Re Elders Forestry Management Ltd No 2
[2012] VSC 373
•13 July 2012
| IN THE SUPREME COURT OF VICTORIA AT MELBOURNE | Not Restricted | |
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
CORPORATIONS’ LIST No. 2322 of 2012
| RE ELDERS FORESTRY MANAGEMENT LTD | |
| BETWEEN | |
| ELDERS FORESTRY MANAGEMENT LTD | Plaintiff |
| v | |
| CHRISTOPHER ARTHUR SEELS | Defendant |
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JUDGE: | ROBSON J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 13 July 2012 | |
DATE OF JUDGMENT: | 13 July 2012 | |
CASE MAY BE CITED AS: | Re Elders Forestry Management Ltd No 2 | |
MEDIUM NEUTRAL CITATION: | [2012] VSC 373 | |
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CORPORATIONS – Application for directions by Responsible Entity – Whether Responsible Entity justified in lodging with ASIC a copy of the amendments to constitution of a managed investment scheme – Whether Responsible Entity justified in indemnifying itself for the costs involved in making applications – Order that lodging and indemnification both justified – Section 601GC(2) of the Corporations Act 2001 (Cth).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | D Shavin QC with Dr O Bigos | Freehills |
| For the Defendant | No appearance |
HIS HONOUR:
Introduction
Elders Forestry Management Ltd is the responsible entity of several managed investment schemes that grow and harvest tree plantations. Elders wishes to sell the trees without harvesting them and distribute the proceeds to the growers. In some of the plantations the trees have matured and are ready to be harvested. In the balance, the trees have not reached maturity.
Earlier, I heard an application and made orders that Elders was justified in amending the constitutions of the schemes where the trees had reached maturity to permit the sale of the trees before they were harvested. I also ordered that Elders was justified in calling meetings for schemes where the trees had not reached maturity for the growers to consider and, if thought fit, amend the constitutions to permit the sale of the trees before harvesting. [1]
[1]Re Elders Forestry Management Ltd [2012] VSC 287.
The meetings of the growers of the immature plantations have now been held and in all schemes save one the members approved the amendments. Elders now seek an order that it is justified in lodging with ASIC a copy of the amendments to the constitutions approved at these meetings. Elders would be justified in lodging a copy of the amendments if the resolutions were proposed for a proper purpose and the meetings were properly held and the amendments approved. Elders also seeks an order that it would be justified in indemnifying itself for the costs involved in these applications from the scheme assets in proportion to each scheme’s share of the total proceeds.
For the following reasons I find that Elders would be justified in lodging with ASIC the amendments and indemnifying itself as it proposes.
Would Elders be justified in lodging with ASIC a copy of the amendments?
On 11 July 2012, meetings of growers were held in the immature plantation schemes (Immature Projects). The meetings were convened following the directions given by the court on 4 June 2012. Mr Dyer, an employee of Computershare which conducted the meetings, deposes to the calling of the meetings, the collection of the proxies, the conduct of the meetings and the result of the meetings. At the meetings the growers of each Immature Project considered:
(a) an ordinary resolution to approve the proposed sale of the trees under the Global Forest Partners Transaction (GFP Transaction); and
(b) a special resolution for the amendment of the constitutions of the Immature Projects so as to give Elders, as responsible entity, a power to extinguish certain rights of growers in order to facilitate the GFP Transaction.
Section 601GC(1) of the Corporations Act 2001 provides relevantly that the constitution of a registered scheme may be modified or repealed and replaced with a new constitution:
(a) by a special resolution of the members of the scheme; or
(b) by the responsible entity if the responsible entity reasonably considers the change or modification might adversely affect members’ rights.
In each of the Immature Projects the growers passed the resolutions.
The power of amendment in s 601GC(1)(a) is unfettered save that the power must be exercise for a proper purpose.[2] I find that the purpose of the amendments – in this case, the restructure of the projects – is a proper one for the reasons which I have already elaborated on in my earlier judgment of 28 June 2012. In substance, the amendments are designed to allow the plantations to be realised for what the directors of Elders consider to be the best possible price and in the best interests of the growers.
[2]Re Great Southern Managers Australia Limited No 1 [2009] 76 ACSR 146 at [9], and Re Great Southern Managers Australia Limited No 2 [2009] VSC 627 at [7].
If a special resolution to amend the constitution of a registered scheme under s 601GC(1)(a) is passed, the modification to the constitution only takes effect when a copy of the modification is lodged with ASIC.[3]
[3]Corporations Act s 601GC(2).
The poll results from the meetings of the Immature Projects are as follows:
Relevant Project Meeting Resolution 1 Resolution 2 For Against For Against ITC Pulpwood Project 2004 2944 (92.72) 231 (7.28%) 2870 (90.51%) 301 (9.49%) ITC Pulpwood Project 2005 4065 (84.76%) 731 (15.24%) 4029 (84.01%) 767 (15.99%) ITC Pulpwood Project 2007 719 (84.69%) 130 (15.31%) 719 (84.99%) 127 (15.01%) ITC Diversified Forestry 2004 1707 (91.19%) 165 (8.81%) 1703 (91.07%) 167 (8.93%) Tree Project 2005 202 (21.17%) 752 (78.83%) 202 (21.17%) 752 (78.83%)
In all instances, save for Tree Project 2005, the resolutions were comfortably passed.
Initially, Elders sought a direction that Elders would be justified in amending the constitutions of the Immature Projects for the purposes of implementing the GFC Transaction. In fact the amendments are affected by the resolutions. In my view the proper role for the court in the circumstances is not to make the direction initially sought by Elders but rather to make a finding on the evidence before me as to whether or not the constitution was in fact modified or repealed and replaced, by a special resolution of the members, and that if I am so satisfied, then it is then appropriate for me to direct that Elders would be justified, as it is required to do, in lodging a copy of the amendments with ASIC under s 601GC(2) to bring the resolutions into effect.
I am satisfied that the special resolutions were properly passed. I have already indicated that the meetings were called for a proper purpose and therefore it follows naturally that the resolutions were passed for a proper purpose as well.
As to the tree projects, on 11 July 2012 a meeting of growers in the Tree Project 2005 was held. The meeting was convened following a direction given by this court on 4 June 2012. At the meeting the growers considered an ordinary resolution to approve the GFP transaction and a special resolution for the amendment of the constitution of that project under Clause 34(b) of the Tree Project 2005 constitution relevantly so as to give EFML, as manager, a power to extinguish certain rights of growers in order to facilitate the GFP Transaction.
As indicated above, at the Tree Project 2005 meeting, the growers did not pass the resolutions. Accordingly, Elders does not press for a direction in respect of this project.
Would Elders be justified in indemnifying itself for the costs of this proceeding as it proposes?
Elders also seeks a direction that it would be justified in indemnifying itself for the costs in making this application (which includes the previous hearing). Elders, as the responsible entity of the projects, brought this application for judicial advice as part of its function of managing the projects. Elders contends that the application can be described as a trust dispute in which the costs of all parties are treated as necessarily incurred for the benefit of the estate and are ordered to be paid out of the fund.
Whether that be so or not, the trustee has, at law, a right to indemnify itself out of the trust assets for costs properly incurred in administering the trust. It appears to me that as these applications were brought for the proper purpose of seeking to facilitate the GFP Transactions, the costs would fall within costs properly incurred by the trustee on behalf of the estate.
The trustee’s right of indemnity is reflected in s 36(2) of the Trustee Act 1958 (Vic). Elders also refers to s 601GA(2) of the Corporations Act 2001 (Cth) which provides that if the responsible entity is to have any rights to be indemnified out of scheme property for liabilities or expenses incurred in relation to the performance of the duties, those rights must be specified in the schemes constitution, and must be available only in relation to the proper performance of those duties. The constitution of each project provides that if the responsible entity has acted in accordance with the constitution and believed in good faith that it was doing so, it is indemnified and reimbursed out of the ‘Proceeds Funds’ in respect of all project expenses. It is submitted to me, and I accept, that the costs of these proceedings are project expenses.
I find that the trustee plaintiff is entitled to be indemnified out of the trust assets for the costs of these proceedings.
Evidence was led as to Elders’ board’s consideration of the allocation of the costs of the proceedings. The board noted the impact of dividing the costs of the proceeding on the following two bases:
(a) equity in the 13 projects; and
(b) in proportion to sale proceeds received by each project as a percentage of the total sale proceeds received under the GFP transaction.
Elders’ board resolved that it is in the best interests of growers, and would be treating growers of different projects fairly, if the costs of the proceeding are borne
(a) in proportion to the sale proceeds received by each project as a percentage of the total sale proceeds received under the GFP Transaction;
(b) by the Mature Projects, the Immature Projects and the Tree Project 2005 up to and including 4 June 2012 – as the first court hearing on 13 May 2012 and the further submissions by EFML on 31 May 2012 related to all the projects; and
(c) 20 per cent by the Mature Projects and 80 per cent by the Immature Projects and the Tree Project 2005 from 5 June 2012 – as the second court hearing to be held on today's date 13 July 2012 primarily relates to the Immature Projects and the Tree Project 2005 but also seeks orders in relation to the Mature Projects.
I accept those submissions.
Elder’s solicitors advised Elders of the costs up to and including 4 June 2012 and the costs incurred from 5 June to today's date, as well as how the costs will be allocated up to 4 June if allocated on a proportionally, or if costs were allocated equally. In my view, a just and equitable way to allocate the costs is proportionally.
Elders’ proposal allocates the costs of this proceeding even in the event that conditions precedent under the GFP Transaction have not been satisfied. I find that this is appropriate as, amongst other reasons, the costs of this proceeding were legitimately incurred and Elders was acting reasonably in making this application.
This approach is generally consistent with that adopted by the receivers in Great Southern which was approved as a reasonable method of allocation by Davies J in Thackray v Gunns Plantations Ltd.[4]
[4][2011] ACSR 144 at [178]-[181].
I find that Elders is justified in indemnifying itself for its costs of this proceeding out of the scheme property proportionally as resolved by the board.
The communication from CAG Wealth Management Pty Ltd
Elders recently received a letter from a company called CAG Wealth Management Pty Ltd (CAG). CAG describes itself as the authorised representatives of Apogee Financial Planning Ltd. CAG claims to write on behalf of investors, which they have detailed in a schedule to the letter, to make a formal complaint about the conduct of Elders as responsible entity of certain of the schemes.
In substance, the complaints go to the representations that were made in the initial product disclosure statements about these projects. The complaints also go to Elders’ conduct, as responsible entity, in administering the schemes. CAG also raise a complaint that growers should have been provided with more information in the information booklet that went to growers as part of the information they received prior to the meetings. Elders quite rightly informed CAG of the hearing today and invited CAG to appear and make representations and brief counsel if it choose.
On 12 July, CAG responded saying that it did not intend to engage legal representatives nor to appear in court today. None of the growers for whom CAG purport to represent attended the meetings. Nor did they vote by proxy or otherwise. I do not believe it is appropriate for this court to examine the complaints raised by CAG. The appropriate time to consider those complaints would have been when I was considering whether Elders was justified in calling meetings and the procedure that they should adopt in calling the meetings. In my view, it is not appropriate for me to make any findings one way or the other on the matters raised in the letter. The complaints were quite properly drawn to the court’s attention. I have noted them and I will take no further action on them. The growers have their rights if they wish to resort to them.
For those reasons, I propose to make relevant orders as follows:
OTHER MATTERS:
The Court was satisfied that the resolutions and special resolutions of the members of the registered managed investment schemes identified in Schedule B to these orders (Immature Projects) at each of the meetings held on 11 July 2012, inter alia, to amend the constitutions of the Immature Projects for the purposes of implementing the GFP Transaction substantially on the terms described in the affidavit of Kenneth Andrew Serls dated 24 April 2012 (GFP Transaction), were passed properly, and the special resolutions satisfied the requirements of section 601GC(1)(a) of the Corporations Act 2001 (Cth).
THE COURT DIRECTS THAT:
1.The Plaintiff would be justified in lodging with the Australian Securities and Investments Commission, pursuant to section 601GC(2) of the Corporations Act 2001, a copy of the amendments to the constitutions of the Immature Projects the subject of the special resolution passed at each of the meetings held on 11 July 2012, for the purposes of implementing the GFP Transaction.
2.The Plaintiff would be justified in indemnifying itself in respect of its costs of this proceeding out of the scheme property of the registered managed investment schemes identified in Schedule C to these orders (Mature Projects), the Immature Projects and the unregistered managed investment scheme known as Tree Project 2005, in the manner described in the affidavit of Kenneth Andrew Serls dated 12 July 2012.
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