Australian Executor Trustees Ltd v Provident Capital Ltd (No 3) - [2012] FCA 1253

FEDERAL COURT OF AUSTRALIA
Australian Executor Trustees Ltd v Provident Capital Ltd (No 3)
[2012] FCA 1253

Citation: Australian Executor Trustees Ltd v Provident Capital Ltd (No 3) [2012] FCA 1253

Parties: AUSTRALIAN EXECUTOR TRUSTEES LIMITED v PROVIDENT CAPITAL LIMITED

File number: NSD 808 of 2012

Judge: RARES J

Date of judgment: 12 November 2012

Catchwords:
CORPORATIONS – receivers – debentures issued by company to the public under a debenture trust deed – where receivers of issuer company seek advice and directions pursuant to ss 424 and 283HA of the Corporations Act 2001 (Cth) as to whether they would be justified in pursuing amendments to the trust deed, in order to facilitate a fairer distribution to debenture holders of the proceeds of realisation of company’s loan portfolio – whether effect of the proposed amendment creates different classes of debenture holders – whether separate members of each class should be called

Held: the receivers may convene a meeting, at which all debenture holders are to be present, to take a poll regarding the proposed amendments to the trust deed – receivers to inform a Court of the outcome of the meeting, including voting preferences in each potential class of debenture holders, with a view to the Court making orders pursuant to s 283HB(1)(g) giving effect to any resolution passed

Legislation: Corporations Act 2001 (Cth) Pt 2F.2, ss 246B, 283HA, 283HB(1)(b), 283HB(1)(c), 411, 412(1)(a)(ii), 412(3), 424

Cases cited:
Australian Executor Trustees Ltd v Provident Capital Ltd (2012) 203 FCR 461 referred to
Owners of Shin Kobe Maru v Empire Shipping Company Inc (1994) 181 CLR 404 referred to
Re Glendale Land Development Ltd (In liq) [1982] 2 NSWLR 563 referred to
Re Hills Motorway Ltd (2002) 43 ACSR 101 referred to

Re Sino Gold Mining Ltd (2009) 74 ACSR 647 referred to
Sovereign Life Assurance Company v Dodd [1892] 2 QB 573 referred to

Dates of hearing: 23 October 2012, 12 November 2012

Place: Sydney

Division: GENERAL DIVISION

Category: Catchwords

Number of paragraphs: 44

Counsel for the Plaintiff: Mr J Hynes

Solicitor for the Plaintiff: Henry Davis York

Counsel for the Defendant: The defendant did not appear

Solicitor for the Amicus Curiae: Australian Securities and Investments Commission Ms Howitt (12 November 2012 only)

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 808 of 2012

BETWEEN:
AUSTRALIAN EXECUTOR TRUSTEES LIMITED
Plaintiff

AND:
PROVIDENT CAPITAL LIMITED
Defendant

JUDGE:

RARES J

DATE OF ORDER:

12 NOVEMBER 2012

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:
1.Pursuant to s 424 Corporations Act 2001 (Cth) on the proper construction of the Debenture Trust Deed dated 11 December 1998 (as amended from time to time) (the Deed) the defendant (the Company) would be justified in amending cl 18.2 of the Deed pursuant to cl 18.1.4 and/or 18.1.5 by adding cl 18.2.7 which shall provide:
“18.2.7a quorum representing debenture holders with at least 10% of the face value of debentures on issue must be present at the meeting in person…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2012] FCA 1253
Decision Date: 12 November 2012

CaseChat Overview and Summary

In Australian Executor Trustees Ltd v Provident Capital Ltd (No 3), the court addressed whether receivers appointed over Provident Capital Ltd could pursue amendments to a trust deed to facilitate a fairer distribution of the proceeds from the realisation of the company’s loan portfolio among debenture holders. The case required the court to consider whether the proposed amendment would create different classes of debenture holders and whether separate meetings should be called for each class to vote on the proposed amendment.

The legal issues involved interpreting sections 424 and 283HA of the Corporations Act 2001 (Cth) to determine whether the receivers were justified in convening a meeting of all debenture holders to vote on the proposed amendments. The court also had to decide whether separate meetings should be held for each class of debenture holders, considering the potential differential impact of the amendment on each class. The receivers argued that the amendment would enable repayment of principal before interest, which they believed was fairer given the non-performing nature of the loan portfolio. The court found that the receivers would be justified in proposing the amendment and convening a single meeting of all debenture holders to vote on the proposed changes.

The court reasoned that it was important for the administration of justice that the Commission assist the court in this matter, given the significant impact on the thousands of debenture holders involved. The court concluded that the receivers could proceed with the proposed amendments, provided they convened a single meeting for all classes of debenture holders. The court also noted the need for the receivers to inform the court of the meeting’s outcome, including the voting preferences of each class of debenture holders, to allow the court to make appropriate orders.

In summary, the court held that the receivers could proceed with their proposal to amend the trust deed, provided they convened a single meeting of all debenture holders to vote on the amendments. The court's orders included provisions for the receivers to convene the meeting, inform the court of the outcome, and file an affidavit detailing the voting preferences of each class of debenture holders. This decision ensures that the debenture holders have an opportunity to participate in the decision-making process regarding the proposed amendments.

Orders

Orders of the court

1. Pursuant to s 424 Corporations Act 2001 (Cth) on the proper construction of the Debenture Trust Deed dated 11 December 1998 (as amended from time to time) (the Deed) the defendant (the Company) would be justified in amending cl 18.2 of the Deed pursuant to cl 18.1.4 and/or 18.1.5 by adding cl 18.2.7 which shall provide:

“18.2.7 a quorum representing debenture holders with at least 10% of the face value of debentures on issue must be present at the meeting in person or by proxy or by attorney.”

2. Pursuant to s 283HA of the Corporations Act 2001 (Cth) the plaintiff would be justified in approving the amendment to the Deed by the Company referred to in order 1.

3. Pursuant to s 424 of the Corporations Act 2001 (Cth) the plaintiff and Marcus William Ayres, Philip Patrick Carter and Anthony Milton Sims (the receivers) would be justified in proposing the amendment to the Deed in the terms proposed in the draft Notice of Meeting of Debenture Holders and Explanatory Statement annexed to the Amended Interlocutory Process as filed on 12 November 2012 and marked “A” (Notice of Meeting).

4. Pursuant to s 283HA of the Corporations Act 2001 (Cth) the plaintiff would be justified in:

(1) approving and proposing the amendment to the Deed in the terms proposed in the Notice of Meeting;

(2) convening a meeting of debenture holders (Meeting) during which:

(a) all classes or possible classes of debenture holders (including lump sum, periodic interest and expired) are to be present in a single meeting; and

(b) a single poll is to be taken from all debenture holders in relation to the amendment to the Deed proposed in the Notice of Meeting

5. The plaintiff file an affidavit within 7 days (and provide a copy of that affidavit to the Associate to Rares J) following the Meeting deposing to:

(a) any resolution that is passed at the Meeting;

(b) the voting preference by quantity of votes (whether “for”, “against” or “abstained”) of the lump sum debenture holders;

(c) the voting preference by quantity of votes (whether “for”, “against” or “abstained”) of the periodic interest debenture holders; and

(d) the voting preference by quantity of votes (whether “for”, “against” or “abstained”) of the expired debenture holders.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

It is important to the administration of justice that the Commission provides such assistance to the Court in such a situation. The Commission has very considerable experience in assessing such matters. It has been of significance that the Commission has given its own, independent, attention to the receivers’ proposal that, if implemented, will affect thousands of debenture holders most of whom are not in a position to play a meaningful role in the proceedings.CONCLUSION There was discussion in Court today as to some apparent errors and lack of clarity in a further draft of the notice of meeting and explanatory statement that had been proposed by the receivers and was considered by the Commission to be unobjectionable. The receivers tendered a final version of that material that incorporated appropriate amendments to accommodate the matters that I had raised. For the reasons above, I am satisfied that the receivers would be justified in proceeding on the basis of that final version of the documents that became an exhibit. I will make orders to give effect to what they have sought.

Ratio Decidendi

Legal Principle Established

Importantly, Mr Ayres explained that the amendments would enable repayment of (untaxable) principal to debenture holders first, before they received some (taxable) amounts by way of interest in what he considered the unlikely event that there was further money available to pay such interest at the suggested rate of 8.4%. CONSIDERATION I am satisfied, on the basis of the present evidence, that the receivers would be justified in propounding the proposed amendment to cl 11.5 in a meeting of the debenture holders. Once the non-performing and other properties in Provident’s loan portfolio are realised to generate cash, it currently appears that it would be anomalous and unfair to the debenture holders, as a whole, to use that cash to meet interest payments. That is because the money realised from Provident’s overwhelmingly non-performing loan portfolio, in substance, will represent the return of the investors’ principal rather than what that principal had earned (as would have been the case had Provident’s mortgagors paid their interest obligations). The unfairness would be compounded by the fact that the investors would be required to pay tax on the interest received in circumstances where they are unlikely to be repaid their principal in full, if at all. Moreover, if the investors continue to receive the money generated by realising the loan portfolio as interest, they may also be disqualified from any government assistance to which they might otherwise be entitled because of the insolvency of Provident. Additionally, if the proposed amendments for a standard rate of interest were not made, the receivers would incur significant ongoing additional administrative costs because of the need to calculate individual account balances on different rates on a monthly basis. This would deplete what would otherwise be available for payment to debenture holders.Are class rights affected by the proposed amendments? The now revised proposed amendment to cl 11.5 would still change the existing and different rights of at least two distinct classes of debenture holders who receive interest either periodically or in a lump sum on maturity. It may be that, as set out above at [17] there are more classes. The amendment would also change the character of their receipts of the realisation of Provident’s loan portfolio from being initially in the nature of income (i.e. interest) to being in the nature of capital (i.e. principal repayment). I was concerned whether each potentially affected class should be able to vote separately on the amendment because, if passed, it could have a differential impact on each of them. Since the first hearing, the receivers and the Commission have made written submissions on the issue of class rights and have given detailed consideration to the terms of the materials to be given to, and the process to be used for, the debenture holders to consider the proposed amendments to cl 11.5. The receivers submitted that because of the unlikelihood that any interest will be paid, at least for the foreseeable course of realisation of the loan portfolio’s assets, the use of the higher flat rate of 10% would avoid any potential unfairness to debenture holders who were entitled to more than 8.4%. The receivers have made consequential amendments to the draft explanatory statement and notice of meeting that are to be sent to debenture holders. That has been done in consultation with the Commission to produce the current draft.

Citation:		Australian Executor Trustees Ltd v Provident Capital Ltd (No 3) [2012] FCA 1253
Parties:		AUSTRALIAN EXECUTOR TRUSTEES LIMITED v PROVIDENT CAPITAL LIMITED
File number:		NSD 808 of 2012
Judge:		RARES J
Date of judgment:		12 November 2012
Catchwords:		CORPORATIONS – receivers – debentures issued by company to the public under a debenture trust deed – where receivers of issuer company seek advice and directions pursuant to ss 424 and 283HA of the Corporations Act 2001 (Cth) as to whether they would be justified in pursuing amendments to the trust deed, in order to facilitate a fairer distribution to debenture holders of the proceeds of realisation of company’s loan portfolio – whether effect of the proposed amendment creates different classes of debenture holders – whether separate members of each class should be called Held: the receivers may convene a meeting, at which all debenture holders are to be present, to take a poll regarding the proposed amendments to the trust deed – receivers to inform a Court of the outcome of the meeting, including voting preferences in each potential class of debenture holders, with a view to the Court making orders pursuant to s 283HB(1)(g) giving effect to any resolution passed
Legislation:		Corporations Act 2001 (Cth) Pt 2F.2, ss 246B, 283HA, 283HB(1)(b), 283HB(1)(c), 411, 412(1)(a)(ii), 412(3), 424
Cases cited:		Australian Executor Trustees Ltd v Provident Capital Ltd (2012) 203 FCR 461 referred to Owners of Shin Kobe Maru v Empire Shipping Company Inc (1994) 181 CLR 404 referred to Re Glendale Land Development Ltd (In liq) [1982] 2 NSWLR 563 referred to Re Hills Motorway Ltd (2002) 43 ACSR 101 referred to Re Sino Gold Mining Ltd (2009) 74 ACSR 647 referred to Sovereign Life Assurance Company v Dodd [1892] 2 QB 573 referred to
Dates of hearing:	23 October 2012, 12 November 2012
Place:	Sydney
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	44
Counsel for the Plaintiff:	Mr J Hynes
Solicitor for the Plaintiff:	Henry Davis York
Counsel for the Defendant:	The defendant did not appear
Solicitor for the Amicus Curiae: Australian Securities and Investments Commission	Ms Howitt (12 November 2012 only)

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 808 of 2012

BETWEEN:	AUSTRALIAN EXECUTOR TRUSTEES LIMITED Plaintiff
AND:	PROVIDENT CAPITAL LIMITED Defendant

JUDGE:	RARES J
DATE OF ORDER:	12 NOVEMBER 2012
WHERE MADE:	SYDNEY