Fowler v Lindholm, in the matter of Opes Prime Stockbroking Limited [2009] FCAFC 125
CORPORATIONS – schemes of arrangement – schemes approved by primary judge and by majority of creditors – schemes contained release and indemnity provisions binding creditors other than in their capacity as creditors – scope of s 411 Corporations Act 2001 (Cth) – whether adequate nexus between release and indemnity and the relationship between the creditors and company – whether an intelligent and honest creditor, properly informed, acting alone, might approve the schemes
IN THE MATTER OF OPES PRIME STOCKBROKING LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ACN 086 294 028), LEVERAGED CAPITAL PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION), HAWKSWOOD INVESTMENTS PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) and OPES PRIME GROUP LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ACN 120 372 223); ROBERT FOWLER v JOHN ROSS LINDHOLM, ADRIAN LAWRENCE BROWN, PETER DAMIEN MCCLUSKEY, MERRILL LYNCH INTERNATIONAL, MERRILL LYNCH INTERNATIONAL (AUSTRALIA) LIMITED, AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED and ANZ NOMINEES LIMITED
VID 627 of 2009
EMMETT, GORDON & JAGOT JJ 4 SEPTEMBER 2009 MELBOURNE
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
VID 627 of 2009
ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA
IN THE MATTER OF OPES PRIME STOCKBROKING LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) OPES PRIME STOCKBROKING LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ACN 086 294 028) LEVERAGED CAPITAL PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ACN 097 720 495) HAWKSWOOD INVESTMENTS PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ACN 098 040 683) OPES PRIME GROUP LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ACN 120 372 223)
BETWEEN:
ROBERT FOWLER Appellant
AND:
JOHN ROSS LINDHOLM, ADRIAN LAWRENCE BROWN AND PETER DAMIEN MCCLUSKEY First Respondents
MERRILL LYNCH INTERNATIONAL and MERRILL LYNCH INTERNATIONAL (AUSTRALIA) LIMITED Second Respondents
AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED and ANZ NOMINEES LIMITED Third Respondents
JUDGES:
EMMETT, GORDON & JAGOT JJ
DATE OF ORDER:
3 SEPTEMBER 2009
WHERE MADE:
MELBOURNE
THE COURT ORDERS THAT:
1.Leave be granted to the applicant to appeal from the orders made by the Court on 4 August 2009.
2.The applicant file no later than 10:30am on 4 September 2009 a notice of appeal substantially in the form of Exhibit 3, joining as respondents John Ross Lindholm, Adrian Lawrence Brown and Peter…
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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AGLC
Fowler v Lindholm [2009] FCAFC 125
Case
[2009] FCAFC 125
Decision Date
CaseChat Overview and Summary
In the case of Fowler v Lindholm, the appellant, Mr Robert Fowler, challenged the orders made by the Court on 4 August 2009, approving the schemes of arrangement between the Opes Prime Group companies and their creditors. The Opes Prime Group, comprising Opes Stockbroking, Leveraged Capital, Opes Group, and Hawkswood Investments, was involved in stockbroking services and securities lending, with ANZ and Merrill Lynch as financiers. The companies faced financial difficulties, leading to appointments of administrators and liquidators. A mediation resulted in an agreement to settle Opes-related claims for $226 million and the release of assets valued at $27 million to the liquidators for distribution to creditors.
The legal issues before the Court were whether it had the power to approve the schemes, considering the provisions requiring creditors to release claims against Merrill Lynch and ANZ and indemnify them against potential claims by others. Additionally, Mr Fowler argued that the Court's discretion to approve the schemes miscarried due to provisions that prioritized legal costs and payments to litigation funders over distributions to other creditors. The Court had to determine if these provisions were valid and if the Court's exercise of discretion was appropriate.
The Court found that it had the power to approve the schemes, as the provisions requiring creditors to release claims against Merrill Lynch and ANZ and indemnify them were valid. The Court held that the schemes were for the benefit of creditors and did not unfairly prejudice any of them, including Mr Fowler. The Court also determined that the exercise of its discretion to approve the schemes was not flawed, as the provisions regarding payments to litigation funders were not disproportionate and were necessary to achieve the settlement. Therefore, the appeal was dismissed, and the costs of the appeal were awarded to the respondents.
Orders
Orders of the court
1. Leave be granted to the applicant to appeal from the orders made by the Court on
4 August 2009.
2. The applicant file no later than 10:30am on 4 September 2009 a notice of appeal substantially in the form of Exhibit 3, joining as respondents John Ross Lindholm, Adrian Lawrence Brown and Peter Damien McCluskey, Merrill Lynch International, Merrill Lynch International Australia Limited, Australia and New Zealand Banking Group Limited and ANZ Nominees Limited.
3. The appeal be dismissed.
4. The applicant and appellant pay the costs of the respondents to the appeal.
Note:
Background
Background to the litigation
It is desirable to say something about the background circumstances that led to the making of the orders of 4 August 2009.BACKGROUND OF THE SCHEMES Until 27 March 2008 the Opes Prime Group was engaged in providing stockbroking services to institutional and private clients, predominantly in the form of securities lending and equity financing. Opes Stockbroking held a financial services licence and operated as a full market participant of the Australian Securities Exchange. The Opes Prime Group was based in Melbourne and also maintained offices in Sydney and Singapore. Opes Stockbroking and Leveraged Capital also entered into securities lending arrangements with various financiers, pursuant to which Opes Stockbroking and Leveraged Capital transferred the securities they received from their clients to the financiers. Pursuant to those arrangements, the financiers provided Opes Stockbroking and Leveraged Capital with cash, collateral and other securities. The financiers included ANZ and Merrill Lynch. On 27 March 2008 the first respondents, Messrs John Lindholm, Peter McCluskey and Adrian Brown of Ferrier Hodgson, were appointed as administrators of the Scheme Companies. Later that day, Messrs Salvatore Algeri and Christopher Campbell of Deloitte Touche Tohmatsu (the Receivers) were appointed by ANZ as receivers and managers in control of the whole of the assets and undertakings of each of the Scheme Companies. On 2 May 2008, the creditors of Hawkswood Investments and Opes Group resolved to wind up those companies and to appoint Messrs Lindholm, McCluskey and Brown as liquidators (the Liquidators). On 15 October 2008 the creditors of Opes Stockbroking and Leveraged Capital resolved to wind up those companies and to appoint Messrs Lindholm, McCluskey and Brown as liquidators. Green Frog Nominees Pty Ltd is a wholly owned subsidiary of Opes Stockbroking. On 21 May 2008, Green Frog was placed into creditors’ voluntary winding up and Messrs Colin Nicol and Peter Anderson of McGrathNicol were appointed as liquidators. Green Frog’s sole purpose was to hold securities as nominee for third parties. Green Frog owns no assets other than the securities registered in its name and held on behalf of third parties. A number of claims had been made or foreshadowed in relation to the affairs of the Scheme Companies. First, the Australian Securities and Investments Commission (the Commission), had foreshadowed claims against ANZ and Merrill Lynch, Opes Stockbroking and the directors of Opes Stockbroking. Second, some creditors of the Scheme Companies had commenced legal proceedings against Merrill Lynch and ANZ and the Sceme Companies. In those proceedings, the creditors made claims against Scheme Companies for, amongst other things, misleading and deceptive conduct. Creditors have also made claims for redelivery of securities held by Green Frog. Third, the Liquidators foreshadowed claims against ANZ and the Receivers and against Merrill Lynch. THE MEDIATION All of those claims and foreshadowed claims were the subject of a mediation between the Liquidators, ANZ, Merrill Lynch and the Commission. The mediation resulted in an agreement between those parties to propose the Schemes in order to achieve a global settlement of all Opes-related claims and proceedings against ANZ and Merrill Lynch and other parties, and their respective related entities, in exchange for ANZ and Merrill Lynch paying $226 million in cash and the receivers and Merrill Lynch releasing cash and assets of the Scheme Companies, having an estimated realisable value of $27 million. Those are to be provided to the Liquidators for distribution to Scheme Creditors in accordance with the Schemes. If the Schemes proceed, all of the claims by Scheme Creditors, including the legal proceedings just referred to, and the claims foreshadowed by the Liquidators, will be released and disposed of. Further, the Commission has agreed to provide a release to ANZ and Merrill Lynch in relation to certain of its foreshadowed claims.
Evidence
Evidence Before The Court
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Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
On 4 August 2009, a judge of the Court made orders pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) (the Corporations Act) approving schemes of arrangement (the Schemes) between four related companies, which are members of the Opes Prime Group and their respective creditors (Scheme Creditors). The companies are Opes Prime Stockbroking Limited (Opes Stockbroking), Leveraged Capital Pty Ltd (Leveraged Capital), Opes Prime Group Limited (Opes Group) and Hawkswood Investments Pty Limited (Hawkswood Investments). The appellant, Mr Robert Fowler, is a creditor of one or other of those four companies (together the Scheme Companies). Mr Fowler claims that the Court did not have power to make the orders approving the Schemes because they contain provisions whereby he and other creditors of the Scheme Companies are required to release claims that they have against the second and third respondents, Merrill Lynch International and Merrill Lynch International (Australia) Limited (together Merrill Lynch) and Australia and New Zealand Banking Group Limited and ANZ Nominees (together ANZ) and are required to indemnify Merrill Lynch and ANZ in respect of claims that might be made by other parties. Mr Fowler also says that, even if the Court had power to approve the Schemes, the exercise of the discretion to do so miscarried because of other provisions in the Schemes whereby legal costs and other payments to litigation funders are to be paid out of the proposed scheme fund in priority to proposed distributions to other creditors such as Mr Fowler. It is desirable to say something about the background circumstances that led to the making of the orders of 4 August 2009.BACKGROUND OF THE SCHEMES Until 27 March 2008 the Opes Prime Group was engaged in providing stockbroking services to institutional and private clients, predominantly in the form of securities lending and equity financing. Opes Stockbroking held a financial services licence and operated as a full market participant of the Australian Securities Exchange. The Opes Prime Group was based in Melbourne and also maintained offices in Sydney and Singapore. Opes Stockbroking and Leveraged Capital also entered into securities lending arrangements with various financiers, pursuant to which Opes Stockbroking and Leveraged Capital transferred the securities they received from their clients to the financiers. Pursuant to those arrangements, the financiers provided Opes Stockbroking and Leveraged Capital with cash, collateral and other securities. The financiers included ANZ and Merrill Lynch. On 27 March 2008 the first respondents, Messrs John Lindholm, Peter McCluskey and Adrian Brown of Ferrier Hodgson, were appointed as administrators of the Scheme Companies. Later that day, Messrs Salvatore Algeri and Christopher Campbell of Deloitte Touche Tohmatsu (the Receivers) were appointed by ANZ as receivers and managers in control of the whole of the assets and undertakings of each of the Scheme Companies. On 2 May 2008, the creditors of Hawkswood Investments and Opes Group resolved to wind up those companies and to appoint Messrs Lindholm, McCluskey and Brown as liquidators (the Liquidators). On 15 October 2008 the creditors of Opes Stockbroking and Leveraged Capital resolved to wind up those companies and to appoint Messrs Lindholm, McCluskey and Brown as liquidators. Green Frog Nominees Pty Ltd is a wholly owned subsidiary of Opes Stockbroking. On 21 May 2008, Green Frog was placed into creditors’ voluntary winding up and Messrs Colin Nicol and Peter Anderson of McGrathNicol were appointed as liquidators. Green Frog’s sole purpose was to hold securities as nominee for third parties. Green Frog owns no assets other than the securities registered in its name and held on behalf of third parties.