Trust Company (Nominees) Ltd v Angas Securities Ltd
[2015] FCA 772
•24 JULY 2015
FEDERAL COURT OF AUSTRALIA
Trust Company (Nominees) Limited, in the matter of Angas Securities Limited v Angas Securities Limited [2015] FCA 772
Citation: Trust Company (Nominees) Limited, in the matter of Angas Securities Limited v Angas Securities Limited [2015] FCA 772 Parties: THE TRUST COMPANY (NOMINEES) LIMITED v ANGAS SECURITIES LIMITED File number: NSD 469 of 2015 Judge: BEACH J Date of publication of reasons: 28 July 2015 Date of pronouncement of orders: 24 and 27 July 2015 Catchwords: CORPORATIONS – fixed interest debentures – application for relief pursuant to ss 283HA and 283HB of the Corporations Act 2001 (Cth) – orders to protect interests of debenture holders – application by trustee for freezing orders – compliance by issuer with financial covenants – compromise – run-off proposal – orders convening meeting of debenture holders – approval of explanatory statement – amendment to trust deed – judicial advice to trustee
PRACTICE AND PROCEDURE – non-publication and suppression orders – protection of debenture holders – protection of administration of justice – orders under s 37AG(1)(a) of the Federal Court of Australia Act 1976 (Cth)
Legislation: Corporations Act 2001 (Cth) ss 283AA, 283AB, 283AC(1)(f), 283DA, 283EC, 283HA, 283HB, Part 2L
Federal Court of Australia Act 1976 (Cth) ss 17(4), 37AE, 37AF, 37AG(1)(a)
Trustee Act 1925 (NSW) s 63Cases cited: Australian Executor Trustees Ltd v Provident Capital Ltd (2012) 203 FCR 461
Australian Securities and Investments Commission v Bridgecorp Finance Ltd (2006) 58 ACSR 499
In the Matter of Metal Storm Ltd (subject to Deed of Company Arrangement) [2014] NSWSC 813
Perpetual Trustees WA Ltd v Elderslie Finance Corporation Ltd [2008] FCA 1068
Trust Company (Nominees) Limited v Gippsland Secured Investments Ltd [2013] FCA 1393
Trust Company (Nominees) Limited v Southern Finance Ltd [2012] FCA 1339Date of hearing: 2, 9 June and 23 July 2015 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 121 Counsel for the Plaintiff: Mr I Jackman SC with Mr RM Foreman Solicitors for the Plaintiff: Ashurst Australia Counsel for the Defendant: Mr A Myers AO QC with Mr M Hoffman QC and
Mr J RedwoodSolicitors for the Defendant:
Johnson Winter & Slattery
Counsel for Australian Securities and Investments Commission: Ms J Shepard (2 and 9 June 2015) Solicitor for Australian Securities and Investments Commission: Mr M Pangbourne of Australian Securities and Investments Commission (23 July 2015)
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
NSD 469 of 2015 IN THE MATTER OF ANGAS SECURITIES LIMITED (ACN 000 154 441)
BETWEEN: THE TRUST COMPANY (NOMINEES) LIMITED
PlaintiffAND: ANGAS SECURITIES LIMITED
DefendantJUDGE:
BEACH J
DATE OF ORDER:
24 JULY 2015
WHERE MADE:
MELBOURNE
THE COURT ORDERS THAT:
1.Pursuant to section 283HB(1)(g) of the Corporations Act 2001 (the Act), a meeting of persons who are registered as holding debentures issued by the defendant at 9:30am (AEST) on 24 July 2015 (Debenture Holders) be convened on 10 August 2015 for the purpose of Debenture Holders voting on the Extraordinary Resolution proposed in the Explanatory Statement (defined in order 2(a)).
2.For the purpose of giving effect to orders 1 and 12 of the orders made in this proceeding on 9 June 2015 (Run-Off Orders):
(a)the defendant may issue the Notice of Meeting and Explanatory Statement to all Debenture Holders and any persons who are registered as holding redeemable preference shares issued by the defendant at 9:30am (AEST) on 24 July 2015 (RPS Holders) in substantially the form attached to these orders and marked “A” (Explanatory Statement); and
(b)order 6 (as amended) of the orders of Justice Davies made on 20 December 2013 in proceeding VID1361 of 2013, orders 2 and 3 (as amended) of the orders of Justice Yates made on 17 December 2014 in proceeding NSD1333 of 2014 and orders 5 and 6 (as amended) of the orders of Justice Wigney made on 29 April 2015 in this proceeding are varied to permit the defendant to send the Explanatory Statement to Debenture Holders and RPS Holders.
3.Pursuant to section 283HB(1)(g) of the Act, the Explanatory Statement be communicated to Debenture Holders and RPS Holders by 27 July 2015.
4.For the purpose of order 13 of the Run-Off Orders, this proceeding be listed for further hearing at 2:15pm on 17 August 2015.
5.For the purpose of order 7(c) of the Run-Off Orders, the plaintiff and the defendant jointly engage Mr John Powell as the Independent Appointee to the Loans Realisation Committee.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
NSD 469 of 2015 IN THE MATTER OF ANGAS SECURITIES LIMITED (ACN 000 154 441)
BETWEEN: THE TRUST COMPANY (NOMINEES) LIMITED
PlaintiffAND: ANGAS SECURITIES LIMITED
DefendantJUDGE:
BEACH J
DATE OF ORDER:
27 JULY 2015
WHERE MADE:
MELBOURNE
THE COURT ORDERS THAT:
1.Orders 5 and 6 (save for order 6(a)(i)) of the 29 April 2015 orders of Wigney J (as amended) be discharged.
2.The names of the parties and the title to this proceeding be amended such that the Plaintiff is identified as The Trust Company (Nominees) Limited and the Defendant is identified as Angas Securities Limited.
3.Liberty to apply be given to any party or non-party to seek a variation of order 6(a)(i) of such orders.
4.This proceeding be listed for hearing at 2.15 pm on 29 July 2015 for the purpose of considering any variation of order 6(a)(i) of such orders either on application to the Court or of the Court’s own motion.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
NSD 469 of 2015
IN THE MATTER OF ANGAS SECURITIES LIMITED (ACN 000 154 441)
BETWEEN: THE TRUST COMPANY (NOMINEES) LIMITED
PlaintiffAND: ANGAS SECURITIES LIMITED
Defendant
JUDGE:
BEACH J
DATE:
28 JULY 2015
PLACE:
MELBOURNE
REASONS FOR JUDGMENT
The Trust Company (Nominees) Limited (Trustee), formerly known as Permanent Nominees (Aust) Limited, and Angas Securities Limited (Angas) are parties to a document titled “Trust Deed for First Ranking Debenture Stock” dated 19 July 2000 (as amended and supplemented from time to time) (Trust Deed).
The Trust Deed was entered into pursuant to s 283AA(1) of the Corporations Act 2001 (Cth) (the Act) in respect of debentures issued by Angas.
Angas has granted a first ranking floating charge dated 19 July 2000 over its undertaking and all its real and personal property and assets in favour of the Trustee to secure the payment of moneys owing by Angas to debenture holders.
The Trustee is a body corporate approved by the Australian Securities and Investments Commission (ASIC) to be a trustee for the purposes of s 283AC(1)(f) of the Act.
Pursuant to s 283AA(1) of the Act, the Trustee holds the position of trustee in respect of debentures issued by Angas under the Trust Deed.
On 29 April 2015 the Trustee commenced proceedings against Angas. The relief it ultimately sought under ss 283HA, 283HB and 1337B of the Act and s 63 of the Trustee Act 1925 (NSW) was the following:
1.A direction, pursuant to section 283HA of the Act, and an opinion, advice or direction pursuant to section 63 of the Trustee Act, that the plaintiff is justified in applying to the Court for:
a. the relief sought in paragraphs 2 to 6 of this Originating Process; and
b.the relief sought in the Interlocutory Process dated 28 April 2015 filed in this proceeding.
2.A declaration, or alternatively directions, pursuant to section 283HA of the Act regarding the proper construction of clause 8.3 of the Trust Deed for First Ranking Debenture Stock dated 19 July 2000 entered into between the plaintiff and the defendant, as amended from time to time (Trust Deed).
2A. A declaration that:
a. the defendant has breached clause 8.3 of the Trust Deed;
b.accordingly, an event has occurred pursuant to clause 12.1(r) of the Trust Deed;
c.accordingly, the plaintiff may enforce the Charge granted by the defendant in favour of the Trustee, by notice in writing to the defendant under clause 12.1 of the Trust Deed; and
d.for the purposes of the notice in c. above, the date of the Court’s declaration constitutes an Enforcement Date for the purposes of the Trust Deed.
3.An order pursuant to section 283HB(1)(c) of the Act that the Charge dated 19 July 2000 between the plaintiff and the defendant in relation to the obligations under the Trust Deed be enforceable immediately.
The trial of the Trustee’s originating application proceeded on 2 and 9 June 2015. ASIC also appeared on the hearing and filed written submissions.
Late on 9 June 2015, the parties agreed to resolve the proceedings on an interim basis. In accordance with that interim resolution, I made the following orders:
THE COURT DIRECTS THAT:
1.Pursuant to section 283HA of the Corporations Act 2001 (Cth) (Corporations Act), and/or section 63 of the Trustee Act 1925 (NSW) (Trustee Act), the plaintiff is justified in consenting to the vacation of the hearing of this proceeding as contemplated by these orders, on the basis that:
(a)the Court will consider, and if thought fit, make an order pursuant to section 283HB(1)(g) of the Corporations Act, convening the Meeting (as defined in paragraph 12(b)(ii) below) of persons currently holding debentures issued by the defendant (Debenture Holders), at 9:30am on 17 July 2015;
(b)at the Meeting, an Extraordinary Resolution (as defined in the Trust Deed) will be put to Debenture Holders that the terms of debentures be amended as contemplated by paragraph 12(b)(ii) below; and
(c) following the Meeting, a further hearing will be fixed at which:
(i)if the Extraordinary Resolution contemplated by paragraph 12(b)(ii) below is passed by Debenture Holders, consider, and if thought fit provide, judicial advice and directions to the plaintiff under section 283HA of the Corporations Act and/or section 63 of the Trustee Act that the plaintiff is justified in proceeding on the basis that the making of the amendment approved by the Extraordinary Resolution of Debenture Holders and the implementation of the Court’s orders as contemplated by these orders, accords with the plaintiff’s duties under the Trust Deed, the Corporations Act and at law; and
(ii)if the Extraordinary Resolution contemplated by paragraph 12(b)(ii) below is not passed by Debenture Holders, hear and determine the relief sought by the plaintiff in this proceeding.
THE COURT ORDERS THAT:
2.The current freezing orders implemented by orders 7 and 8 (as amended) of the orders of Justice Wigney dated 29 April 2015 remain in place during the period from 29 April 2015 up until 31 December 2016 (Run-Off Period).
3.The defendant provide to the plaintiff on or before 4:00pm (AEST) on Friday 12 June 2015 in electronic form (including supporting documentation) a month-by-month forecast of the cash and cash-equivalent assets forecast to be held by the defendant during the Run-Off Period (Run-Off Schedule), incorporating:
(a)cash and cash-equivalent assets held by the defendant (Cash Buffer) as at 29 May 2015, having satisfied its payment obligations under paragraph 5 below;
(b)a list of all loan assets held by the defendant (Loan Assets), specifying face values including all principal, arrears and unpaid other income such as fees and other imposts by the defendant on the borrower or other obligors which the defendant records as assets on its balance sheet and specifying all Loan Assets which Related Entities of the defendant have interests of any kind, whether documented or undocumented, formal or informal, registered or unregistered, which create any rights to receive distributions from repayments or realisations from security, including but not limited to the Related Party Mortgages identified by the plaintiff or the plaintiff’s solicitors in prior correspondence; and
(c)the security held by the defendant for the repayment of amounts payable to the defendant in respect of Loan Assets (Securities), including carrying values of Securities recognised by the defendant, and any provisions recognised against such Securities;
(d)forecast discharges of all loan assets of the defendant, specifying, holding costs, forecast net realisation proceeds and dates of forecast realisations during the Run-Off Period;
(e) the defendant’s forecast operating costs during the Run-Off Period;
(f)the defendant’s forecast payment obligations to Debenture Holders in respect of interest; and
(g)the defendant’s forecast Cash Buffer on the last day which is not a weekend or a public holiday in Sydney (Business Day) of each calendar month during the Run-Off Period.
4.The defendant must refund the amounts received by the defendant by way of new investments which were deposited into trust pursuant to the orders made by Justice Wigney on 29 April 2015 to the Debenture Holders making those investments, with accrued interest, by 4:00pm (AEST) on Friday 12 June 2015.
5.Subject to the approval of the Court being given under clause 13(a) below, the defendant must pay to the plaintiff within 7 days of that approval the following amounts:
(a)$1,506,841.49, for the plaintiff’s legal costs, including GST and disbursements; and
(b) $454,883.18, for PPB Advisory’s unpaid costs.
SUBJECT TO THE COURT PROVIDING THE JUDICIAL ADVICE CONTEMPLATED BY PARAGRAPH 13(a) BELOW, THE COURT ORDERS THAT:
6. With effect from the date of these orders:
(a)the defendant must not pay any money to or for the benefit of any shareholder (in their capacity as a shareholder of the defendant) including any holder of redeemable preference shares issued by the defendant and any other Related Entities (as that term is defined in the Corporations Act) (Related Entities), without the plaintiff’s prior written consent.
(b)the defendant must not accept new debenture investments (for the avoidance of doubt, this order does not preclude the acceptance of new investments in the Angas Contributory Mortgage Fund or the Angas Prime Income Fund, of which the defendant currently holds office as responsible entity).
(c)the defendant must comply with its payment obligations to Debenture Holders in respect of interest when it falls due for payment on the last Business Day of each calendar month.
(d)the defendant must maintain a Cash Buffer of at least $5 million as at the end of each calendar month, unless the Loan Realisation Committee (defined in paragraph 7 below) approves otherwise in writing.
(e)the defendant must distribute by way of a pari passu interim distribution to Debenture Holders in part-satisfaction of principal all excess cash or cash-equivalent assets held above the Cash Buffer as at the following dates (Interim Distribution Dates), unless the Loan Realisation Committee (defined in paragraph 7 below) approves otherwise in writing:
(i) 30 October 2015;
(ii) 29 February 2016; and
(iii) 30 June 2016.
(f)Cash distributions made by the defendant to Debenture Holders at Interim Distribution Dates must be equal to or exceed the following proportions of the principal amounts owed to Debenture Holders as at 29 April 2015 (Principal Balances), unless the Loan Realisation Committee (defined in paragraph 7 below) approves otherwise in writing:
(i)on or before 30 October 2015, 20% of the Principal Balances;
(ii)on or before 29 February 2016, 20% of the Principal Balances; and
(iii) on or before 30 June 2016, 10% of the Principal Balances.
(g)The defendant must make a final distribution of the remainder of the Principal Balances, together with any outstanding interest, to Debenture Holders on or before 30 December 2016.
(h)The defendant may make part-payments of principal by way of a single payment to each Debenture Holder (such term for the purpose of this order to include the Debenture Holder and any of its Related Entity) in the maximum amount of 20% of the total principal balance owed to the debenture holder, where the debenture holder is subject to circumstances of genuine hardship established to the reasonable satisfaction of the plaintiff and the defendant and with the plaintiff’s written approval.
7.A committee comprising three members (Loans Realisation Committee), will be constituted as follows:
(a)the defendant’s independent director, Mr Clive Guthrie as the defendant’s nominated representative;
(b) a representative to be nominated in writing by the plaintiff; and
(c)an independent person to be agreed between the defendant and the plaintiff or alternatively determined by the Court and engaged jointly by the plaintiff and the defendant for the purposes of these orders by 4:00pm (AEST) on 12 June 2015 (Independent Appointee).
8.The defendant must provide the Loans Realisation Committee with an updated Run-Off Schedule on or before the 10th Business Day of each calendar month, showing the position of the defendant as at the last Business Day of the preceding calendar month.
9.The Loans Realisation Committee has responsibility during the Run-Off Period for receiving reports under paragraph 8 of these orders and making the following decisions by majority decision to be recorded in writing and advised to each of the defendant and the plaintiff:
(a)material decisions relating to the realisation by the defendant of Loan Assets, with materiality to be determined as follows:
(i)decisions in relation to matters involving any interests of Related Entities of the defendant, whether documented or undocumented, formal or informal, registered or unregistered, which create any rights to receive distributions from repayments or realisations from security, in the Related Party Loans as identified by the defendant in accordance with paragraph 3(b) above; and
(ii)decisions in relation to, or to give effect to, realisations where:
(A)if the realisation relates to the discharge of a Loan Asset, the face value of the Loan Asset recorded in the Run-Off Schedule as contemplated by paragraph 3(b) above is equal to or greater than $1 million; and
(B)if the realisation relates to security held by the defendant, the carrying value of the relevant Security recorded in the Run-Off Schedule as contemplated by paragraph 3(c) above is equal to or greater than $1 million.
(b)considering, and if thought appropriate approving, requests made for approval by the Loans Realisation Committee as contemplated under paragraphs 6(d), 6(e) and 6(f) above;
(c)considering, and if thought appropriate approving, requests made by the plaintiff for additional remuneration incurred in respect of the arrangement contemplated by these orders; and
(d)considering, and if thought appropriate approving, requests made by the plaintiff and the defendant for payment of professional fees incurred in respect of the arrangement contemplated by these orders.
10. The defendant must pay:
(a)Mr Guthrie’s director fees as agreed between the defendant and Mr Guthrie from time-to-time and approved by the Loans Realisation Committee;
(b) the plaintiff’s:
(i)reasonable costs and expenses in respect of its nominee’s representation on the Loans Realisation Committee; and
(ii)reasonable additional remuneration claimed under clause 18.3 of the Trust Deed which is approved for payment by the Loan Realisation Committees as contemplated by paragraph 9(c) above; and
(c)all reasonable costs and expenses invoiced by the Independent Appointee under their engagement, to be approved by the defendant and the plaintiff.
PENDING THE COURT’S DIRECTION UNDER PARAGRAPH 1 ABOVE, THE COURT ORDERS THAT:
11. In respect of this proceeding:
(a) the hearing of this proceeding on 9 and 10 June 2015 is vacated;
(b)the defendant will prepare a draft letter to Debenture Holders which discloses to Debenture Holders this proceeding, the previous proceedings numbered VID 1361 of 2013 and NSD 1333 of 2014 (Previous Proceedings), and these orders, to be sent to the Court, ASIC and the plaintiff in draft form by 4:00pm (AEST) on Thursday 11 June 2015;
(c)ASIC and the plaintiff may notify the defendant of any objections to the form of the letter to Debenture Holders by 4:00pm (AEST) on Monday 15 June 2015;
(d)if there is no objection, the defendant may issue the letter to Debenture Holders after 9am (AEST) on Tuesday 16 June 2015 or, in the event of objections which cannot be resolved by agreement between the parties, this proceeding may be re-listed;
(e)the defendant will prepare a draft explanatory statement to Debenture Holders (Explanatory Statement) which discloses material information necessary for Debenture Holders to vote at the Meeting (defined in paragraph 12(b)(ii) below), to be sent to the Court, ASIC and the plaintiff in draft form by 4:00pm (AEST) on Friday 10 July 2015;
(f)each of ASIC and the plaintiff are to consult in good faith with the defendant in relation to the draft Explanatory Statement to reach an agreed form of Explanatory Statement for Court approval; and
(g)orders 5 and 6 (as amended) of the orders of Justice Wigney dated 29 April 2015 be varied so as to exclude therefrom the issuing of the letter to Debenture Holders as referred to in paragraph 11(d).
12.This proceeding is listed for hearing at 9:30am on 17 July 2015, during which the Court will:
(a)consider, and if thought fit, approve the form of Explanatory Statement to be made by the defendant to Debenture Holders;
(b) make orders under section 283HB(1)(g) of the Corporations Act that:
(i)the Explanatory Statement be communicated to Debenture Holders by 23 July 2015; and
(ii)a meeting of Debenture Holders be convened on 10 August 2015, for the purpose of Debenture Holders voting on an Extraordinary Resolution to give effect to a variation of the redemption dates of all debentures to 31 December 2016 (Meeting).
13.This proceeding be listed for further hearing at 9:30am on 17 August 2015 during which the Court will:
(a)if the Extraordinary Resolution contemplated by paragraph 12(b)(ii) above is passed by Debenture Holders, consider, and if thought fit provide, judicial advice and directions to the plaintiff under section 283HA of the Corporations Act and/or section 63 of the Trustee Act that the plaintiff is justified in proceeding on the basis that the making of the amendment approved by the Extraordinary Resolution of Debenture Holders and the implementation of the Court’s orders as contemplated by these orders, accords with the plaintiff’s duties under the Trust Deed, the Corporations Act and at law; and
(b)if the Extraordinary Resolution contemplated by paragraph 12(b)(ii) above is not passed by Debenture Holders, hear and determine the relief sought by the plaintiff in this proceeding.
14. The parties have liberty to apply on one day’s notice.
THE COURT NOTES THAT:
15.The defendant will be permitted to put any proposal(s) it may wish to put to the plaintiff regarding further capital injections, which will be considered in good faith by the plaintiff.
As will be apparent from such orders, the interim resolution involved convening a meeting of the debenture holders for the purposes of amending the Trust Deed and implementing a run-off proposal, the details of which I will discuss shortly.
On 25 June 2015 I made further orders approving a form of notification to debenture holders. The details of such orders are not presently relevant.
On 24 July 2015, I approved the form of a notice of meeting and explanatory statement to be sent to debenture holders and for the necessary convening of a meeting of debenture holders. I made the following orders:
1.Pursuant to section 283HB(1)(g) of the Corporations Act 2001 (the Act), a meeting of persons who are registered as holding debentures issued by the defendant at 9:30am (AEST) on 24 July 2015 (Debenture Holders) be convened on 10 August 2015 for the purpose of Debenture Holders voting on the Extraordinary Resolution proposed in the Explanatory Statement (defined in order 2(a)).
2.For the purpose of giving effect to orders 1 and 12 of the orders made in this proceeding on 9 June 2015 (Run-Off Orders):
(a)the defendant may issue the Notice of Meeting and Explanatory Statement to all Debenture Holders and any persons who are registered as holding redeemable preference shares issued by the defendant at 9:30am (AEST) on 24 July 2015 (RPS Holders) in substantially the form attached to these orders and marked “A” (Explanatory Statement); and
(b)order 6 (as amended) of the orders of Justice Davies made on 20 December 2013 in proceeding VID1361 of 2013, orders 2 and 3 (as amended) of the orders of Justice Yates made on 17 December 2014 in proceeding NSD1333 of 2014 and orders 5 and 6 (as amended) of the orders of Justice Wigney made on 29 April 2015 in this proceeding are varied to permit the defendant to send the Explanatory Statement to Debenture Holders and RPS Holders.
3.Pursuant to section 283HB(1)(g) of the Act, the Explanatory Statement be communicated to Debenture Holders and RPS Holders by 27 July 2015.
4.For the purpose of order 13 of the Run-Off Orders, this proceeding be listed for further hearing at 2:15pm on 17 August 2015.
5.For the purpose of order 7(c) of the Run-Off Orders, the plaintiff and the defendant jointly engage Mr John Powell as the Independent Appointee to the Loans Realisation Committee.
The meeting of debenture holders is to be held on 10 August 2015. If the debenture holders approve the various resolutions, then there will be a Court hearing on 17 August 2015 to determine whether I should give advice to the Trustee to amend the Trust Deed. If the debenture holders do not approve the various resolutions, then the Trustee’s originating application will be further heard and determined.
These reasons serve a number of functions.
First, they record my reasons for making the orders on 9 June and 24 July 2015.
Second, they record the reasons for the freezing orders that are currently in place.
Third, they record the reasons for the imposition and maintenance of the suppression and non-publication orders and the lifting and variation thereof. I made orders on 27 July 2015 substantially discharging previous orders that had been made to that effect. I will hear further from the parties and any interested non-party on that question.
BACKGROUND
It is convenient to set out the background, part of which can be taken from the form of the explanatory statement that I have approved, but with some modification.
Angas was established in 2000. As at 10 July 2015, it had issued $219.65 million of fixed interest debenture securities. Angas holds AFS Licence 232479 issued by ASIC to issue fixed interest securities. The fixed interest debenture investments are secured by a security interest in favour of the Trustee over the assets of Angas. This is a first ranking security interest which provides security to the Trustee for repayment of fixed interest debenture investments. The Trustee holds that security for the benefit of debenture holders.
Angas’ primary assets are loans advanced by Angas to borrowers which are secured by first ranking mortgages over real property assets (security properties).
The Trustee is appointed to act as trustee pursuant to s 283AA of the Act. Under the terms of the Trust Deed and the Act (ss 283AB and 283DA) and at law generally, the Trustee has duties and obligations to act in the interests of all debenture holders.
In around October 2012, the Trustee expressed concerns in relation to Angas’ financial position and performance. The Trustee later commenced a more detailed review of Angas, including an independent business review of Angas. This included extensive work undertaken by accountants engaged by the Trustee. The Trustee’s independent business review was concluded in March 2015.
(a) 2013 Federal Court Proceeding (VID 1361 of 2013) commenced in the Melbourne registry of the Court on 18 December 2013
Prior to commencing the 2013 proceeding, the Trustee corresponded with Angas regarding concerns it held in relation to the quality and value of certain security properties.
The Trustee requested Angas’ agreement to engage McGrathNicol to review valuation reports for a number of security properties (2013 valuations).
Angas did not agree to the appointment of McGrathNicol and contended that a valuer should be appointed to review the 2013 valuations. The Trustee disagreed with that approach and commenced the 2013 proceeding to seek orders from the Court to allow it to engage McGrathNicol to review the 2013 valuations.
On 24 March 2014, Angas and the Trustee agreed to terms of settlement of the 2013 proceeding. The settlement terms included an agreement that Angas would engage Deloitte (Angas’ auditor) to review the 2013 valuations and report to Angas and the Trustee on any impairment losses required to be recorded against the underlying loan assets secured by the relevant security properties. As a part of that agreement, the 2013 proceeding was dismissed.
On 22 January 2015, Deloitte issued a final report to Angas setting out its review of the 2013 valuations.
(b) Review of Angas’ books and records
On 30 September 2014, Angas published its audited financial report for the full year ended on 30 June 2014 (FY14 annual report). That report disclosed that Angas had incurred operating losses for the full year of $5.42 million.
Based on a number of disclosures that Angas made to the Trustee at the time, including the FY14 annual report, the Trustee wrote to Angas on 4 November 2014 setting out a number of concerns the Trustee held regarding Angas’ financial position and business operations. Those concerns related principally to whether Angas had sufficient assets and liquidity to meet its obligations to debenture holders and whether Angas was conducting its business in a proper and efficient manner as required under the Trust Deed and applicable law.
On 17 November 2014, the Trustee engaged PPB Advisory to conduct a review into Angas’ financial position and performance and to provide an opinion regarding Angas’ solvency and its ability to meet its obligations to debenture holders when they fell due. Angas engaged Edwards Marshall, an independent accounting firm, to provide a similar opinion.
On 26 November 2014, Angas and the Trustee agreed to a voluntary freeze on redemption payments, pending completion of the review of Angas’ books and records by PPB Advisory (voluntary freeze).
PPB Advisory issued a report to the Trustee on 12 December 2014 that expressed an opinion that Angas may not have sufficient property to meet its obligations to debenture holders in the near future and recommended that the Trustee conduct further investigations into Angas’ books, records and financial position. Edwards Marshall expressed an opinion to Angas that Angas was solvent and had sufficient property to meet its obligations to debenture holders when they fell due.
The Trustee requested Angas’ agreement to a further extension of the voluntary freeze until February 2015 to permit the implementation of the recommendations made by PPB Advisory. On 16 December 2014, Angas confirmed that it would not agree to the extended freeze proposed by the Trustee.
(c) 2014 Federal Court Proceeding (NSD 1333 of 2014) commenced in the Sydney registry of the Court on 17 December 2014
On 17 December 2014, the Trustee commenced the 2014 proceeding seeking orders inter-alia for a freeze on payments by Angas until February 2015 and for Angas to provide PPB Advisory with further access to Angas’ books and records for the purpose of them advising and reporting to the Trustee. The 2014 proceeding was heard on 23 December 2014 and judgment was delivered by Yates J on 24 December 2014.
The Court accepted the opinions expressed by Edwards Marshall in their report to Angas, namely that Angas was solvent, would remain solvent for the foreseeable future and had sufficient liquidity to meet its obligations to debenture holders as they fell due. It was noted that all of the assumptions made by Edwards Marshall could be monitored, particularly in the immediate future.
The Court declined to order the extended freeze on payments requested by the Trustee. As a consequence the voluntary freeze was lifted. Accrued redemption payments were made to debenture holders on 24 December 2014.
The Court ordered that Angas and the Trustee jointly engage a valuer to value security properties held by Angas as security for six non-performing loans (joint re-valuations).
(d) Angas’ net tangible asset position
A key covenant imposed on Angas under the Trust Deed is that Angas maintain sufficient available property to be able to repay debentures issued by it when they fall due in the future. Specifically, the Trust Deed (clause 8.3) requires Angas to maintain a certain level of tangible assets in excess of its total liabilities (Minimum Net Tangible Assets Requirement).
On 16 March 2015, Angas published its financial report for the half year ending on 31 December 2014 (HY15 report). That report is not audited, but includes a review by Angas’ auditor (Deloitte) for the purposes of Angas’ financial reporting obligations under the Trust Deed and applicable law. In the HY15 report, Angas disclosed that it had incurred further operating losses of $4.25 million in the six months ended 31 December 2014. Deloitte noted a number of “material risks” to Angas’ financial position which created doubts as to whether Angas could continue to operate as a going concern. Angas’ directors noted a number of “mitigating factors” to those risks.
Following the HY15 report and other further disclosures that Angas had made to the Trustee, the Trustee corresponded with Angas in March and April 2015 expressing concern that Angas may have breached or be about to breach the Minimum Net Tangible Assets Requirement.
On 28 April 2015, the Trustee received a report from PPB Advisory that expressed an opinion that Angas had breached or was likely to breach the Minimum Net Tangible Assets Requirement. The PPB Advisory report also expressed an opinion that Angas had a deficiency of tangible assets to its liabilities.
Angas’ position is that the Trustee had incorrectly interpreted the Trust Deed in calculating whether Angas was compliant with the Minimum Net Tangible Assets Requirement. Angas also obtained a report from Edwards Marshall that agreed with some of the conclusions (regarding further impairment losses) in the report provided to the Trustee by PPB Advisory but expressed an opinion that Angas had not breached the Minimum Net Tangible Assets Requirement.
(e) Joint re-valuations
On 30 April 2015, Angas sold security properties that comprised four of the six joint re-valuations. That sale resulted in a shortfall in recovery of the affected loans, however the amount of the shortfall is not yet known due to cross collateralisation of the affected loans. Accordingly, there were two remaining security properties subject to the joint re-valuations.
Angas and the Trustee obtained valuation reports in respect of those security properties on 12 and 13 May 2015. Those reports provided evidence of shortfalls in the value of the two security properties when compared against the carrying value of those properties in Angas’ books. Angas and the Trustee do not agree upon the amount of those shortfalls. The effect of the joint re-valuations on Angas’ net tangible asset position has not yet been determined.
(f) The present proceeding commenced in the Sydney registry of the Court on 29 April 2015
On 29 April 2015, the Trustee commenced the present proceeding seeking, inter-alia:
(a)a freeze on payments to debenture holders (subject to some exceptions) and other investors or shareholders;
(b)directions regarding the correct interpretation of the Trust Deed in relation to the Minimum Net Tangible Assets Requirement;
(c)a direction that Angas had breached the Minimum Net Tangible Assets Requirement; and
(d)an order that the security granted to the Trustee was enforceable immediately.
With Angas’ consent, the Court made interim orders on 29 April 2015 freezing the redemption of matured debentures and imposing restrictions on the payment of early redemptions due to hardship (freezing orders). The freezing orders were subsequently varied by me by order on 29 May 2015 permitting the payment of April 2015 redemption requests (received prior to 15 April 2015). An amount of $2.427 million of redemptions was then paid by Angas on 29 May 2015. The payments permitted by the varied order were limited to those debentures that matured in April 2015 or prior and in respect of which notification of the redemption was received by Angas prior to 15 April 2015. The freezing orders otherwise remain in place.
Angas and the Trustee have filed expert evidence (by Edwards Marshall and PPB Advisory respectively) regarding the quantum of Angas’ tangible assets and the level of impairment losses Angas may need to record against its loan portfolio. That evidence includes opinions regarding the treatment of the two joint re-valuations received by Angas and the Trustee on 12 and 13 May 2015.
The experts have differing views on the degree of impairment losses. However, both experts have agreed that Angas was required to recognise further impairment losses against its loan portfolio. No findings or rulings have been made by the Court pending a final hearing of this proceeding.
Subsequently, Angas has incurred further operating losses in May and June 2015 as a result of the recognition of additional impairments and extraordinary costs.
The hearing of the Trustee’s originating application commenced on 2 June 2015. On the second day of the hearing (9 June 2015), the Trustee and Angas agreed to orders being made by consent for a procedure to be put in place for Angas to put a commercial proposal to a meeting of debenture holders (the Run-Off Proposal). The agreement involved an extraordinary resolution being put to the debenture holders for their approval at a meeting to be held on 10 August 2015. The objective of the extraordinary resolution is to amend the Trust Deed to enable Angas and the Trustee to give effect to the Run-Off Proposal, the detail of which I will describe in a moment.
The objective of the Run-Off Proposal is the realisation of Angas’ loan portfolio and other assets to enable the repayment of all debentures in full and in an orderly and equitable manner by 31 December 2016. The freezing orders will remain in effect pending the approval by debenture holders of the Run-Off Proposal and its implementation (if approved). If the Run-Off Proposal is not approved by debenture holders, the proceedings will be re-listed for hearing.
ASIC appeared at the hearing on 2 and 9 June 2015 and did not oppose the 9 June 2015 orders.
Both Angas and the Trustee have been bound by confidentiality orders made by the Court, which have prevented any disclosure of the proceedings. As part of the Run-Off Proposal, the Court made orders on 9 June 2015 and 25 June 2015 allowing Angas to make limited disclosure to debenture holders of the proceedings.
On 26 June 2015 a letter was forwarded by Angas to debenture holders notifying debenture holders of the Run-Off Proposal and the next steps. The letter was sent by Angas to all debenture holders as an initial disclosure of the Run-Off Proposal. The form and content of this letter was agreed to by the Trustee in consultation with ASIC.
(g) Angas Contributory Mortgage Fund and Angas Prime Income Fund
The present proceedings, the freezing orders and the Run-Off Proposal do not directly affect Angas’ two managed investment schemes, the Angas Contributory Mortgage Fund (ACMF) and the Angas Prime Income Fund (APIF). Income generated by Angas as manager of these two managed investment schemes is intended to be available to offset the expenses of Angas as a going concern during the run-off period.
(h) Run-Off Proposal
If implemented, the Run-Off Proposal will, in effect, result in the extension of the redemption date of all debentures to 31 December 2016 with interim part-payments of principal. During this period Angas will cease making debenture funded loans, realise its existing debenture funded loan assets and other investments permitted by the Trust Deed and continue as a going concern in the management of two mortgage trusts. Angas will continue to comply with its payment obligations to debenture holders in respect of interest but at a proposed reduced rate in line with its reduced ability to generate income. An interest rate reduction is proposed by Angas in part due to Angas’ reduced ability to generate income, Angas’ non-performing loans in its portfolio that are not generating any interest income, and recognition by Angas of the non-recovery of principal on a number of debenture funded loan assets.
The Run-Off Proposal is to be put to the debenture holders at a meeting to be held on 10 August 2015 for their approval. Debenture holders will be asked to approve amendments to the Trust Deed.
The proposed amendments are intended to give effect to the Run-Off Proposal and broadly provide for:
·the redemption date for all debentures to be extended until 31 December 2016 with effect from 29 April 2015;
·the interest rate for all debentures to be reduced to 4% per annum with effect from 1 August 2015;
·Angas to make payments of principal amounts owed to debenture holders at the times, in the amounts and on the terms set out in my orders;
·Angas to be released from certain of its obligations under the Trust Deed from the date the extraordinary resolution is passed until 31 December 2016; and
·Angas and the Trustee to be authorised to do any things reasonably required to give effect to my orders and the Run-Off Proposal.
Angas has contended that making these amendments to the Trust Deed and proceeding with the Run-Off Proposal is the most orderly way to realise its assets, allow for a proper distribution to debenture holders and result in a better return being provided to debenture holders than otherwise would be the case. If the debenture holders pass the extraordinary resolution, then at a hearing scheduled for 17 August 2015 the Court will then consider and if thought fit provide advice and directions to the Trustee as to whether the implementation of the Run-Off Proposal accords with the Trustee’s duties under the Trust Deed, the Act and at law. If the Court directs the Trustee that it is justified in proceeding with the Run-Off Proposal, the amendments to the Trust Deed will be implemented and Angas will then give effect to the Run-Off Proposal.
In order to facilitate the Run-Off Proposal, the extraordinary resolution also proposes to approve the Trustee entering into a forbearance arrangement with Angas in relation to certain breaches of the Trust Deed. Under this proposed arrangement, the Trustee will reserve its rights in relation to any breach of the Trust Deed by Angas existing or arising at any time between 29 April 2015 and 31 December 2016 but agrees not to enforce those rights for so long as Angas complies with the terms of the Run-Off Proposal (for example payment obligations to debenture holders). If there is any material non-compliance with the terms of the Run-Off Proposal then the Trustee will be entitled to relist the proceedings to seek the judicial advice, directions and orders currently in the Trustee’s originating application.
If the extraordinary resolution is not passed then at the hearing listed for 17 August 2015 the Court will hear and determine the relief sought by the Trustee. If the Court makes the orders sought by the Trustee, this may result in Angas entering into external administration.
THE EXTRAORDINARY RESOLUTION
(a) The process
Pursuant to clause 22.1(b) of the Trust Deed, the Trustee and Angas may jointly alter or modify the Trust Deed if the alteration or modification is approved or sanctioned by an extraordinary resolution of debenture holders.
Under clause 13 of Schedule 3 of the Trust Deed, in order for a meeting of debenture holders to pass an extraordinary resolution, it must be approved by such debenture holders that are entitled to cast not less than 75% of the votes of all debenture holders present or represented (whether by proxy, attorney or representative) and voting. Each debenture holder is entitled to one vote for each complete parcel of $10,000 of debentures they hold.
Under the Trust Deed, extraordinary resolutions put to a meeting of debenture holders must be determined by poll.
(b) The extraordinary resolution
In order to enable Angas to give effect to the Run-Off Proposal, certain provisions of the Trust Deed are to be amended.
As I have said already, but in further elaboration, the required amendments relate to:
·amending the redemption date for all debentures from their current redemption dates under their terms of issue to 31 December 2016;
·reducing the interest rate for all debentures from their current interest rate under their terms of issue to 4% per annum with effect from 1 August 2015 payable monthly within 14 days of the end of each calendar month;
·requiring Angas to make payments of principal amounts owed to debenture holders at the times, in the amounts and on the terms set out in my orders;
·amending the “minimum liquid asset requirement” so that instead of Angas being required to maintain liquid assets of at least 5% of the amounts owing to debenture holders, it is required to maintain a minimum of $5,000,000 of liquid assets;
·releasing Angas from the requirement to maintain net tangible assets of not less than the greater of $100,000 and 0.5% of total tangible assets;
·releasing Angas from the requirement to provide the Trustee on request with its calculation of net tangible assets, total tangible assets and total external liabilities together with all workings relating to the calculation;
·releasing Angas from the restriction on it investing more than 10% of the principal owing in respect of the debentures in real property; and
·authorising Angas and the Trustee to do all things reasonably necessary to give effect to my orders and the Run-Off Proposal.
Without these amendments Angas would be unable to implement the Run-Off Proposal without breaching the terms of the Trust Deed and the terms of issue for the debentures.
It is also proposed to amend the Trust Deed to release Angas from its obligations under the Trust Deed to include in its full and half yearly auditor’s report prescribed information relating to:
·the amount of liquid assets maintained by Angas and the financial products they are invested in;
·whether Angas has complied with its obligations to invest the principal owing in relation to the debentures in investments permitted under the Trust Deed based on an audit undertaken by the auditor; and
·Angas’ total tangible assets, total external liabilities and net tangible assets and the calculation of those amounts.
The releases will only apply from 10 August 2015 to 31 December 2016 or such later date as the debenture holders approve.
The Trustee is also seeking approval from debenture holders for the Trustee to enter into a forbearance arrangement with Angas in relation to certain breaches of the Trust Deed as I have described earlier.
If the extraordinary resolution is passed and the Court provides advice and directions to the Trustee that the implementation of the Run-Off Proposal accords with the Trustee’s duties, then Angas and the Trustee will:
·execute a deed giving effect to the Trust Deed amendments described in the extraordinary resolution; and
·enter into a forbearance arrangement of the type discussed above.
The amendments to the Trust Deed to extend the redemption dates for all debentures to 31 December 2016 will take effect from 29 April 2015. This amendment is required to take effect from this date to ensure that the redemption date of any debentures that matured between 29 April 2015 and the date of the meeting but which have not been redeemed (as a result of the interim orders made on 29 April 2015 freezing the redemption of matured debentures) are also extended.
The remaining amendments will take effect from the date the extraordinary resolution is passed.
SECTIONS 283HA AND 283HB
The Trustee has sought directions from the Court under s 283HA and the parties have sought orders under s 283HB(1)(g) for the convening of the meeting of debenture holders.
Sections 283HA and 283HB provide the following:
283HA General Court power to give directions and determine questions
If the trustee applies to the Court for any direction in relation to the performance of the trustee’s functions or to determine any question in relation to the interests of the debenture holders, the Court may give any direction and make any declaration or determination in relation to the matter that the Court considers appropriate. The Court may also make ancillary or consequential orders.
Note:Under this section, the Court may order a meeting of debenture holders to be held, see section 283EC.
283HB Specific Court powers
(1)If the trustee or ASIC applies to the Court, the Court may make any or all of the following orders:
(a)an order staying an action or other civil proceedings before a court by or against the borrower or a guarantor body;
(b)an order restraining the borrower from paying any money to the debenture holders or any holders of any other class of debentures;
(c)an order that any security for the debentures be enforceable immediately or at the time the Court directs (even if the debentures are irredeemable or redeemable only on the happening of a contingency);
(d)an order appointing a receiver of any property constituting security for the debentures;
(e)an order restricting advertising by the borrower for deposits or loans;
(f) an order restricting borrowing by the borrower;
(g)any other order that the Court considers appropriate to protect the interests of existing or prospective debenture holders.
(2)In deciding whether to make an order under subsection (1), the Court must have regard to:
(a)the ability of the borrower and each guarantor to repay the amount deposited or lent as and when it becomes due; and
(b) any contravention of section 283GA by the borrower; and
(c) the interests of the borrower’s members and creditors; and
(d) the interests of the members of each of the guarantors.
Note:The Court may order a meeting of debenture holders to be held (see section 283EC).
There is no particular issue concerning the scope of s 283HA save that any exercise of power thereunder should be considered in the context of Part 2L generally and that section’s and the Part’s purpose and object.
In terms of s 283HB specifically and Part 2L generally the following features may be noted.
First, s 283HB confers a broad remedial and protective jurisdiction on the Court. Nevertheless, the powers are confined by those enumerated in s 283HB, albeit that a type of plenary power is provided by s 283HB (Trust Company (Nominees) Limited v Southern Finance Ltd [2012] FCA 1339 at [16] per Yates J).
Second, any exercise of powers under s 283HB and their scope must be read in the context of Part 2L and the scope, purpose and object of both s 283HB specifically and Part 2L generally. The Court’s powers under s 283HB were intended to supplement the armoury of relief available to a trustee under the general law and under the specific terms of the trust instrument. More generally, the purpose, scope and object of Part 2L is as described by Farrell J in Trust Company (Nominees) Limited v Gippsland Secured Investments Ltd [2013] FCA 1393 at [12] to [15]. I agree with her Honour’s exposition and do not need to repeat it.
More specifically, the purpose and object of s 283HB and other provisions of Part 2L is to “stock the armouries of trustees so that they may be active in the protection of debenture holders” (Australian Securities and Investments Commission v Bridgecorp Finance Ltd (2006) 58 ACSR 499 at [18] per Barrett J).
It is appropriate to note the following concerning s 283HB and its structure.
In deciding whether to make an order under s 283HB(1) a broad discretionary power is exercised (Australian Executor Trustees Ltd v Provident Capital Ltd (2012) 203 FCR 461 at [78] per Rares J). Nevertheless, the Court must have regard to the enumerated matters in s 283HB(2).
In relation to the enumerated matters, the following may be noted:
(a)First, the fact that various factors must be considered does not entail that other factors not mentioned may not be considered.
(b)Second, the structure of s 283HB indicates that the mandatory factors and their weight would take priority over any non mandatory factors.
(c)Third, in terms of the priority or weight to be given to the matters referred to in s 283HB(2), strictly no weighting or priority is expressed. Nevertheless, the structure, context and purpose of the provisions would tend to suggest that the consideration referred to in s 283HB(2)(a) should be accorded greater weight than, say, s 283HB(2)(c) or (d). After all, the structure and purpose of Part 2L is to protect debenture holders. Moreover, this is reflected in the text of the plenary grant under s 283HB(1)(g).
Once the Court has considered the matters in s 283HB(2), it is open to the Court to make any order “that appear[s] to it to be calculated to safeguard the relevant interests identified under s 283HB(2)” (In the Matter of Metal Storm Ltd (subject to Deed of Company Arrangement) [2014] NSWSC 813 at [83]). Those interests include, importantly, if not most importantly, the debenture holders in receiving payments due to them under the debentures as and when those payments become due (Bridgecorp at [18]).
Third, and relevantly to the Trustee’s principal claim, although not relevant to the present application, it may be accepted that under s 283HB(1), a Court can make an order for enforcement notwithstanding that the terms of the Trust Deed may not on their face entitle immediate enforcement. Such a proposition flows from the very purpose of s 283HB which is to supplement the armoury of powers of the trustee normally available to it under the trust deed or the general law (see generally Perpetual Trustees WA Ltd v Elderslie Finance Corporation Ltd [2008] FCA 1068 at [31] per Lindgren J).
Generally, for the purpose of the present application, s 283HB(1)(g) confers power to order a meeting of debenture holders to be convened to consider the extraordinary resolution and to approve the form of explanatory statement. That power is also specifically confirmed and conferred by s 283EC, although I have not exercised power thereunder as I discuss later.
APPROVAL OF NOTICE OF MEETING AND EXPLANATORY STATEMENT
The role the Court should play in ordering the convening of the meeting of debenture holders and in reviewing the notice of meeting and explanatory statement is similar to the role the Court plays in convening meetings for creditors or shareholders in the context of schemes of arrangement and in reviewing analogous documents concerning schemes of arrangement.
The primary question is whether the Run-Off Proposal and the proposed amendments to the Trust Deed are fit for consideration by the proposed meeting of debenture holders. Alternatively expressed, should the debenture holders be given the opportunity of considering the proposal and either approving it or rejecting it? In my view the Run-Off Proposal and the proposed amendments are fit for such consideration. No party nor ASIC contended otherwise. Rather the Trustee and ASIC had limited concerns regarding the form of the explanatory statement. I did not acquiesce to each and every of the submissions put by the Trustee on that narrower point. Accordingly, the Trustee formally objected to the 24 July 2015 orders being made. ASIC’s position was more one of non opposition.
Related to the primary question is the consideration that I ought not to summon a meeting of debenture holders if I would not be likely to advise the Trustee that it is justified in proceeding on the basis that the making of the amendments and the implementation of the Run-Off Proposal accords with its duties under the Trust Deed, the Act and at law, assuming the debenture holders pass the necessary resolutions. I am not able to say that I would not be likely to give such advice to the Trustee.
Second, I need to ensure that the notice of meeting and explanatory statement contain sufficient detail of the content and effect of the Run-Off Proposal and the amendments. Likewise I need to be satisfied that such documents contain sufficient information that is material to the making of an informed decision by the debenture holders. Such material should include setting out the principal advantages and disadvantages in the circumstances where the proposal is approved as compared with the counterfactual. I am satisfied that the explanatory statement contains such a sufficient disclosure.
Third, I need to ensure that the notice of meeting and any explanatory statement satisfy the formal requirements of the Trust Deed and the Act (if any). They do.
Fourth, the explanatory statement should set out any material interests of the directors of Angas and their associated interests whether as directors, members or creditors and the effect of the Run-Off Proposal concerning such interests, if approved. In the present context, the explanatory statement discharges that function.
Fifth, I need to consider whether the Run-Off Proposal, if given effect, would be likely to involve any unfair or oppressive result. No party has so contended in the present context and no such consequence is apparent.
Sixth, I need to consider whether any public policy or commercial morality consideration might indicate that it is inappropriate to convene the relevant meeting. No such consideration is in play in the present case.
Seventh, it is important that ASIC has been given reasonable opportunity to examine the terms of the Run-Off Proposal and the disclosure to be made. That has occurred in the present case. Indeed, there has been an additional level of scrutiny in the present case that does not apply in the context of schemes of arrangement. In the present case, the Trustee has been the contradictor. Mr Jackman SC has thoroughly and appropriately drawn to my attention various issues and perceived deficiencies in the disclosures to be made in the explanatory memorandum. Most of the Trustee’s suggestions have been accepted and the relevant changes made. Nevertheless, there were matters of secondary importance and of additional detail that I considered were not necessary to include.
Eighth, unlike the scheme of arrangement context, the Trustee is permitted under the Trust Deed to attend the meeting of debenture holders and to address the meeting (see clause 5 of Schedule 3). If the Trustee has any residual concerns that underpin its opposition, it can address the meeting. Of course, that does not deal with debenture holders who have chosen not to attend. But there is nothing to prevent the Trustee sending, prior to the meeting, a separate circular to debenture holders, subject to my review; I raised that issue with counsel. Further, if the Trustee attended the meeting and put a point that was worthy of all debenture holders’ consideration, the meeting could be adjourned. The independent chairman of the meeting is to be the Honourable Bruce Debelle AO QC who would be entitled to suggest such a course.
Ninth, an additional safeguard is provided by the second stage Court hearing. I can decline to give judicial advice to the Trustee to execute the amendments to the Trust Deed. Alternatively, s 283HB may be sufficiently broad to enable me either to modify the Trust Deed or to make orders directing or restraining how rights or obligations are enforced or performed thereunder in a manner that may differ from the extraordinary resolution passed at the meeting of debenture holders if I thought that any separate concern of the Trustee ought to be further accommodated.
Finally, on this aspect, I should say for completeness that in ordering the convening of the meeting and the approving of the form of the disclosure, the Court is not giving its imprimatur to the proposal. The commerciality and its acceptability is a matter for the debenture holders.
There are two other issues that I should deal with. The Trustee has sought judicial advice under s 63 of the Trustee Act 1925 (NSW) and s 283HA of the Act. I gave relevant advice to the Trustee in accordance with order 1 of my orders of 9 June 2015. As I say, I will need to give further judicial advice to the Trustee on 17 August 2015 concerning whether:
“the making of the amendment approved by the Extraordinary Resolution of Debenture Holders and the implementation of the Court’s orders as contemplated by these orders, accords with [the Trustee’s] duties under the Trust Deed, the Corporations Act and at law”.
As I say, I can see no impediment to giving such advice on proper material, assuming that the proposal is carried. Nothing further need be said at present as it is not the Trustee but Angas convening the meeting of debenture holders.
Finally, I have exercised power under s 283HB(1)(g), but if it is necessary to say so, I could have exercised power under s 283EC. But the powers that I have exercised do not contemplate specific orders of the type contemplated under s 283EC. For present purposes, I have only proceeded under s 283HB(1)(g).
FREEZING ORDERS
As I have referred to earlier, on 29 April 2015, freezing orders were made in the following terms:
7.Pursuant to section 283HB(1)(b) of the Corporations Act 2001 (Cth), until further order (Freeze Period), the defendant is restrained from paying any money to debenture holders in respect of debentures issued under the Trust Deed for First Ranking Debenture Stock dated 19 July 2000 entered into between the plaintiff and the defendant, as amended from time to time (Trust Deed), other than the payments permitted under order 8 below.
8.The defendant is permitted to make the following payments during the Freeze Period:
a.payments of interest due and payable on 30 April 2015 and subsequent payments of interest which are due and payable under debentures and which are notified to the plaintiff in writing at least 7 days in advance of the due date for payment; and
b.part-payments of principal by way of a single payment to each debenture holder (such term for the purpose of this order to include the debenture holder and any related entity, as defined in the Corporations Act 2001 (Cth), which holds debentures issued by the defendant) in the maximum amount of 20% of the total principal balance owed to the debenture holder, where the debenture holder is subject to circumstances of genuine hardship established to the reasonable satisfaction of the plaintiff and the defendant.
9. Pursuant to section 283HB(1)(g) of the Corporations Act 2001 (Cth):
a.any funds received by the defendant by way of new investments in debentures pursuant to section 708(14) of the Corporations Act 2001 (Cth) must be held on trust by the defendant for the benefit of the persons who deposited such funds with the defendant pending application in accordance with order 9.d below (Trust Funds);
b.the defendant must hold Trust Funds in an interest bearing account with an Authorised Deposit-Taking Institution, separate to its other funds;
c.the defendant must disclose, on the plaintiff’s written request, full particulars of all Trust Funds held by it under this order 9; and
d.at the expiry of the Freeze Period, all Trust Funds may be released from trust to the defendant unless the defendant and the plaintiff otherwise agree in writing or the Court otherwise orders.
10.Pursuant to section 283HB(1)(g) of the Corporations Act 2001 (Cth), during the Freeze Period, the defendant:
a.may, only with the plaintiff’s prior written consent, pay money to or for the benefit of any related body corporate or related entity (as those terms are defined in the Corporations Act 2001 (Cth)) of the defendant (except as permitted by order 10.b below);
b.may, without the plaintiff’s prior written consent, pay monies in respect of directors’ fees and wages which accrue for payment to directors and employees in the ordinary course of the defendant’s business; and
c.is restrained from paying any money to or for the benefit of any shareholder of the defendant (including any holder of redeemable preference shares issued by the defendant).
Such orders were consented to by Angas. They performed a number of functions. First, they restrained Angas from making payments to debenture holders, with some exceptions. This was necessary to preserve funds and property on hand, to protect the structure, and to ensure that if there was to be an insolvency administration, no preference would be given to one set of debenture holders over another prior to such a regime being put in place. Second, they restrained Angas from making any payments to shareholders including redeemable preference shareholders. Such payments would have been inconsistent with the first function. Moreover, any such payments would have generally prejudiced the interests of debenture holders. Third, they preserved in trust any funds received by Angas by way of new investments.
On 29 May 2015, on the application of Angas I varied the freezing orders to permit payments of principal to 61 debenture holders whose debentures matured in April 2015 and who had given notice to Angas between 1 and 15 April 2015 of their intention to redeem their debentures; such payments amounted to $2.427 million. Such an application was opposed by the Trustee. I made the orders sought for a number of reasons. First, if the orders had not been made there would have been a loss of investor confidence in Angas. That would have been likely to have produced an apparent run on Angas. That would have been likely to have accelerated a situation where an insolvency administration regime would have been imposed before the merits of the Trustee’s originating process had been properly considered and dealt with. Second, the sum sought to be released was relatively modest in comparison with the size of Angas’ structure, the totality of the debenture holders’ funds and the assets available to meet the claims of debenture holders that may have otherwise been jeopardised by an accelerated insolvency administration regime. Third, Angas easily satisfied the liquid assets requirement of the Trust Deed (clause 11.2) at the time the application was made. Equally importantly, it easily satisfied them even with such a payment. Fourth, the only argument advanced by the Trustee was that if it was successful in its application and as a consequence an insolvency administration regime was triggered, which regime then triggered legislative preference provisions, then the effect of the variation sought might be to confer a preference on one class of debenture holders over another. I did take this consideration into account with its various hypothetical foundations. But in all the circumstances that factor did not outweigh the far greater actual or potential prejudice to Angas and the debenture holders if the variation was not made. Accordingly, I varied the freezing orders as so indicated.
SUPPRESSION AND NON-PUBLICATION ORDERS
On 29 April 2015, the following orders were made on the application of the parties:
5.Pursuant to section 17(4) of the Federal Court of Australia Act 1976 (Cth), until further order, the hearing of this proceeding is to be conducted in a closed court and in the absence of the public, save for:
a.any representative of the Australian Securities and Investments Commission (ASIC); and
b. Philip Patrick Carter of PPB Advisory.
6.Pursuant to section 37AF of the Federal Court of Australia Act 1976 (Cth), on the grounds set out in section 37AG(1)(a), until further order:
a. access to:
i. all affidavits and exhibits to all affidavits;
ii. the terms of any judgment or order; and
iii.any information tending to reveal the identity of the plaintiff or the defendant,
be restricted to the parties, their solicitors on record, their counsel and any representative of the ASIC and Mr Tim Lebbon and Mr Richard Norris of Leadenhall Corporate and Mr Stephen Harvey, Mr Lee Giralamo and Mr Graham Mott each of Deloitte and Philip Carter, Marcus Ayres, Garry McLean, Stephen Edds and James Alexio of PPB Advisory; and
b.for the purpose of identification of the proceedings including any documents to be filed, transcript, interim orders or listing:
i.the proceedings are to be referred to as “In the matter of a corporation”;
ii. the plaintiff is to be referred to as “A”; and
iii. the defendant is to be referred to as “X”.
These orders have been varied from time to time, but not in material respects that are relevant for present purposes.
It is not in doubt that these orders were made taking into account a primary objective of the administration of justice being to safeguard the public interest in open justice.
In summary, the orders were justified by the following considerations. Such a justification applied up and until 24 July 2015, subject to one consideration that applied concerning the implementation of my orders of 25 June 2015 that I will discuss in a moment.
First, an important concern of the Court was the interests of the debenture holders. That was also the concern of both the Trustee and Angas. Indeed, it was also the concern of ASIC who submitted to the Court that the orders should be kept in place until I had disposed of the present application to order the convening of the meeting of debenture holders.
Second, to protect the confidentiality of the existence and subject matter of the proceedings was fundamental to protecting the interests of debenture holders and the administration of justice. If the proceedings had become known with ill informed debate and speculation concerning its subject matter, that in all likelihood would have produced a lack of investor confidence such as to produce a putative “run” and the likelihood and acceleration of the imposition of an insolvency administration. That would in all likelihood have produced substantial losses to debenture holders and interfered with the administration of justice. In circumstances where I was yet to decide on the Trustee’s application, such consequences may have produced the very result that the Trustee had sought in terms of the potentiality for the imposition of an insolvency administration regime, but without any adjudication on the merits.
Third, the protection of such confidentiality had no adverse effect on potential new investors and the market generally. As at the time of the freezing orders, Angas was not accepting new investors or issuing new debentures subject to one qualification; there were rollovers, but those seeking to roll over their debentures on maturity, albeit that new instruments may have issued, were in essence “locked in” to the pre-existing investments in any event.
Fourth, any new funds received prior to the freezing orders were preserved and protected by separate trust arrangements.
Fifth, the position of shareholders, including redeemable preference shareholders, was not in any way prejudiced. They were sub-ordinated to the interests of debenture holders in any event. Further, and in any event, on the various financial forecasts produced by the parties, they appeared likely to be “out of the money” at least in the short to medium term.
Sixth, the 29 April 2015 orders were not in any way concerned to protect the interests of Angas and its management. Rather, they were designed to protect debenture holders and the administration of justice.
Seventh, as I have said, ASIC, as the principal regulator concerned to monitor and protect investors’ interests and the integrity of the market generally, fully supported the continuance of the 29 April 2015 orders through and until 24 July 2015.
Generally, the relevant orders readily satisfied s 37AG(1)(a) of the Federal Court of Australia Act 1976 (Cth) taking into account the public interest in open justice (s 37AE).
For completeness, I should say that after orders were made on 25 June 2015 and a disclosure letter as to the nature of the proceedings had been forwarded to debenture holders by Angas, I enquired of the parties including ASIC as to whether the hearing to make orders convening the debenture holders’ meeting and the approval of the notice of meeting and explanatory statement could proceed in public and whether some or all of the suppression and non-publication orders could be lifted in the context where limited communication had been made with debenture holders and there had been some limited coverage in the media.
But both parties and ASIC submitted that it would be inappropriate to lift or vary such orders until after the present application had been dealt with. It is not necessary to descend into the detail of their positions. Suffice it to say that I accepted such submissions.
But now that the present application has been dealt with, there is no further interest served by maintaining most of those orders.
The Court has at all times been mindful of the potential and actual media interest in the subject matter of the present proceeding. It has also been mindful of the public interest in open justice.
No doubt, such a diffuse public interest is to be balanced against the narrower but sharper public interest concerning the interests of debenture holders and the administration of justice. To say as much is to recognize that various balances needed to be and were struck in the present case.
But on any view, the various suppression and non-publication orders do not now serve the public interest. I have now discharged most of those orders, but I will hear further from the parties and any non-party concerning the variation or lifting of such orders concerning the affidavits, exhibits and submissions that have been filed. For that purpose, I will adjourn the further hearing of this matter until 2.15 pm on 29 July 2015.
I certify that the preceding one hundred and twenty one (121) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Beach. Associate:
Dated: 28 July 2015
15
7
3