J.P. Morgan Operations Australia Limited v J.P. Morgan Australia Group Pty Limited, in the matter of J.P. Morgan Operations Australia Limited
[2018] FCA 1131
•30 July 2018
FEDERAL COURT OF AUSTRALIA
J.P. Morgan Operations Australia Limited v J.P. Morgan Australia Group Pty Limited, in the matter of J.P. Morgan Operations Australia Limited [2018] FCA 1131
File number(s): NSD 1260 of 2018 Judge(s): FARRELL J Date of judgment: 30 July 2018 Catchwords: CORPORATIONS – application to convene a meeting of shareholders of plaintiff companies pursuant to s 411(1) of the Corporations Act 2001 (Cth) – proposed reconstruction and amalgamation of Pt 5.1 bodies under s 413 of the Corporations Act – whether the schemes are fair and reasonable in light of the impact on external creditors of the transferee and transferor companies – application granted
PRACTICE AND PROCEDURE – whether suppression orders necessary to prevent prejudice to the proper administration of justice
Legislation: Corporations Act 2001 (Cth) Pt 5.1, ss 5, 411, 413, 1319
Federal Court of Australia Act 1976 (Cth) Div 2 of Pt VAA, ss 37AF, 37AG
Corporations Regulations 2001 (Cth) Sch 8, cl 8303 of Pt 3 to Sch 8
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (US) s 165(d)
Cases cited: All Star Funds Management Limited v Ventura Investment Management Ltd [2012] FCA 527
Fowler v Lindholm (2009) 178 FCR 563; [2009] FCAFC 125
Macquarie Equipment Finance Pty Ltd v Macquarie Bank Ltd [2012] FCA 1212
Re Stork ICM Australia Pty Ltd; Stork ICM Australia Pty Ltd v Stork Food Systems Australasia Pty Ltd [2006] FCA 1849
Royal Victorian Institute for the Blind Ltd v RBS.RVIB.VAF Ltd (2004) 206 ALR 581; [2004] FCA 735
SGIC Insurance Ltd v Insurance Australia Ltd (2004) 51 ACSR 470; [2004] FCA 1492
Dates of hearing: 27 and 30 July 2018 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 36 Counsel for the Plaintiffs and Defendants: Mr N Young QC and Ms F Hudgson Solicitor for the Plaintiffs and Defendants: Ashurst Australia ORDERS
NSD 1260 of 2018 IN THE MATTER OF J.P. MORGAN OPERATIONS AUSTRALIA LIMITED ACN 006 344 341 AND OTHERS BETWEEN: J.P. MORGAN OPERATIONS AUSTRALIA LIMITED ACN 006 344 341
First Plaintiff
J.P. MORGAN ADMINISTRATIVE SERVICES AUSTRALIA LIMITED ACN 001 531 586
Second Plaintiff
J.P. MORGAN AUSTRALIA LIMITED ACN 002 888 011 (and others named in the Schedule)
Third Plaintiff
AND: J.P. MORGAN AUSTRALIA GROUP PTY LIMITED ACN 104 888 155
First Defendant
J.P. MORGAN SECURITIES AUSTRALIA LIMITED ACN 003 245 234
Second Defendant
J.P. MORGAN ADMINISTRATIVE SERVICES AUSTRALIA LIMITED ACN 001 531 586
Third Defendant
JUDGE:
FARRELL J
DATE OF ORDER:
27 july 2018
THE COURT ORDERS THAT:
(1)Pursuant to section 411(1) of the Corporations Act 2001 (Cth) (the Corporations Act):
(a)there be convened by the First Plaintiff a meeting of its member, J.P. Morgan Australia Group Pty Limited ACN 104 888 155, to be held on Tuesday, 31 July 2018, at the offices of J.P. Morgan Australia at Level 18, 85 Castlereagh St, Sydney NSW 2000, commencing at 2.00 pm, for the purpose of considering and, if thought fit, agreeing (with or without modification) to the proposed scheme of arrangement (being the applicable scheme of arrangement set forth in the document entitled 'Explanatory Statement', which is Exhibit A), between the First Plaintiff and its member.
(b)there be convened by the Second Plaintiff a meeting of its member, J.P. Morgan Operations Australia Limited ACN 006 344 341, to be held on Tuesday, 31 July 2018, at the offices of J.P. Morgan Australia at Level 18, 85 Castlereagh St, Sydney NSW 2000, commencing at 2.00 pm (or as soon after the conclusion of the meeting in Order 1(a) above as may be practicable), for the purpose of considering and, if thought fit, agreeing (with or without modification) to the proposed scheme of arrangement (being the applicable scheme of arrangement set forth in the document entitled 'Explanatory Statement', which is Exhibit A), between the Second Plaintiff and its member.
(c)there be convened by the Third Plaintiff a meeting of its member, J.P. Morgan Administrative Services Australia Limited ACN 001 531 586, to be held on Tuesday, 31 July 2018, at the offices of J.P. Morgan Australia at Level 18, 85 Castlereagh St, Sydney NSW 2000, commencing at 2.00 pm (or as soon after the conclusion of the meeting in Order 1(b) above as may be practicable), for the purpose of considering and, if thought fit, agreeing (with or without modification) to the proposed scheme of arrangement (being the applicable scheme of arrangement set forth in the document entitled 'Explanatory Statement', which is Exhibit A), between the Third Plaintiff and its member.
(d)there be convened by the Fourth Plaintiff a meeting of its member, the J.P. Morgan Operations Australia Limited ACN 006 344 341, to be held on Tuesday, 31 July 2018, at the offices of J.P. Morgan Australia at Level 18, 85 Castlereagh St, Sydney NSW 2000, commencing at 2.00 pm (or as soon after the conclusion of the meeting in Order 1(c) above as may be practicable), for the purpose of considering and, if thought fit, agreeing (with or without modification) to the proposed scheme of arrangement (being the applicable scheme of arrangement set forth in the document entitled 'Explanatory Statement', which is Exhibit A), between the Fourth Plaintiff and its member.
(e)there be convened by the Fifth Plaintiff a meeting of its member, the J.P. Morgan Administrative Services Australia Limited ACN 001 531 586, to be held on Tuesday, 31 July 2018, at the offices of J.P. Morgan Australia at Level 18, 85 Castlereagh St, Sydney NSW 2000, commencing at 2.00 pm (or as soon after the conclusion of the meeting in Order 1(d) above as may be practicable), for the purpose of considering and, if thought fit, agreeing (with or without modification) to the proposed scheme of arrangement (being the applicable scheme of arrangement set forth in the document entitled 'Explanatory Statement', which is Exhibit A), between the Fifth Plaintiff and its member.
(2)The explanatory statement for the Schemes of Arrangement, a copy of which forms part of Exhibit A, be approved for distribution to the member of each of the Plaintiffs.
(3)Each scheme meeting shall be convened by a Notice of Meeting, a copy of which forms part of Exhibit A, accompanied by a copy of the explanatory statement.
(4)Pursuant to section 1319 of the Corporations Act:
(a)Service of each notice of meeting and the accompanying explanatory statement may be effected by electronic means or by hand delivery to a person who is a director, company secretary, corporate representative appointed under section 250D of the Act, or attorney under power, of each member of the applicable Plaintiff at any time before the meetings referred to in Order 1 commence;
(b)The Scheme Meetings be chaired by:
(i)Mr Stewart Old in respect of the First Plaintiff, Second Plaintiff and Fifth Plaintiff (for any or all meetings in respect of the First Plaintiff or Second Plaintiff), or in his absence, Ms Natalie Cooper (for any or all meetings in respect of the First Plaintiff, Second Plaintiff or Fifth Plaintiff); and
(ii)Mr James Bruce in respect of the Third Plaintiff and Fourth Plaintiff, or in his absence, Mr Steven Hackers (for any or all meetings in respect of the Third Plaintiff or Fourth Plaintiff).
(c)In respect of each meeting referred to in Order 1:
(i)The scheme meetings referred to in Order 1 shall be held consecutively.
(ii)The relevant member of each Plaintiff company, being a body corporate, may appoint an individual as its representative to exercise the powers it may exercise at the Scheme Meeting.
(iii)A proxy, appointment of a corporate representative, or power of attorney to act on behalf of the relevant member may be delivered to the Chairman of the scheme meeting at any time before the time of the Scheme Meeting.
(iv)A resolution put to the vote at any of the scheme meetings to approve the proposed schemes of arrangement, or any modification to the proposed schemes of arrangement, may be decided by the Member or its representative signing a record of the resolution.
(v)The Chairperson of each meeting has the power to adjourn such meeting in their absolute discretion.
(5)The Plaintiffs place an advertisement in The Australian newspaper, in a form substantially equivalent to the form of Annexure A to these orders, no later than 1 August 2018.
(6)The proceedings be stood over to 10.15 am on Tuesday, 7 August 2018 before Farrell J for the hearing of any application to approve the schemes of arrangement.
(7)Liberty to restore on two days' notice.
(8)These orders be entered forthwith.
ANNEXURE A
NOTICE OF HEARING TO APPROVE SCHEMES OF ARRANGEMENT
TO all the creditors and members of:
J.P. Morgan Operations Australia Limited (ACN 006 344 341) (JPMOAL), J.P. Morgan Administrative Services Australia Limited (ACN 001 531 586) (JPMASAL), J.P. Morgan Australia Limited (ACN 002 888 011) (JPMAL), JPMorgan Investments Australia Pty Limited (ACN 056 751 716) (JPMIAPL) and J.P. Morgan Markets Australia Pty Limited (ACN 004 384 687) (JPMMAPL) (together the Scheme Companies).
TAKE NOTICE that at 10.15 am on 7 August 2018, the Federal Court of Australia at Law Courts Building, Queens Square, Sydney, will hear an application by the Scheme Companies seeking the approval of schemes of arrangement between the Scheme Companies and their respective sole members (together the Schemes) as proposed by a resolution passed by the meeting of the respective sole members of each of the Scheme Companies held on 31 July 2018.
The effect of the Schemes is the solvent reorganisation of various subsidiaries in the group of companies whose Australian parent company is J.P. Morgan Australia Group Pty Limited (ACN 104 888 155) (the JPM Australia Group) such that:
(a)all of the shares of JPMAL, JPMIAPL and JPMMAPL as Scheme Companies will be transferred to certain other companies in the JPM Australia Group (the Transferee Companies);
(b)all of the assets of the relevant Scheme Companies will be transferred to the respective Transferee Companies, other than, in the case of JPMAL as Scheme Company, certain remaining assets;
(c)all of the liabilities of the relevant Scheme Companies, including creditors, will be transferred to the respective Transferee Companies;
(d)any legal proceedings pending by or against any of the relevant Scheme Companies will be continued by or against the respective Transferee Companies;
(e)new shares in JPMASAL as Scheme Company will be issued to the respective Transferee Company and the existing shares in JPMASAL will be transferred to it and cancelled; and
(f)JPMIAPL, JPMMAPL and JPMOAL will be deregistered by the Australian Securities and Investments Commission without winding up, following implementation of the Schemes.
The steps referred to in paragraphs (b), (c), (d) and (f) above as they relate to JPMOAL, and the step referred to in paragraph (e) above, are subject to the satisfaction of certain conditions.
If you wish to oppose the approval of the Schemes, you must file and serve on the Scheme Companies a notice of appearance, in the prescribed form, together with any affidavit on which you wish to rely at the hearing. The notice of appearance and affidavit must be served on the Scheme Companies at their address for service at least 1 day before the date fixed for the hearing of the application.
The address for service of the Scheme Companies is: c/o Ashurst, Level 11, 5 Martin Place, Sydney NSW 2000 (Attention: Phil Breden), Facsimile: (02) 9258 6999.
Ashurst, Level 11, 5 Martin Place, Sydney NSW 2000
NSD 1260 of 2018 IN THE MATTER OF J.P. MORGAN OPERATIONS AUSTRALIA LIMITED ACN 006 344 341 AND OTHERS BETWEEN: J.P. MORGAN OPERATIONS AUSTRALIA LIMITED ACN 006 344 341
First Plaintiff
J.P. MORGAN ADMINISTRATIVE SERVICES AUSTRALIA LIMITED ACN 001 531 586
Second Plaintiff
J.P. MORGAN AUSTRALIA LIMITED ACN 002 888 011 (and others named in the Schedule)
Third Plaintiff
AND: J.P. MORGAN AUSTRALIA GROUP PTY LIMITED ACN 104 888 155
First Defendant
J.P. MORGAN SECURITIES AUSTRALIA LIMITED ACN 003 245 234
Second Defendant
J.P. MORGAN ADMINISTRATIVE SERVICES AUSTRALIA LIMITED ACN 001 531 586
Third Defendant
JUDGE:
FARRELL J
DATE OF ORDER:
30 july 2018
THE COURT ORDERS THAT:
(1)Pursuant to section 37AF of the Federal Court of Australia Act 1976 (Cth) and on the ground set out in section 37AG(1)(a) of the Federal Court of Australia Act, the following evidence and submissions be treated as confidential and not be disclosed to any person (other than the persons identified in paragraph 2 of these Orders) until 30 July 2020 or until further order of the Court:
(a)the confidential affidavit of Stewart Fraser Old affirmed on 25 July 2018;
(b)item 5 of the table of contents, paragraph 7 of and Confidential Annexure JL-4 to the affidavit of Joanne Margaret Lupton affirmed 25 July 2018;
(c)paragraphs 40 to 44 and 47 to 56 (including the headings to those paragraphs) of the plaintiffs' outline of submissions;
(d)the court transcript of confidential proceedings on 27 July 2018 and 30 July 2018; and
(e)the information set out in Confidential Exhibit B.
(2)For the purposes of order 1 above, "confidential" means not to be disclosed to any person other than:
(a)the parties to this proceeding;
(b)the legal representatives of the parties to this proceeding;
(c)any other person in respect of whom any party to this proceeding consents to such disclosure for the purpose of the relevant proceedings; and
(d)the Court.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
FARREL J:
JPMorgan Chase & Co is listed on the New York Stock Exchange and operates under the ticker symbol “JPM”. JPM is the ultimate holding company of JP Morgan Australia Group Pty Limited (JPM Australia), the first defendant. JPM is the holding company of its Australian incorporated wholly owned subsidiaries (the Australian group). The Australian group provide investment banking services, market and investor services, treasury services and asset management services in Australia.
APPLICATIONS
The plaintiffs are five subsidiaries of JPM Australia (also called transferor companies). The plaintiffs seek orders under ss 411(1) and 1319 of the Corporations Act 2001 (Cth) convening meetings of their respective sole shareholders to be held at 2 pm on 31 July 2018 for the purpose of approving schemes to effect a reconstruction and amalgamation of their assets, property, liabilities and undertakings by way of transfer to other members of the Australian group. At the second court hearing, proposed to be held on 7 August 2018, the Court will be asked to make orders under ss 411(4)(b), 411(12) and 413(1) of the Corporations Act. The three proposed “transferee companies” are joined as defendants on the application.
The Court made orders on 27 July 2018 convening the meetings following a hearing conducted on that day. These are the reasons for making the orders. By an interlocutory application, the plaintiffs also sought confidentiality and suppression orders under Div 2 of Pt VAA of the Federal Court of Australia Act 1976 (Cth). Interim orders were made on 27 July 2018 and that application was stood over to today.
The following affidavits were read at the hearing on 27 July 2018:
(1)Affidavits of Stewart Fraser Old affirmed on 24 July 2018, 25 July 2018 and 26 July 2018. Mr Old’s second affidavit is referred to as the “confidential affidavit”. Mr Old is the senior financial officer for JP Morgan’s Australian and New Zealand operations.
(2)Affidavits of Maria Karagiannis sworn on 24 July 2018 and 26 July 2018. Ms Karagiannis is the company secretary of all of the plaintiff and defendant companies.
(3)Affidavits of Philip Andrew Stewart Breden sworn on 16 July 2018 and 26 July 2018. Mr Breden is a partner in Ashurst, the law firm acting on this application.
(4)The affidavit of Joanne Margaret Lupton affirmed on 25 July 2018. Ms Lupton is a partner at KPMG Financial Advisory Services (Australia) Pty Ltd and she prepared an “independent expert’s report” about the impact of the proposed schemes on creditors of the transferor and transferee companies. She also prepared a supplementary report which deals with matters in respect of which the plaintiffs seeks confidentiality orders.
Exhibit A in these proceedings comprises the draft explanatory statement to which are attached a draft of the proposed schemes of arrangement, draft notices of meeting, draft proxy forms and a draft of the report prepared by Ms Lupton.
The plaintiffs relied on a written outline of submissions provided to my chambers on 26 July 2018.
It is useful to note that s 413 of the Corporations Act provides as follows:
413 Provisions for facilitating reconstruction and amalgamation of Part 5.1 bodies
(1)Where an application is made to the Court under this Part for the approval of a compromise or arrangement and it is shown to the Court that the compromise or arrangement has been proposed for the purposes of, or in connection with, a scheme for the reconstruction of a Part 5.1 body or Part 5.1 bodies or the amalgamation of 2 or more Part 5.1 bodies and that, under the scheme, the whole or any part of the undertaking or of the property of a body concerned in the scheme (in this section called the transferor body) is to be transferred to a company (in this section called the transferee company), the Court may, either by the order approving the compromise or arrangement or by a later order, provide for all or any of the following matters:
(a)the transfer to the transferee company of the whole or a part of the undertaking and of the property or liabilities of the transferor body;
(b)the allotting or appropriation by the transferee company of shares, debentures, policies or other interests in that company that, under the compromise or arrangement, are to be allotted or appropriated by that company to or for any person;
(c)the continuation by or against the transferee company of any legal proceedings pending by or against the transferor body;
(d)if the transferor body is a company—the deregistration by ASIC, without winding up, of the transferor body;
(e)the provision to be made for any persons who, within such time and in such manner as the Court directs, dissent from the compromise or arrangement;
(f)the transfer or allotment of any interest in property to any person concerned in the compromise or arrangement;
(g)such incidental, consequential and supplemental matters as are necessary to ensure that the reconstruction or amalgamation is fully and effectively carried out.
(2)Where an order made under this section provides for the transfer of property or liabilities, then, by virtue of the order, that property is transferred to and vests in, and those liabilities are transferred to and become the liabilities of, the transferee company, free, in the case of any particular property if the order so directs, from any security interest that is, by virtue of the compromise or arrangement, to cease to have effect.
(3)Where an order is made under this section, each body to which the order relates must, within 14 days after the making of the order, lodge with ASIC an office copy of the order.
(4) In this section:
liabilities includes duties of any description, including duties that are of a personal character or are incapable under the general law of being assigned or performed vicariously.
property includes rights and powers of any description, including rights and powers that are of a personal character and are incapable under the general law of being assigned or performed vicariously.
PROPOSED SCHEMES
The rationale for the proposed schemes is explained as follows in the draft explanatory statement contained in Exhibit A.
As a bank holding company with more than US$50 billion in total consolidated assets, JPM is required to make public resolution plan filings with the Federal Reserve and the Federal Deposit Insurance Corporation in the United States of America under s 165(d) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (US). Each plan, commonly known as a “living will”, must describe the strategy for rapid and orderly resolution in the event of material financial distress or failure of JPM. As part of those filings, JPM has committed to various business simplification initiatives, including merging or eliminating entities to enhance “resolvability”. The proposed schemes are consistent with plans outlined in filings by JPM. It is anticipated that implementation of the proposed schemes will result in both a simplified organisational structure, more efficient utilisation of capital and cost savings for administration, accounting, audit, reporting and compliance by reducing the number of operating companies by more than 50%.
Current entity structure
The current legal entity structure may be depicted as follows:
Steps to implementation
In his affidavit affirmed on 24 July 2018, Mr Old explains that the schemes are to provide for the following matters:
(1)JP Morgan Operations Australia Limited (Operations) will transfer its shares in JP Morgan Markets Australia Pty Ltd (Markets) to JP Morgan Administrative Services Australia Limited (Admin Services) in consideration for Admin Services issuing shares to Operations pursuant to ss 413(1)(a) and (b) of the Corporations Act;
(2)Admin Services will transfer its shares in each of JP Morgan Australia Ltd (JPMAL), JP Morgan Investments Australia Pty Ltd (Investments) and Markets to JP Morgan Securities Australia Ltd (Securities) in consideration for Securities issuing shares to Admin Services, pursuant to ss 413(1)(a) and (b) of the Corporations Act;
(3)All of the property, assets, liabilities and undertakings of Investments and Markets will be transferred to Securities pursuant to ss 413(1)(a) and (g) of the Act;
(4)all of the property, assets, liabilities and undertakings of JPMAL will be transferred to Securities pursuant to ss 413(1)(a) and (g) of the Corporations Act other than a cash amount of $150 million (Remaining Asset) and the issued share capital of JPMAL;
(5)all legal proceedings pending by or against JPMAL, Investments and Markets will be continued by or against Securities as the transferee company pursuant to s 413(1)(c) of the Corporations Act;
(6)Investments and Markets will be deregistered by the Australian Securities & Investments Commission (ASIC) (without winding up) pursuant to s 413(1)(d) of the Corporations Act,
and, subject to satisfactory stamp duty confirmations (the stamp duty condition):
(7)Securities will issue shares to JPM Australia;
(8)Operations will transfer back to Admin Services all of its shares in Admin Services and those shares will then be cancelled, pursuant to ss 413(1)(a) and (b) of the Corporations Act;
(9)all of the property, assets, liabilities and undertakings of Operations will be transferred to Admin Services, pursuant to ss 413(1)(a) and (g) of the Corporations Act;
(10)all legal proceedings pending by or against Operations will be continued by or against Admin Services, pursuant to s 413(1)(c) of the Corporations Act; and
(11)Operations will be deregistered by ASIC (without winding up) pursuant to s 413(1)(d) of the Corporations Act.
Each of the steps referred to in the previous paragraph (other than deregistration of relevant companies) is contemplated to take effect sequentially at or following the relevant Implementation Time (as defined in cl 1.1 of the scheme of arrangement). The deregistrations are proposed to take place not earlier than two business days after the relevant Implementation Time.
If the stamp duty condition is not satisfied, following implementation of the steps referred to at (1) to (6) of [11] above, the Australian group structure will be as follows (note that Neweconomy.com.au Nominees Pty Ltd and Ecapital Nominees Pty Ltd remain as subsidiaries of Securities and as the restructure has no impact on them, they have been eliminated from the diagram below):
If the stamp duty condition is satisfied, upon implementation of all of the proposed schemes, the Australian group structure will be as follows:
RELEVANT MATTERS
Part 5.1 bodies
Each of the plaintiffs is registered under the Corporations Act and are therefore Pt 5.1 bodies. This was established by company searches exhibited to Ms Karagiannis’ first affidavit.
As the proposed scheme involves the transfer of property and liabilities under s 413, it is necessary also to establish that each transferee company is a “company” as defined in s 9 of the Corporations Act. No company searches of the defendants were in evidence. However, senior counsel for the plaintiffs pointed out that the name of each of the defendants in the originating process included their Australian Company Number. It is also notable that under tab 6 of exhibit MK-1, an exhibit to Ms Karagiannis’ first affidavit, there is an ASIC search setting out a “Person Name Extract” dated 20 July 2018 in relation to Ms Karagiannis. That search indicates that Ms Karagiannis is the current company secretary of companies with the same name and Australian Company Number as the named defendants. I am satisfied that each of the defendants is a “company” and a Pt 5.1 body.
Can the proposal be properly described as an “arrangement” or “compromise” and as a “reorganisation” or “amalgamation”?
Senior counsel submits, and I accept, that having regard to the terms of the proposed schemes there is the required degree of compromise or arrangement on the part of the sole shareholder members of the plaintiffs.
No narrow interpretation should be given to the expressions “compromise” or “arrangement”. A scheme of arrangement must involve some arrangement in a sense that is to be construed liberally. An arrangement within the meaning of s 411 connotes some element of give and take. An arrangement must involve some bargain giving benefit to both sides. However, there is no reason to construe the terms in s 411 as restricting in any way the nature of the bargain that might be made between a company and its members or creditors, subject only to the additional requirement that the arrangement must be within the power of the company and not in contravention of the Corporations Act: see Fowler v Lindholm (2009) 178 FCR 563; [2009] FCAFC 125 at [67] per Emmett, Gordon and Jagot JJ. The element of compromise or arrangement need not be of any great magnitude or significance, but it must be present. It can be satisfied by an agreement by members to the scheme despite diminution in their shareholding and the waiver of rights associated with that diminution in value: see All Star Funds Management Limited v Ventura Investment Management Ltd [2012] FCA 527 per Jagot J at [4]-[5].
Transfers of liabilities and assets of the kind proposed have been held to be within the meaning of reconstruction and amalgamation in s 413: see All Star Funds Management Limited at [13] and the cases there cited.
Will the transferee companies be bound by the scheme?
Senior counsel for the plaintiffs noted that the boards of each of the transferor and transferee companies had passed resolutions that they intend to participate and be bound by the schemes and copies of those resolutions appear in exhibit MK-1. That, of itself, would be insufficient to bind the transferee companies. The transferee companies are defendants in the proceedings and that has been accepted as sufficient to bind them to the schemes: see Macquarie Equipment Finance Pty Ltd v Macquarie Bank Ltd [2012] FCA 1212 per Jagot J at [4], relying on the decision of Finkelstein J in Royal Victorian Institute for the Blind Ltd v RBS.RVIB.VAF Ltd (2004) 206 ALR 581; [2004] FCA 735.
Adequacy of disclosure, notifications to and by ASIC and compliance with statutory requirements
I am satisfied that Exhibit A provides adequate disclosure to the sole shareholder members of the plaintiffs, including on those matters specifically addressed in s 411(3)(a) of the Corporations Act and Sch 8 of the Corporations Regulations 2001 (Cth) having regard to relief granted by ASIC. I note that, by a letter dated 26 July 2018 to Mr Breden, ASIC advised that it had relieved the plaintiffs of the obligation to include in the explanatory statement a “best interest of members” expert report referred to in cl 8303 of Pt 3 of Sch 8 of the Corporations Regulations. As this proposal is promulgated to assist JPM to meet regulatory requirements in the US and the reconstruction of the Australian group is wholly intergroup, that relief is unexceptional. The real issue is the question of whether or not creditors are prejudiced by such a reconstruction, a matter which I address below.
I note that Mr Old has deposed to the due diligence and verification process undertaken by officers of the Australian group and its lawyers designed to ensure that it does not contain false, misleading or deceptive content or content likely to do any of those things and that there are no material omissions.
By a letter dated 26 July 2018, having regard to s 411(2)(b) of the Corporations Act, ASIC provided Mr Breden with its “usual letter” indicating that it had had a reasonable opportunity to consider the terms of the schemes and the explanatory statement and that it did not intend to appear at the first court hearing.
Mr Old, or failing him, Natalie Cooper, directors of Admin Services, Investments and Operations have consented to act as chairman of the meetings of those companies. James Bruce, or failing him, Steven Hackers, directors of JPMAL and Markets have consented to act as chairman of the meetings of those companies.
I am otherwise satisfied that formal requirements have been met.
Are the schemes bona fide and properly proposed?
I am satisfied that this requirement is met having regard to the expressed rationale for the proposed schemes and the unanimous statements of recommendation made by the directors of the plaintiffs on the basis that the applicable scheme was:
(1)fair and reasonable and in the bests interest of the plaintiff and its member company; and
(2)will not adversely affect the interests of creditors of the plaintiff,
because:
(1)the schemes are consistent with the initiatives outlined in the JPM resolution plan to simplify organisational structures;
(2)the schemes will deliver efficiencies in capital usage together with administration, accounting, audit, reporting and compliance cost savings;
(3)the schemes will reduce the number of operating companies in the Australian group by more than 50% thereby eliminating the duplication of administrative functions and associated risks of maintaining multiple legal entitles;
(4)each plaintiff (transferor company) and each defendant (transferee company) is solvent and in a positive net assets position and the combination of assets and liabilities upon implementation of the schemes will mean that each transferee company will have sufficient assets, cash flow and credit facilities to remain solvent and be able to discharge transferred liabilities, with expected levels of assets and profits expected to increase following implementation of the schemes;
(5)there has been no material adverse change since 31 December 2017 in the financial position or performance of those companies;
(6)they will meet capital requirements of the ASX and ASIC;
(7)the nature and type of creditors of the companies; and
(8)the independent expert’s report concerning the position of creditors prepared by KPMG Financial Advisory Services trading as KPMG Corporate Finance.
Do members have sufficient time to consider the explanatory memorandum
As orders were made on 27 July 2018 and the shareholders meetings will be held on 31 July 2018, it will be necessary for the meetings to be held at short notice. Having regard to the circumstances of the proposed schemes, a reorganisation within a wholly owned group of companies, the shortened period is not inappropriate: see SGIC Insurance Ltd v Insurance Australia Ltd (2004) 51 ACSR 470; [2004] FCA 1492 at [15]-[16] per Jacobson J.
Contracts requiring consent to transfer
The Australian group has made considerable efforts to obtain consent to the transfer of material contracts which were identified during the due diligence process. Although many consents have been received, in respect of those contracts for which consent has not yet been received, I accept the submission that by force of ss 413(1)(a) and 413(2), the effect of the Court’s order would be to transfer those contracts in any event: see In the matter of Stork ICM Australia Pty Ltd; Stork ICM Australia Pty Ltd v Stork Food Systems Australasia Pty Ltd [2006] FCA 1849 per Lindgren J at [98]-[99].
Employees
The proposed schemes will have no effect on employees of the Australian group, since they are now and will remain employed by Admin Services.
Are the proposed schemes fair and reasonable such that they are likely to be approved at a second court hearing under s 411(4)(b)
If the Court cannot be satisfied on this issue, it will not ordinarily convene shareholders’ meetings to consider approving the proposed schemes. In relation to these schemes, the principle issue is the impact on external creditors of the transferee and transferor companies.
In SGIC Insurance Ltd at [7]-[11], Jacobson J discussed whether the transfer of assets and liabilities as part of reorganisation of a wholly owned group necessitated creditors’ schemes. His Honour was satisfied that it was not necessary to put scheme proposals to creditors as they have the right to attend the second court hearing. Justice Jacobson accepted the proposition that this issue goes to fairness, not jurisdiction. I respectfully agree with that position.
Creditors will be notified of the date and time of the second court hearing, which is set down for 7 August 2018, by the notice to be published in The Australian no later than 1 August 2018.
KPMG Financial Advisory Services has prepared a draft report which is Attachment D to Exhibit A. In it, KPMG Financial Advisory Services concentrated on the impact of the proposed schemes on external creditors. The analysis was conducted on the basis of the financial performance of relevant companies in the 12 month period to 31 December 2017 and having regard to management’s advice that there have been no material movements on the financial statements since then. The reasons for KPMG Financial Services’ conclusion that creditors of the transferor companies and transferee companies would not be adversely affected are:
·Material creditor balances are typically short term in nature;
·Pro forma financial information after the proposed schemes indicates that Admin Services and Securities will be significantly profitable suggesting creditors may be expected to be paid in the ordinary course of business; and
·The external creditors appear to be significantly covered by higher net asset positions after the proposed schemes.
The proposed schemes provide for the transfer of legal proceedings. The matters in respect of which the plaintiffs seek confidentiality and suppression orders relate to possible legal proceedings. There is evidence that relevant entites which may have an interest in the legal proceedings have been advised of the proposed schemes and do not object to the orders being made under ss 411 and 413 of the Corporations Act. Having regard to the submissions contained at [40]-[44] and [47]-[56] of the plaintiffs’ written outline of submissions and the position taken by relevant entities, I did not consider it necessary to have put in evidence a legal opinion referred to at [7] of Mr Old’s confidential affidavit. Having regard to those submissions and the evidence tendered, and having regard to the authority relied on at [56] of the submissions, I am satisfied that it is necessary in the interests of preventing prejudice to the proper administration of justice (see s 37AG(1)(a) of the Federal Court of Australia Act) to make the confidentiality and suppression orders sought.
On the evidence provided, I am satisfied that the position of creditors would not be materially affected by the implementation of the proposed schemes so that the reorganisation and amalgamations effected would not be unfair or unreasonable so as to prevent orders being made at the second court hearing.
CONCLUSION
Having regard to all of these matters, the Court convened the shareholder meetings of the plaintiff companies to consider the proposed schemes and made ancillary orders, and made the confidentiality orders sought.
I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Farrell. Associate:
Dated: 1 August 2018
SCHEDULE OF PARTIES
NSD 1260 of 2018 Plaintiffs
Fourth Plaintiff:
J.P. MORGAN MARKETS AUSTRALIA PTY LIMITED ACN 004 384 687
Fifth Plaintiff:
JPMORGAN INVESTMENTS AUSTRALIA PTY LIMITED ACN 056 751 716
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