schemes. This is necessary where participation by an outsider is an essential element of the scheme: Re Glendale Land Development Ltd (in liq) [1982] 2 NSWLR 563 (McLelland J); Re Buka Minerals NL (1983) 8 ACLR 507 (McLelland J). 3. It is uncontroversial that the Court has power to approve a scheme, subject to alterations, in appropriate circumstances. The issue was discussed by Lindgren J in Re Independent Practitioner Network [2008] FCA 1593; (2008) 26 ACLC 1,249 at [10]-[15]. In Re Permanent Trustee Co Ltd, Barrett J said at [21] that it was clear, in that case, that the changes or differences were of a minor and technical kind and that their effect was to improve the smooth working of the scheme. Those comments apply equally here, the amendment to the schemes is minor. (4) Objections by shareholders to the Wollongong Coal scheme 1. Although the shareholders of Wollongong Coal are not bound by the Wollongong Coal scheme, to the extent approval of this scheme may affect the shareholders in a more general sense, other than affecting their legal rights against the company, it is appropriate for the court at the second hearing for approval of the scheme to take into account the position of affected parties and any objections raised by them: Centro Properties Ltd v PricewaterhouseCoopers [2011] NSWSC 1465; (2011) 86 ACSR 584 at [22]-[27] (Barrett J); Re Boart Longyear Ltd (No 2) [2017] NSWSC 1105; (2017) 122 ACSR 437 at [84] (Black J). 2. As Justice Mann observed in Re Bluebrook Ltd [2009] EWHC 2114 (Ch); [2010] 1 BCLC 338 at [26] with respect to objections by a lender not bound by a proposed creditors' scheme of arrangement: The schemes do not involve the Mezzanine Lenders in the sense of engaging them as parties. They will not bind them, and their legal rights are unaffected. The Mezzanine Lenders therefore cannot, and do not, complain as persons whose legal rights are being altered by the schemes in some unfair way. However, they are still entitled to object as creditors on grounds of unfairness if the schemes unfairly affect them in ways other than altering their strict rights. The court is exercising a discretion, and as a matter of principle can consider unfairness in that sense, if it is made out. That is the essence of the case of the Mezzanine Lenders. 1. Barrett J was of a similar view in Centro Properties Ltd v PricewaterhouseCoopers where his Honour remarked at [27]: [T]he court's consideration is not confined to the direct results of the relevant schemes' operation. If a scheme is proposed and will take effect in a wider and inseparable context - particularly a contractual context - involving indirect consequences, it is appropriate for those consequences to be taken into account. … The three objections 1. Mr Gillard, the objectors' solicitor, advanced three objections to approval of the Wollongong Coal scheme. The first objection concerned an alleged contravention of s 208 of the Corporations Act in respect of guarantees given by Wollongong Coal to the lenders under the SBI facility and the Axis facility. 2. The second objection related to the likely financial position of the scheme companies if the schemes are approved. 3. The third objection related to the likelihood of Wollongong Coal, though its subsidiary, obtaining the necessary regulatory approvals to resume mining at the Russell Vale colliery. 4. No affidavit evidence was sought to be relied upon by the objectors. Asserted contravention of s 208(1) 1. As to the first matter, Mr Gillard submitted since JPSAL is a related party of Wollongong Coal, then Wollongong Coal as a public company was prohibited from giving a financial benefit to a related party without obtaining shareholder approval by reason of s 208 of the Corporations Act. The alleged financial benefit given by Wollongong Coal to JSPAL was said to be the guarantees given to the lenders under the SBI facility and the Axis facility. It was submitted that there had been no member approval of the guarantees. Mr Gillard submitted that as a consequence of the contraventions, Wollongong Coal could possibly escape liability as guarantor of the SBI and Axis facilities, and this would improve its financial position. 2. Senior counsel for the scheme companies did not dispute the premise of this objection, namely, the absence of shareholder approval, but did dispute the asserted consequences of any contravention of s 208, if the exceptions in ss 210 to 216 did not apply. 3. Section 208(1) of the Corporations Act provides: 208 Need for member approval for financial benefit (1) For a public company, or an entity that the public company controls, to give a financial benefit to a related party of the public company: (a) the public company or entity must: (i) obtain the approval of the public company's members in the way set out in sections 217 to 227; and (ii) give the benefit within 15 months after the approval; or (b) the giving of the benefit must fall within an exception set out in sections 210 to 216. Note 1: Section 228 defines related party, section 9 defines entity, section 50AA defines control and section 229 affects the meaning of giving a financial benefit. Note 2: For the criminal liability of a person dishonestly involved in a contravention of this subsection, see subsection 209(3). Section 79 defines involved. 1. The consequences of a breach of s 208 are set out in s 209, which provides: 209 Consequences of breach (1) If the public company or entity contravenes section 208: (a) the contravention does not affect the validity of any contract or transaction connected with the giving of the benefit; and (b) the public company or entity is not guilty of an offence. Note: A Court may order an injunction to stop the company or entity giving the benefit to the related party (see section 1324). (2) A person contravenes this subsection if they are involved in a contravention of section 208 by a public company or entity. Note 1: This subsection is a civil penalty provision. Note 2: Section 79 defines involved. (3) A person commits an offence if they are involved in a contravention of section 208 by a public company or entity and the involvement is dishonest. 1. No attempt was made by Wollongong Coal to adduce evidence to establish the exception to s 208(1) provided by s 210 with respect to the giving of a financial benefit on arms-length terms. Rather, Wollongong Coal pointed to s 209(1) which provides that if a company contravenes s 208 of the Corporations Act, the contravention "does not affect the validity of any contract or transaction connected with the giving" of the financial benefit. 2. In reply submissions Mr Gillard, for the objectors, acknowledged that s 209(1) had the effect of preserving the validity of any guarantees given by Wollongong Coal in contravention of s 208(1), but went on to submit that "the circumstances that surround what occurred may lead to it being invalidated" (Tcpt 12/2/20, 17 27-28)). The first part of the submission can be accepted. A contravention of s 208(1) "does not affect the validity of the validity of any contract or transaction connected with the giving" of the financial benefit: POS Media v B Family [2003] NSWSC 147 at [18]-[20] (Austin J); Leawell Pty Ltd as trustee for the Garton Smith Trust, In the matter of Watershed Premium Wines Ltd v Watershed Premium Wines Ltd [2009] FCA 26 at [20]-[21] (Siopis J). However, I reject the balance of the submission. It is inconsistent with s 209(1). The first objection may be put aside. 3. It should be observed in passing that insofar as the monies advanced under the SBI and Axis facilities to JSPAL have been on-lent by JSPAL to Wollongong Coal, the indebtedness of Wollongong Coal to JSPAL is not affected by any contravention of s 208(1): Corporations Act, s 209(1). Future financial prospects 1. In relation to the second objection, Mr Gillard accepted that the Explanatory Statement disclosed that the facilities to be provided by JSPML to JSPAL included headroom of $40,000,000 as working capital: see above at [15]. Senior counsel for the scheme companies frankly acknowledged the uncertainty regarding the solvency of the scheme companies over the longer term, if the schemes are approved, which is disclosed in the Explanatory Statement (par 14.2). Risks of resuming mining 1. As to the third objection, counsel for the scheme companies also acknowledged the risk that Wollongong Coal might not obtain the necessary regulatory approvals for its subsidiaries to resume mining activities at the Russell Vale and Wongawilli collieries. That risk is disclosed in the Explanatory Statement and described as "uncertain and may not occur" (par 18.2). 2. It is reasonable to assume that the lenders under the SBI and Axis facilities have taken these risks into account in deciding to support the schemes. As sophisticated creditors, they can be taken to be in a position to assess and weigh the commercial risks and benefits associated with the schemes. 3. In my view, none of the objections raised by the two shareholders of Wollongong Coal, either alone or in combination, give rise to a doubt that the schemes are fair and reasonable. The objections do not provide a proper basis to decline to exercise the discretion to grant approval of the schemes. 4. One further matter should be mentioned. Given the current financial position of the scheme companies, the shareholders of Wollongong Coal may be considered to be presently "out of the money". The value, if any, attaching to their shares in Wollongong Coal depends on the success of the restructuring of the secured debt of the scheme companies as contemplated by the schemes and the continued financial support of the secured lenders and the Jindal group. Conclusion and Orders 1. I am satisfied that the schemes are fair and reasonable, taking into account the directors' recommendation; the existence and content of the independent expert report of PwC which has been verified by one of its co-authors; that lenders having received that report as part of the Explanatory Statement voted by overwhelming majority to agree to the schemes; that there is no evidence of oppression in the conduct of the scheme meetings; and that no lender has come forward to oppose the schemes. 2. The scheme companies have made out their case for an order under s 411(4)(b) approving the schemes, subject to the minor amendment in cl 8.1(a) of the schemes to insert the name of the Independent Adjudicator. 3. The usual ancillary order under s 411(12) dispensing with compliance with s 411(11) should be made. Compliance with this provision is of no utility in a case such as the present which does not involve any amendment to the constitution of either scheme company. 4. The Court orders that: 1. Pursuant to s 411(4)(b) and (6) of the Corporations Act 2001 (Cth), the scheme of arrangement between the first plaintiff and the class of its creditors comprising: 1. the "Lenders" as defined in the term loan facility provided pursuant to a facility agreement dated 6 August 2015 as amended, restated and supplemented (the Axis facility); and 2. the "Lenders" as defined in the term loan facility provided pursuant to a facility agreement dated 24 December 2015 as amended, restated and supplemented (the SBI facility), in the form at pages 1115 to 1633 of Exhibit RS-2 in this proceeding, be approved subject to the following alteration to the scheme: 1. inserting in cl 8.1(a) the words "David James Walter" in place of the square brackets after the words "shall appoint" and inserting the words "Baker McKenzie" in the place of the square brackets after the words "a partner of". 1. Pursuant to s 411(4)(b) and (6) of the Corporations Act 2001 (Cth), the scheme of arrangement between the second plaintiff and the class of its creditors comprising: 1. the "Lenders" as defined in the term loan facility provided pursuant to a facility agreement dated 6 August 2015 as amended, restated and supplemented (the Axis facility); and 2. the "Lenders" as defined in the term loan facility provided pursuant to a facility agreement dated 24 December 2015 as amended, restated and supplemented (the SBI facility), in the form at pages 1115 to 1633 of Exhibit RS-2 in this proceeding, be approved subject to the following alteration to the scheme: 1. inserting in cl 8.1(a) the words "David James Walter" in place of the square brackets after the words "shall appoint" and inserting the words "Baker McKenzie" in the place of the square brackets after the words "a partner of". 1. Pursuant to r 1.10 of the Supreme Court (Corporations) Rules 1999 (NSW) (Rules), the time for publication of the notice in r 3.4(3)(b) of the Rules be abridged nunc pro tunc to 5 February 2020. 2. Pursuant to s 411(12), the first and second plaintiffs be each exempted from compliance with s 411(11) of the Corporations Act 2001 (Cth) in relation to the schemes. 1. These orders be entered forthwith. ********** Amendments 14 February 2020 - Title - added "Pty" to "Jindal Steel & Coal Australia Ltd" 17 March 2020 - Amendment to jurisdiction - not visible 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: 17 March 2020