Re CNPR Limited

[2018] NSWSC 989

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of CNPR Limited [2018] NSWSC 989
Hearing dates:	5 June 2018
Decision date:	27 June 2018
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	The Plaintiff is ordered to be wound up on the just and equitable ground under s 461(1)(k) of the Corporations Act 2001 (Cth).
Catchwords:	CORPORATIONS – winding up – application for winding up order on the just and equitable ground under s 461(1)(k) of the Corporations Act 2001 (Cth) – whether the substratum of the company has failed – whether it has become impossible for the company to achieve its original purposes.
Legislation Cited:	- Corporations Act 2001 (Cth) ss 461, 462, 465A, 470, 532
Cases Cited:	- CIC Insurance Ltd v Hannan & Co Pty Ltd [2001] NSWSC 437; (2001) 19 ACLC 1217 - Davis & Co Ltd v Brunswick (Aust) Ltd [1936] 1 All ER 299 - Kingjade Holdings Pty Ltd v Pineridge Nominees Pty Ltd (1997) 15 ACLC 910 - Re Catombal Investments Pty Ltd [2012] NSWSC 775; (2012) 30 ACLC 12-031 - Re New South Wales Leagues’ Club Limited [2014] NSWSC 1610 - Re Tivoli Freeholds Ltd [1972] VR 445 - Strong v J Brough & Son (Strathfield) Pty Ltd (1991) 5 ACSR 296
Category:	Principal judgment
Parties:	CNPR Limited (Plaintiff)
Representation:	Counsel: J Williams (Plaintiff)   Solicitors: Herbert Smith Freehills (Plaintiff)
File Number(s):	2018/71735

Judgment

The nature of this application

1. By Originating Process filed on 5 March 2018, the Plaintiff, CNPR Limited (formerly Centro Properties Limited) (“CNPR”), seeks an order under s 461(1)(k) of the Corporations Act 2001 (Cth) that it be wound up on the just and equitable ground. This application is brought as the final step in a restructuring of the Centro Properties Group, comprising CNPR and its related entities, which included four creditors’ schemes of arrangement approved by this Court in 2011 (“Restructuring”). CNPR relies, in support of the application, on several affidavits of its chief executive officer and company secretary, Mr John Georgakis, affirmed on 28 February 2018, 4 April 2018, 11 May 2018 and 1 June 2018. At the conclusion of the hearing on 5 June 2018, I made an order winding up CNPR and delivered short oral reasons for that order, and indicated that I would deliver more detailed reasons for those orders. These are the more detailed reasons for those orders. I have drawn on the helpful submissions of Mr Williams, who appeared for CNPR, in these reasons.

Background

2. By way of background, CNPR is the holding company of the CNPR Group and, as at 31 January 2018, had 25,745 shareholders (Georgakis 28.2.18 [8],[10]). The shares in CNPR were stapled to trust units in a registered managed investment scheme, CNPR Trust (formerly Centro Property Trust) (“CNPR Trust”) and CPT Manager Limited (“CPT RE”) was the responsible entity of that scheme. Those stapled securities were listed on Australian Securities Exchange Limited (“ASX”) and CNPR and CPT RE were collectively known as “CNP” (Georgakis 28.2.18 [11]). Prior to the Restructuring, the CNPR Group conducted a real estate investment business involving the ownership and management of investments in various listed and unlisted real estate funds (Georgakis 28.2.18 [9]), and CNPR and CPT RE were jointly and severally indebted to holders of secured senior debt (“Senior Lenders”) for more than $3.2 billion pursuant to a Senior Facilities Continuation Agreement and Common Terms Deed (together, “Senior Finance Documents”) (Georgakis 28.2.18 [23], Ex JG-1, tabs 14, 17). The Restructuring addressed CNPR’s difficulties as to the extent and timing of its obligations to repay that debt.

3. Broadly, the Restructuring involved the sale of substantially all of CNP’s Australian assets in exchange for the issue to CNP of securities in a new listed Australian retail property trust, Centro Retail Australia; the subsequent transfer of all of CNP’s securities in Centro Retail Australia to the Senior Lenders in consideration for the cancellation of the senior debt; and a distribution of $100 million, inter alia, to CNP’s securityholders and contingent creditors. In particular, an amount of $48,925,082 (“Shareholder Amount”) was distributed to CNPR’s shareholders, representing 5.03 cents per stapled security (Georgakis 28.2.18 [16]–[36]).

4. The Restructuring also involved the implementation of creditors’ schemes of arrangement in relation to CNPR’s and CPT RE’s Senior Lenders (“Senior Lender Schemes”) and hybrid lenders (together, “Creditors’ Schemes”) and a consensual cancellation of debt owed under convertible bonds issued by CNP (Georgakis 28.2.18 [19]). The terms of the Restructuring were disclosed to CNPR’s shareholders in an Explanatory Memorandum and Notice of Extraordinary General Meeting dated 5 October 2011 (“Shareholders’ Explanatory Memorandum”) (Georgakis 28.2.18 [18], Ex JG-1, tab 9). The Restructuring was approved by CNPR’s shareholders at an Extraordinary General Meeting held on 22 November 2011 (Georgakis 28.2.18 [20]) and the Creditors’ Schemes were approved by creditors on 22 November 2011 and were approved by the Court on 1 December 2011 (Georgakis 28.2.18 [21]).

5. Pursuant to the Senior Lender Schemes and the amending deeds in respect of the Senior Facilities Continuation Agreement entered into pursuant to the terms of the Senior Lender Schemes, CNPR and its remaining subsidiaries were released from their obligations under the Senior Finance Documents, other than certain residual obligations (Georgakis 28.2.18 [24]). Those continuing residual obligations include an obligation to pay fees to, and provide certain indemnities in favour of, the entities acting as agent (“Senior Agent”) and security trustees in respect of the debt owed to the Senior Lenders and, on completion of the “Wind Down” of CNPR (or an earlier insolvency event in respect of CNPR or CPT RE), to pay any surplus cash held by CNPR to the Senior Agent for distribution to the Senior Lenders (Georgakis 28.2.18 [24], Ex JG-1, tab 13, Senior Lender Schemes, cl 4.11(b) and (e); tab 14, Senior Facilities Continuation Agreement, cl 7.4; tab 15, Amending Deed – Senior Facilities Continuation Agreement, cl 2.2). The “Wind Down” of CNPR for this purpose was defined as the process of CNP and its controlled bodies continuing to operate scaled back operations until it is wound up (Georgakis 28.2.18 [25]; Ex JG-1, tab 15, Amending Deed – Senior Facilities Continuation Agreement, cl 2.1, definition of “Wind Down”; tab 18, Escrow Deed, cl 1.1, definition of “Wind Down). The residual obligations owed to the Senior Lenders were and are secured under pre-existing charges given by CNPR and certain of its subsidiaries and held pursuant to a Headstock Security Trust Deed and Guarantor Security Trust Deed (Georgakis 28.2.18 [26]). CNPR now has no remaining liabilities other than minor administrative expenses incurred but not yet invoiced and the obligation to repay its surplus cash to the Senior Lenders (Georgakis 1.6.18 [10]).

6. Since the Restructuring, CNPR has continued to operate solely for the purpose of completing the Wind Down (Georgakis 28.2.18 [4], [39]). CNPR was delisted from the ASX on 31 January 2013 and the units in the CNPR Trust and the shares in CNPR were destapled on 25 September 2017 (Georgakis 28.2.18 [13]–[14]). The CNPR Trust was deregistered as a managed investment scheme on 17 December 2017 (Georgakis 28.2.18 [15]) and the winding up of the CNPR Trust was completed on 16 May 2018 (Georgakis 1.6.18 [6]). CNPR is now the only corporate entity remaining in the CNPR Group that has not been deregistered or dissolved or placed into voluntary liquidation (Georgakis 28.2.18 [39]–[47], Georgakis 1.6.18 [8]). As at 1 June 2018, CNPR has no remaining material assets, other than approximately AUD$3.5m cash at bank together with accrued interest; shares in its subsidiary, Centro (CPL) Limited, which was placed into members’ voluntary liquidation on 31 May 2018; and GST receivables in respect of expenses incurred in completing the wind down of the remaining entities in CNPR Group (Georgakis 1.6.18 [7], [9]). In accordance with relief granted by Australian Securities and Investments Commission (“ASIC”), there have been no meetings of shareholders in CNPR for the past six years and CNPR has not produced any financial statements during that period (Georgakis 28.2.18 [37]).

7. Mr Williams submits, and I accept, that the Restructuring and the Creditors’ Schemes had the consequence that any residual value in the CNPR Group, following the payments contemplated in connection with the implementation of the Restructuring and the Wind Down, would be payable to the Senior Lenders. As Mr Williams points out, the provisions of the Senior Lender Schemes and the Senior Finance Documents to which I have referred above have the result that, although CNPR’s shareholders have continued to hold CNPR shares following the implementation of the Restructuring and payment of the Shareholder Amount, those shareholders have no economic interest in CNPR because any surplus funds remaining following the Wind Down (and the winding up) of CNPR are required to be paid to the Senior Lenders (Georgakis 28.2.18 [29]). As Mr Williams also points out, that result of the Restructuring was disclosed to CNPR’s shareholders in the Shareholders’ Explanatory Memorandum that was provided to shareholders in connection with their approval of the Restructuring (Georgakis 28.2.18 [30]-[31], Ex JG-1, tab 9). CNPR has also reminded shareholders, in subsequent updates following implementation of the Restructuring, that they would receive no payments following the winding up of CNPR since CNPR’s former Senior Lenders will be entitled to any surplus amount (Georgakis 28.2.18 [32]–[36], Ex JG-1, tabs 21–25). That result is not surprising, where the Shareholder Amount paid to shareholders on implementation of the scheme substantially exceeded the then value of their shares.

Whether CNPR should now be wound up

8. Under s 461(1)(k) of the Corporations Act, the Court may order the winding up of a company if it is of the opinion that it is just and equitable to do so. CNPR has standing to apply for such an order under s 462(2)(a) of the Corporations Act. In Re Catombal Investments Pty Ltd [2012] NSWSC 775; (2012) 30 ACLC 12-031, to which Mr Williams refers, Brereton J identified six “conventional” categories where a winding up order could be made, namely (1) failure of the substratum of the company; (2) deadlock or disagreement in the management of the company's affairs; (3) fraud in the formation of the company; (4) misconduct by the company’s directors; (5) constitutional and administrative vacuum in the company’s management; and (6) on the ground of lack of confidence, fairness and public interest and commercial morality. His Honour also rightly noted that the words "just and equitable" are general words and the just and equitable ground for winding up is “a broad one incapable of exhaustive definition”. The case law establishes that that ground is not confined to particular factual categories and the generality of the words “just and equitable” are not to be limited in any way.

9. As Mr Williams points out, an order for a company to be wound up on the just and equitable ground may be appropriate is where it is impossible to carry on the company’s business because the “substratum of the company” has failed or, in other words, it has become impossible for the company to achieve the purpose for which it was formed: Davis & Co Ltd v Brunswick (Aust) Ltd [1936] 1 All ER 299; Re Tivoli Freeholds Ltd [1972] VR 445; Strong v J Brough & Son (Strathfield) Pty Ltd (1991) 5 ACSR 296; Kingjade Holdings Pty Ltd v Pineridge Nominees Pty Ltd (1997) 15 ACLC 910; CIC Insurance Ltd v Hannan & Co Pty Ltd [2001] NSWSC 437; (2001) 19 ACLC 1217 at [9]–[13]; Re New South Wales Leagues’ Club Limited [2014] NSWSC 1610 at [59]. It seems to me that, in the circumstances set out above, CNPR can no longer operate as a going concern as a matter of practicality and it has become impossible for it to achieve its original purposes.

10. Mr Williams also submits that a winding up is appropriate on the wider just and equitable ground. He submits that, in the context of the steps that have now been taken to wind down the CNPR Group, the winding up of CNPR is consistent with the objects of the Restructuring and the terms of the Senior Lender Schemes. As Mr Williams points out, the winding up of CNPR will now allow CNPR to discharge its obligation to repay its surplus funds to the Senior Lenders pursuant to cl 7.4 of the Senior Facilities Continuation Agreement (as amended) (Georgakis 28.2.18 [50(c)]; Ex JG-1, tab 15, cl 7.4 of the Senior Facilities Continuation Agreement, as amended by clause 2.2 of the Amending Deed) and is the final step in the process contemplated by the Restructuring and the Creditors’ Schemes. A winding up of CNPR is also consistent with the statements made in the Shareholders’ Explanatory Memorandum and subsequent shareholder updates to which I have referred above, to the effect that CNPR would pursue an orderly winding up at the appropriate time following the Restructuring, and with the basis upon which CNPR’s shareholders approved the Restructuring. Mr Williams also points out that the winding up of CNPR should enable CNPR’s shareholders to crystallise a capital loss on their holdings to the extent that they have any remaining cost base (Georgakis 28.2.18 [50(d)]).

Whether a winding up should be left to a meeting of shareholders of CNPR

11. Mr Williams refers to Mr Georgakis’ evidence that, where CNPR’s shareholders now have no economic interest in CNPR and there have been no meetings of CNPR’s shareholders for the past six years, the attendance rate at any shareholders’ meeting convened for the purpose of appointing a liquidator to CNPR would likely be low and any shareholders who attend may be unrepresentative of CNPR’s shareholders as a whole (Georgakis 28.2.18 [51(c)]). Mr Georgakis’ evidence is also that, if shareholder approval for a winding up was not now obtained at such a meeting, then CNPR would likely need to apply to the Court for an order that it be wound up in any event, to give effect to the Restructuring, and that would result in unnecessary delay and duplication of expenses (Georgakis 28.2.18 [51(d)]). Mr Williams submits that, for these reasons and by contrast with the result in Re New South Wales Leagues’ Club Limited above, CNPR has established a sufficiently strong case not to require a members’ meeting which would ordinarily determine whether the company should be wound up.

12. I recognise that the question whether to wind up CNPR could be considered at a shareholders’ meeting. However, there seem to me to be fundamental practical obstacles to that course. The first is that, as Mr Williams points out, it would be costly where CNPR still has some 25,000 shareholders on the record. The second is that the majority of those shareholders would likely, and rationally, have no continuing interest in the matter, because they would know from the information provided to them in respect of the Restructuring that they have no continuing economic interest in CNPR, and nothing to gain and nothing to lose from whether it is wound up or not, so their efforts in attending or providing proxies for such a meeting would be wasted. Third, if shareholders voted against the relevant resolution, that would not give effect to the arrangement contemplated by the Restructuring nor would it provide any practical benefit to them, since CNPR is obliged, under its arrangements with its Senior Lenders, to proceed to a winding up and a distribution of the balance of funds held to the Senior Lenders.

13. In those circumstances, if the majority of CNPR’s shareholders did not attend a meeting to consider a winding up and a minority did attend and voted against the resolution, a subsequent application to wind up CNPR on just and equitable grounds, to give effect to CNPR’s restructuring and its arrangements with its Senior Lenders, would likely succeed, and a winding up would then be implemented after a significant waste of costs. There seems to me to be no utility in putting CNPR to the costs of calling a shareholders' meeting which will either lead to the same result as this application, or, if it does not, will be a wasted precursor to a successful winding up application that corresponds to this application.

Mr Koci’s grounds of opposition to the winding up application

14. CNPR did not receive any notices of appearance from interested persons wishing to appear at the hearing of the winding up application or oppose that application (Georgakis 1.6.18 [13]). However, one shareholder in CNPR, Mr Koci, has objected to the orders sought by CNPR in correspondence, including by a letter dated 7 May 2018 to CNPR’s legal advisers (Georgakis 11.5.18 [5], Annexure D). I address the grounds on which he opposed the winding up of CNPR below.

15. First, Mr Koci submits that shareholders were given no option other than to vote for the Restructuring in 2011. CNPR responds that while the alternative to the Restructuring may have been unpalatable, its shareholders had the option of voting for or against the resolutions required to facilitate the Restructuring and voted overwhelmingly in favour of them. It may be that Mr Koci is right to recognise that the Restructuring was the only practical option available to CNPR or its shareholders in 2011. It does not follow that CNPR or its shareholders now have any basis not to complete its implementation, where they have had the benefit of the funding provided by Senior Lenders, including for payment of the Shareholder Amount.

16. Second, Mr Koci submits that the “remaining funds” from the $100m that were made available to be shared among CNP’s securityholders and contingent creditors should not now be paid to CNPR’s Senior Lenders but should be paid to CNPR’s shareholders or used to restart the company. CNPR responds that that amount has been fully disbursed in accordance with the terms of the Restructuring and the remaining funds in CNPR comprise the balance of the funds held in an Escrow Account that Senior Lenders made available for the payment of accrued liabilities and winding up costs of the CNPR Group which are subject to Senior Lenders’ security. It seems to me that the approach proposed by Mr Koci is not open to CNPR under the terms of the Restructuring and having regard to the rights of CNPR’s Senior Lenders. The first and most fundamental difficulty with this approach is that it is inconsistent with the terms of the Restructuring, as previously approved by CNPR’s securityholders and creditors, and implemented by, inter alia, the payment of the Shareholder Amount, on the basis of a clear disclosure that that payment would be the entirety of the return to shareholders from the Restructuring. The second difficulty is that Mr Koci’s proposal is simply not capable of implementation, given the obligations on CNPR arising from the Restructuring and given the security held by Senior Lenders.

Other statutory requirements for a winding up

17. CNPR has otherwise complied with the other applicable statutory requirements in connection with its winding up application, and with the orders made by the Court in these proceedings. On 5 March 2018, CNPR caused an ASIC Form 519 to be lodged with ASIC notifying the winding up application in accordance with ss 465A(1)(a) and 470(1) of the Corporations Act, and regulation 1.0.03A of the Corporations Regulations 2001 (Cth). CNPR has obtained the consent of Laurence Fitzgerald of William Buck to be appointed as liquidator of CNPR and has filed that consent of Mr Fitzgerald in accordance with s 532(9) of the Corporations Act and r 5.5(3)(a) of the Supreme Court (Corporations) Rules 1999 (NSW).

18. CNPR also caused notice of the winding up proceedings to be published on CNPR’s website in substantially the same form as the notice attached to the orders made by the Court in these proceedings and caused that notice to be mailed to CNPR’s shareholders in accordance with those orders. CNPR has also caused notice of the application for the winding up of CNPR to be published on the Insolvency Notices website maintained by ASIC in accordance with s 465A(1)(c) of the Corporations Act and reg 5.6.75(4)–(5) of the Corporations Regulations.

Determination and orders

19. For these reasons, I was satisfied that it is just and equitable to wind up CNPR under s 461(1)(k) of the Corporations Act. That winding up gives effect to the arrangement contemplated by a compromise between CNPR’s stakeholders, implemented in 2011 by the Restructuring and the Creditors’ Schemes, and is appropriate where CNPR’s substratum has failed and it has become impossible for it to achieve the purpose for which it was formed. For these reasons, I made orders in accordance with the Short Minutes of Order initialled by me and placed in the file.

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