Order for Scheme Meetings and Judicial Advice on Trust Schemes

The Court ordered meetings to consider proposed schemes of arrangement and provided judicial advice on the implementation of trust schemes under the Corporations Act 2001 (Cth).

OUTCOME: Allowed

Supreme Court New South Wales

Medium Neutral Citation: In the matter of [NAME_1] Corporation Limited [2018] NSWSC 584 Hearing dates: 12 April 2018 Decision date: 02 May 2018 Jurisdiction: Equity - Corporations List Before: Black J Decision: Order made convening scheme meetings and approving the scheme booklet for distribution to shareholders. Judicial advice given that [NAME_2] is justified in propounding resolutions to implement the proposed trust schemes and proceeding on the basis that the amendments made to the [NAME_3] and [COMPANY_17] constitutions to implement those trust schemes are within the powers of alteration conferred by those documents and s 601GC of the Corporations Act 2001 (Cth). Catchwords: CORPORATIONS – arrangements and reconstructions – schemes of arrangement or compromise – application under s 411 of the Corporations Act 2001 (Cth) for orders convening meetings of members to consider and, if thought fit, to agree to proposed schemes of arrangement – whether requirements to order scheme meetings are satisfied.

CORPORATIONS – managed investments – application for judicial advice by responsible entity under s 63 of the Trustee Act 1925 (NSW) – whether responsible entity would be justified in propounding resolutions to implement the proposed trust schemes – whether proposed amendments are within the powers of alteration conferred by the constitution of the managed investment scheme and s 601GC of the Corporations Act. Legislation Cited: - Corporations Act 2001 (Cth) ss 411, 412, 601GC, 256B - Trustee Act 1925 (NSW) s 63 - Securities Act 1933 (US), s 3(a)(10) Cases Cited: - Re Adelaide Bank Limited [2007] FCA 1582 - Re [COMPANY_4] [2007] FCA 770; (2007) 62 ACSR 400 - Re Brambles Industries Ltd [2006] FCA 1273; (2006) 59 ACSR 501 - [COMPANY_42] Group Limited (2007) 25 ACLC 1380 - [COMPANY_6] [2017] NSWSC 415 - Re DUET Management Company 1 Ltd [2013] NSWSC 817; (2013) 95 ACSR 34 - Re Hills Motorway (2002) 43 ACSR 101 - Re Hostworks Group Ltd [2008] FCA 64; (2008) 26 ACLC 137 - Re Macquarie Capital Alliance Ltd [2008] NSWSC 745; (2008) 67 ACSR 484 - Re Macquarie Communications Infrastructure Group [2009] NSWSC 487 - Re [COMPANY_8] (2008) 26 ACLC 366 - Re Mirvac Ltd [1999] NSWSC 457; (1999) 32 ACSR 107 - Re Orion Telecommunications Ltd [2007] FCA 1389 - [COMPANY_9] (2002) 43 ACSR 601 - Re SAI Global Ltd [2016] FCA 1312 - Re SFE Corporation Ltd [2006] FCA 670; (2006) 59 ACSR 82 - Re Simavita Holdings Limited [2013] FCA 1274 - Re Sydney Airport Holdings Ltd [2013] NSWSC 1665 - Re Tatts Group Limited [2017] VSC 552 - Re The Trust Company Ltd [2013] NSWSC 1680 - Re Toll Holdings Ltd [2015] VSC 123 - Re Veda Group Ltd [2015] FCA 1506 - Re WebCentral Group Ltd [2006] FCA 937 - Re [COMPANY_11] (2004) 49 ACSR 734 - Re Wridgways Australia Ltd [2010] FCA 1187 Category: Principal judgment Parties: [NAME_1] Corporation Limited (First Plaintiff) [COMPANY_1] as responsible entity of the [COMPANY_1] (Second Plaintiff) [COMPANY_1] as responsible entity of the [COMPANY_1] (Third Plaintiff) Representation: Counsel: [redacted] [NAME_12] ([NAME_13] SE)

Solicitors: [redacted] [NAME_15] ([NAME_13] SE) File Number(s): 2018/87513

Judgment 1. By Originating Process filed 19 March 2018, the First Plaintiff, [NAME_1] Corporation Limited ("WCL"), seeks orders under s 411 of the Corporations Act 2001 (Cth) to convene a meeting of its members to consider and vote upon a proposed scheme of arrangement ("[NAME_16]") between WCL and its members relating to the proposed acquisition of [NAME_1] securities (which I will describe further below) by [NAME_13] SE ("[NAME_13]") ("Proposed Merger").

2. The Second Plaintiff, [COMPANY_1] ("[NAME_2]"), as responsible entity of the [COMPANY_1] ("[NAME_3]"), seeks judicial advice under s 63 of the Trustee Act 1925 (NSW) that it would be justified, inter alia, in convening a general meeting of the members of [NAME_3] for the purpose of considering resolutions to be put to those members in connection with the Proposed Merger ("[NAME_3] Scheme"). The Third Plaintiff, [NAME_2] as responsible entity of the [COMPANY_1] ("[COMPANY_17]"), also seeks judicial advice under s 63 of the Trustee Act that it would be justified, inter alia, in convening a general meeting of the members of [COMPANY_17] for the purpose of considering resolutions to be put to those members in connection with the Proposed Merger ("[COMPANY_17] Scheme").

3. WCL also seeks orders pursuant to s 411 of the Corporations Act to convene a meeting of its members to consider and vote upon a proposed scheme of arrangement between WCL and its members relating to a proposed demerger of [NAME_18] ("[NAME_18]") ("Demerger Scheme").

4. At the first court hearing, I made the orders sought by the Plaintiffs and indicated that I would deliver my reasons for doing so in due course. These are my reasons for making those orders. I have drawn on the helpful submissions made by [NAME_12] and [NAME_12], who appeared for the Plaintiffs, in this judgment.

The affidavit evidence 1. The background to the application and proposed transactions was set out in a detailed affidavit dated 10 April 2018 of [NAME_19], who is company secretary of [NAME_2] and general counsel of the [NAME_1] Group. [NAME_19] set out the scope of [NAME_1]'s business, as an internally managed and vertically integrated international retail property group with a focus on the United States, the United Kingdom and Europe, and referred to the constitutional documents of [NAME_1] and the identity of the directors of [NAME_2]. [NAME_19] also referred to the entry into an Implementation Agreement dated 12 December 2017 with [NAME_13] ("Implementation Agreement") (Ex SJT-1, Tab 5) relating to [NAME_13]'s proposed acquisition of [NAME_1], an Amending Deed dated 9 April 2018 (Ex SJT-1, Tab 7), the steps involved in implementing the Proposed Merger, the nature of the scheme consideration and the elections available to [NAME_1] securityholders in respect of the [NAME_16]. [NAME_19] also referred to the manner in which meetings of [NAME_1] securityholders would be conducted in respect of the scheme and to the negotiations and structure of a break fee payable in respect of the scheme, which I will address below. [NAME_19] also referred to the proposed demerger of [NAME_1]'s retail technology business, [NAME_18] ("Demerger Transaction"), the documents relating to the Demerger Transaction including a Demerger Implementation Deed dated 6 April 2018 (Ex SJT-1 Tab 10), Demerger Deed dated 6 April 2018 (Ex SJT-1 Tab 11) and Demerger Deed Poll also dated 6 April 2018 given by [NAME_18] in favour of demerger participants (Ex SJT-1 Tab 12) and the steps for implementing the Demerger Transaction. 2. [NAME_19] referred to the independent expert's reports from [COMPANY_20] ("[NAME_20]") in respect of the proposed transactions and also to an "independent limited assurance report" from [COMPANY_22] ("[NAME_22]") as to the historical financial information of the [NAME_18] business and pro forma historical statement of financial position of the [NAME_18] Group. 3. [NAME_19] also addressed the preparation of the information booklet ("[NAME_23]") (Ex SJT-1, Tab 13) to be issued to [NAME_1] securityholders in respect of the Proposed Merger, including an explanatory statement for the purposes of s 412(1) of the Corporations Act, the independent expert's report relating to the [NAME_16] and other documentation. The [NAME_16] and both trust schemes are described in the [NAME_23]. The [NAME_23] also outlines the key steps to implement the transaction and sets out the current structure of [NAME_1], in simplified form, and the structure of the new group, also in simplified form. The [NAME_23] also outlines the conditions precedent to the Proposed Merger and the shareholder approval process connected with the transaction, the details of the scheme consideration and the treatment of "ineligible foreign Holders" (as defined) and "Minimum Holders" (as defined) and also refers to other aspects of the transaction. The [NAME_23] also contains a description of the laws and rights that will apply to holders of securities issued in the Proposed Merger, which is relevant given the international character of the transaction, and outlines the Australian tax implications of the transaction.

4. The [NAME_23] summarises, inter alia, key terms of the Implementation Deed and other agreements and also refers to a voting agreement by which certain members of the [NAME_24], who collectively hold approximately 9.5% of [NAME_1]'s voting rights, agreed, subject to the independent expert concluding that the schemes are in the best interests of [NAME_1] and in the absence of the [NAME_1] board recommending a superior proposal, not to sell their interests in [NAME_1] during the period of the transaction and to vote in favour of the transaction. I will address that agreement below. The [NAME_23] also refers to the treatment of securityholders in several jurisdictions and indicates that [NAME_13] and an associated entity intend to rely on an exemption from registration under s 3(a)(10) of the Securities Act 1933 (US), to which I will refer below. 5. [NAME_19]'s affidavit also addressed the preparation of an information booklet ("Demerger Booklet") (MFI 4) relating to the Demerger Scheme, and the dividend and capital reduction that will result in the distribution of all of the [NAME_18] shares to, or for the benefit of, [NAME_1] securityholders. 6. [NAME_19] addressed the steps which would be taken to dispatch the [NAME_23] to [NAME_1] securityholders and outlined the verification process which had been undertaken in respect of the [NAME_23] and the Demerger Booklet. [NAME_19] also addressed the steps which would be taken to give investor presentations in respect of the [NAME_16], the content of which was not intended to vary materially from the information contained in the [NAME_23], to maintain a [NAME_23] information line to respond to queries from securityholders relating to the [NAME_16] and the Demerger Scheme and to make copies of the [NAME_23] and the Demerger Booklet available to securityholders on [NAME_1]'s website.

7. By his affidavit dated 3 April 2018, [NAME_24], who is a director of WCL and chairman of its board and also a director of [NAME_2] and chairman of [NAME_2]'s board, consents to act as chairman of the meeting in respect of the [NAME_16], the trust meetings and the meeting in respect of the Demerger Scheme and associated general meetings, and also refers to the voting agreement between certain members of his family and interests associated with [NAME_13]. By affidavit also dated 3 April 2018, [NAME_25], who is a director of WCL and deputy chairman of its board, and a director of [NAME_2] and deputy chairman of [NAME_2]'s board, consented to act as chairman of the relevant meetings if [NAME_24] did not so act.

8. By his affidavit dated 9 April 2018, [NAME_26], who is a managing director of [NAME_20], set out his qualifications and experience and indicated that he held the opinions set out in the independent expert's reports in respect of the [NAME_16] and the Demerger Scheme, having made all inquiries that he believed were desirable and appropriate for the purpose of preparing those reports, and having omitted no matters that he considered to be of significance from those reports. That independent expert's report noted that the low end of [NAME_20]'s assessed range incorporates the price at which [NAME_13]'s shares are now trading and also provided a table setting out the impact of movements in the [NAME_13] share price and the exchange rate on the value of the consideration offered under the scheme, which will allow securityholders to assess the position under a range of share prices and exchange rates.

9. By his affidavit dated 10 April 2018, [NAME_27], who is an accountant and a director and representative of [NAME_22], confirmed that he held the opinions expressed in the independent limited assurance report prepared by that firm and had made all reasonable inquiries that he regarded as desirable and appropriate for the purpose of preparing that report and that no matters that he considered to be of significance had been omitted from it.

10. By affidavit dated 10 April 2018, [NAME_28], who is a partner in the firm of solicitors acting for [NAME_1] in connection with the transaction, referred to correspondence with the Australian Securities and Investment Commission ("[NAME_29]") and with Australian Securities Exchange Limited ("ASX") in respect of the transaction and to applications for exemption made to [NAME_29] in respect of certain requirements of the Corporations Act and Corporations Regulations 2001 (Cth) in connection with the [NAME_16] and the Demerger Scheme and to ASX for certain waivers and confirmations in relation to the ASX Listing Rules. By a second affidavit dated 11 April 2018, [NAME_28] referred to further correspondence with [NAME_29] and to letters received from [NAME_29] in customary form (Ex JJW-2, Tab 8), which indicated that [NAME_29] did not propose to appear to make submissions or intervene to oppose the schemes that are the subject of this application at the first hearing.

11. By an affidavit dated 11 April 2018, [NAME_30], who is a partner in the firm of solicitors acting for [NAME_13] in relation to the transactions, referred to [NAME_13]'s entry into the Implementation Agreement in respect of the [NAME_16], to the information provided by [NAME_13] for inclusion in the [NAME_23] and to the due diligence and verification process which had been adopted in respect of that information. [NAME_30] also referred to the exclusivity provisions, break fee and reverse break fee in respect of the [NAME_16], to which I will refer below, and to the entry by [NAME_13] and associated entities into a Deed Poll dated 5 April 2018 (Ex SJT-1, Tab 8) ("Merger Deed Poll"), by which each party had undertaken to perform its obligations under the proposed schemes. [NAME_30]'s affidavit also exhibited opinion letters received from [NAME_31] as to the valid execution of the Merger Deed Poll under Dutch and French law respectively and, by a separate affidavit dated 6 April 2018, [NAME_32] expressed his opinion as to the valid execution of the Merger Deed Poll under the laws of [NAME_33], United States of America.

12. I have also had regard to a Statement of Facts in relation to the judicial advice sought by [NAME_2] as responsible entity of the [NAME_3] (MFI 1) and a second Statement of Facts as to the judicial advice sought by [NAME_2] as responsible entity of the [COMPANY_17] (MFI 2).

The nature of the transactions 1. The transactions to be implemented in the Proposed Merger have a substantial degree of commercial complexity, although they largely do not raise novel legal issues. [NAME_12] and [NAME_12] set out the steps involved in the implementation of the Proposed Merger in their helpful submissions. The [NAME_3] Scheme, the [COMPANY_17] Scheme and the [NAME_16] are inter-conditional. The Proposed Merger is also subject to a number of conditions precedent, as set out in the [NAME_23] ([NAME_23], section 3.4).

2. A [NAME_1] security comprises one share in WCL, one unit in [NAME_3] and one unit in [COMPANY_17], each of which is stapled to the others ([NAME_19] 10.4.18 [1]). Under the [NAME_3] Scheme, all [NAME_1] securityholders will transfer their units in [NAME_3] to [COMPANY_34]. (a [NAME_33] corporation) ("URW America") in return for cash and class A shares in the capital of [NAME_13] N.V., a Dutch public company ("[NAME_35]") ("[NAME_35] A Shares") ([NAME_3] (Annexure F to [NAME_23]), cll 29.10, 29.13-29.14). Certain securityholders, classified as "Ineligible Foreign Holders" and "Minimum Holders" (as defined), will not receive securities but will receive a cash payment determined in accordance with the terms of a sale facility. The [NAME_35] A Shares provided under this scheme will be issued as either [NAME_13] (which are [NAME_35] A Shares provided under the [NAME_3] Scheme stapled to [NAME_13] provided under the [NAME_16] on a 1:1 basis) or [NAME_13] ("CDIs") over [NAME_13] ([NAME_3], cl 29.14).

3. Under the [COMPANY_17] Scheme, all [NAME_1] securityholders will transfer their units in [COMPANY_17] to [NAME_13] TH B.V., a Dutch private company ("[NAME_35]"), in return for the issue on a 1:1 basis of ordinary shares in [NAME_35] ("[NAME_35]") to [NAME_36]. a wholly-owned subsidiary of [NAME_13] ("Transfer Nominee") ([COMPANY_17] (Annexure F to [NAME_23]), cll 33.3, 33.10). That step is included in the transaction to accommodate issues of Dutch law. The interests of [NAME_1] securityholders are protected at that point since, although the Transfer Nominee will hold legal title to the [NAME_35], [NAME_1] securityholders will (with the qualification noted below) hold beneficial title to those shares ([COMPANY_17], cl 33.10(b)). The Transfer Nominee will hold [NAME_35] that would otherwise be issued in respect of Ineligible Foreign Holders (as defined) as agent for sale of those shares under the [NAME_16], to which I now turn.

4. Under the [NAME_16], which is a scheme of arrangement to be implemented under s 411 of the Corporations Act, all [NAME_1] securityholders will transfer their WCL shares and the Transfer Nominee will transfer all of the [NAME_35] to [NAME_13] and [NAME_1] securityholders will receive cash and [NAME_13] ([NAME_16] (Annexure D to the [NAME_23]), cll 5.2, 6.1). However, Ineligible Foreign Holders and Minimum Holders (as defined) will receive a cash payment determined in accordance with the terms of a sale facility rather than such securities ([NAME_16], cll 6.7, 6.8). The [NAME_13] provided under this scheme will be provided as [NAME_13], being the [NAME_13] provided under the [NAME_16] stapled to the [NAME_35] A Shares provided under the [NAME_3] Scheme on a 1:1 basis, or alternatively as [NAME_13] over such stapled shares ([NAME_16], cl 6.5).

5. If the Proposed Merger is approved and becomes effective, scheme participants will receive cash and scrip comprising US$2.67 in cash per [NAME_1] security held and, if they are a [NAME_37], 0.01844 [NAME_13] per [NAME_1] security to be issued (subject to the [NAME_37]'s election) in the form of [NAME_13]. [NAME_1] securityholders are able to make a number of elections in relation to the scheme consideration, which it is not necessary to set out in this judgment. 6. [NAME_1] also has employee incentive arrangements in place, under which employees may be given rights ("Employee Rights") to [NAME_1] securities ([NAME_19] 10.4.18 [28]). The Implementation Agreement requires [NAME_1] to ensure that there are no outstanding Employee Rights by the day following the Effective Date (as defined) (Implementation Agreement, cl 4.5) and [NAME_1]'s board has resolved to accelerate the vesting of all outstanding Employee Rights so that the outstanding Employee Rights will vest on the Effective Date ([NAME_19] 10.4.18 [29]). [NAME_1] will purchase that number of [NAME_1] securities required to satisfy the vesting of all outstanding Employee Rights on market and transfer those [NAME_1] securities to the holders of Employee Rights so that they become registered holders of [NAME_1] securities on or before the record date and can participate in the Proposed Merger on the same basis as other [NAME_1] securityholders.

7. As I noted above, each of [NAME_13], [NAME_35], the Transfer Nominee, URW America and [NAME_35] have executed the Merger Deed Poll covenanting to undertake all actions attributed to them under the schemes (including in respect of the provision of the scheme consideration) and there is evidence confirming the efficacy of the Merger Deed Poll under the respective jurisdictions in which each covenantor is registered ([NAME_30] 11.4.18; [NAME_32] 6.4.18).

8. Four meetings of [NAME_1] securityholders are proposed to be held to consider the Proposed Merger and, if thought fit, pass the relevant resolutions. A Court-convened meeting of WCL shareholders would be held for the purpose of considering and, if thought fit, approving the [NAME_16]. Meetings of WCL shareholders, [NAME_38] and [COMPANY_17] [NAME_39] would be held for the purpose of considering and, if thought fit, approving several resolutions, subject to and conditional upon the schemes becoming effective. The manner in which those meetings would be conducted would be consistent with prior practice in respect of stapled structures: Re Hills Motorway (2002) 43 ACSR 101 at [20]–[23]; Re [COMPANY_11] (2004) 49 ACSR 734 at [9].

9. I will address the Demerger Transaction, which is also the subject of this application, below.

Orders to convene the scheme meeting for the [NAME_16]

1. Section 411(1) of the Corporations Act authorises the Court to order a meeting of members to be convened, and to approve the applicable explanatory statement, where a compromise or arrangement is proposed between a Pt 5.1 body and its members or any class of them; application for the order is made in a summary way by the body or by a creditor or member of the body; 14 days' notice of the hearing of the application, or such lesser period of notice as the Court or [NAME_29] permits, has been given to [NAME_29]; and the Court is satisfied that [NAME_29] has had a reasonable opportunity to examine the terms of the proposed compromise or arrangement to which the application relates and a draft of the explanatory statement relating to the proposed compromise or arrangement; and make submissions to the Court in relation to the proposed compromise or arrangement, and the draft explanatory statement. Each of these matters has been satisfied with respect to the [NAME_16] and the Plaintiffs have tendered a letter from [NAME_29] at this hearing indicating that it does not currently propose to appear to make submissions or intervene to oppose the schemes. [ADDRESS] therefore has power to convene meetings, and approve the [NAME_23], if it is satisfied that it is otherwise appropriate to do so.

2. Once the preconditions to the exercise of the power under s 411 of the Act are satisfied, it remains for the Court to determine whether that power should be exercised. [NAME_12] refers to my summary of the applicable principles in Re DUET Finance Limited [2017] NSWSC 415 at [14] as follows: "It is, of course, well-established that the Court will generally approve the convening of a meeting of shareholders to consider a proposed scheme if it seems fit for consideration by a meeting of members and a commercial proposition that, if passed by the requisite majorities, is likely to be approved by the Court on an uncontested application: [COMPANY_40]; Re Mt Leyshon Gold Mines Ltd [1992] FCA 89; (1992) 34 FCR 530 at 535; Re The Trust Company Ltd [2013] NSWSC 1680 at [5]. … [T]he Court's approach at the first hearing is that it "will not ordinarily summon a meeting unless the scheme is of such a nature and cast in such terms that, if it receives the statutory majority at the … meeting the court would be likely to approve it on the hearing of a petition which is unopposed": FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1997) 3 ACLR 69 at 72; Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485 at 504. … [A]t the first hearing, the Court exercises a "supervisory jurisdiction" to review the scheme and raise any queries with the plaintiff, and the Court will intervene at the first hearing if it has any concerns, since the market will have regard to the orders made by the Court at the first hearing: Re [NAME_41] (1997) 23 ACSR 143 at 146; Cleary v Australian Cooperative Foods Ltd [1999] NSWSC 991; (1999) 32 ACSR 701 at [46]. [ADDRESS] does not substitute its commercial judgment for that of the members to whom the scheme is directed, but considers whether the scheme is one that sensible businesspeople might conclude is of benefit to members: Re Prime Infrastructure Holdings Ltd [2010] NSWSC 1104; (2010) 80 ACSR 193 at [13]; Re AXA Asia Pacific Holdings Ltd [2011] VSC 4 at [13]; Re Aspen Group Ltd [2015] NSWSC 1718 at [11]. 1. [NAME_12] submits, and I accept, that the Proposed Merger is a transaction that is fit for consideration by meetings of [NAME_1] securityholders and reflects a commercial proposition that, if passed by the requisite majorities, is likely to be approved by the Court on an uncontested application. [NAME_12] also points out that the Proposed Merger is unanimously supported by [NAME_1]'s board, in the absence of a superior proposal; [NAME_20] has concluded that the Proposed Merger is fair and reasonable to, and therefore in the best interests of, [NAME_1] securityholders in the absence of a superior proposal; and that an independent expert's report has been verified by affidavit ([NAME_26] 9.4.18 [10]–[13]). [NAME_12] also submits, and I accept, that the [NAME_16], although undoubtedly complex, has been accurately and fairly described in the [NAME_23], which has been the subject of a verification process in common form ([NAME_19] 10.4.18 [68]–[83]) and was made available to [NAME_29] for review ([NAME_28] 10.4.18 [5]–[7]). There are no discretionary reasons why the Court would refuse to order the convening of meetings pursuant to s 411 of the Corporations Act and approve the [NAME_23] in respect of the [NAME_16].

Orders in respect of the [NAME_3] Scheme and the [COMPANY_17] Scheme 1. As [NAME_12] also points out, it is commonplace for a responsible entity of a registered scheme to seek judicial advice pursuant to s 63 of the Trustee Act in connection with a trust scheme and, in giving advice on this issue, the Court will proceed by analogy with the approach governing the exercise of its discretion under s 411(1) of the Act: Re Mirvac Ltd [1999] NSWSC 457; (1999) 32 ACSR 107 at [47]; Re Macquarie Capital Alliance Ltd [2008] NSWSC 745; (2008) 67 ACSR 484 at [19]; Re Macquarie Communications Infrastructure Group [2009] NSWSC 487; Re Sydney Airport Holdings Ltd [2013] NSWSC 1665 at [2], [6], [19]; [COMPANY_6] above at [16]. I am satisfied that [NAME_2], as responsible entity of [NAME_3] and [COMPANY_17], would be justified in proceeding on the basis that the making of the proposed amendments to the [NAME_3] and [COMPANY_17] constitutions in connection with the Proposed Merger, following approval by special resolution by [NAME_3] and [COMPANY_17] members, would be within [NAME_2]'s powers as trustee and responsible entity of each trust, including the powers of alteration conferred by the trust's constitutions and s 601GC of the Corporations Act; in acting upon the resolutions relevant to the Proposed Merger in doing all things and taking all necessary steps to implement the Proposed Merger; and in reimbursing all costs and expenses incurred by [NAME_2] in its capacity as responsible entity of the trusts in relation to this proceeding, out of the assets of [NAME_3] and [COMPANY_17].

Particular issues as to the [NAME_16] and trust schemes addressed in submissions 1. [NAME_12] and [NAME_12] also addressed, in submissions, several matters that have been given particular attention in the case law.

2. First, as [NAME_12] recognises, the Courts generally consider the extent of any performance risk as to whether a bidder will comply with its obligation to pay the scheme consideration to scheme members. Several cases have identified the need to address performance risk by ensuring that there is a mechanism for scheme participants to enforce the right to entitlements that are to be received under a scheme: Re WebCentral Group Ltd [2006] FCA 937; Re Brambles Industries Ltd [2006] FCA 1273; (2006) 59 ACSR 501; Re [COMPANY_4] [2007] FCA 770; (2007) 62 ACSR 400 at [23]; Re Simavita Holdings Limited [2013] FCA 1274 at [43] – [44]; [COMPANY_6] above at [18]. 3. [NAME_12] submits that this issue does not arise by reason of the combined operation of cll 5.2, 5.4, 6.4 and 6.5 of the [NAME_16], which provide for [NAME_13] to deposit the cash consideration into trust accounts operated by [NAME_1] as trustee for scheme participants in cleared funds no later than the business day prior to the Implementation Date. [NAME_12] acknowledges that a legal interest in the WCL shares will be transferred to [NAME_13] prior to the provision of the scrip consideration to scheme participants, but points out that [NAME_13] only obtains a beneficial entitlement to the WCL shares after [NAME_13] has complied with its obligations with respect to the provision of the required scrip consideration ([NAME_16], cll 5.4, 6.5). [NAME_12] also points out that analogous regimes apply to the consideration payable under the [NAME_3] and [COMPANY_17] under the proposed amendments to the constitutions of both trusts ([NAME_3], cll 29.2, 29.3, 29.4, 29.13 and 29.14; [COMPANY_17], cll 33.2, 33.3, 33.4, 33.10). [NAME_12] also draws attention to the obligations imposed under the Merger Deed Poll (Annexure E to the [NAME_23]). [NAME_12] submits, and I accept, that substantially identical arrangements have been held to be sufficient in previous cases: Re [COMPANY_4] above at [23]; Re Hostworks Group Ltd [2008] FCA 64; (2008) 26 ACLC 137 at [32]; [COMPANY_42] Group Limited (2007) 25 ACLC 1380 at [38]. I am satisfied that these matters do not give rise to any reason not to order the convening of the scheme meetings or give the judicial advice sought. 4. [NAME_12] also recognises that cl 10 of the Implementation Agreement contains exclusivity provisions, which include a 'no-shop' restriction, a 'no-talk' restriction subject to a 'fiduciary exception' (Implementation Agreement, cl 10.5) and an obligation to give 'notice of approaches', which are disclosed in the [NAME_23]. [NAME_12] submits, and I accept, that the period for which the exclusivity provisions operate is clearly defined and is a reasonable period in the circumstances: compare [COMPANY_6] above at [23]. As [NAME_12] points out, exclusivity restrictions of this kind have now been accepted in many schemes of arrangement: Re Orion Telecommunications Ltd [2007] FCA 1389 at [7]; Re AXA Asia Pacific Holdings Ltd above at [26]–[30]; Re The Trust Company Ltd above at [19]; [COMPANY_6] above. These provisions are also not inconsistent with the guidance provided in Takeovers Panel Guidance Note 7. I am satisfied that this matter should not prevent the Court ordering the convening of the scheme meetings or giving the advice sought in respect of the trust schemes.

5. Clause 10.8 of the Implementation Agreement allows 'matching rights' which require [NAME_1] to give [NAME_13] notice of actual, proposed or potential Competing Proposals (as defined) and allows [NAME_13] to provide a matching or superior proposal in response. [NAME_12] recognises that the Takeovers Panel has noted the possibility that matching rights can be anti-competitive (Guidance Note 7, [13]–[18]). That possibility was considered in Re Wridgways Australia Ltd [2010] FCA 1187 at [13]–[25], where Jacobson J observed that the overall effect of the matching provision in that scheme was pro-competitive. Notification and matching rights of this kind have since become reasonably common in schemes of arrangement: Re The Trust Company Ltd above at [19]; Re Veda Group Ltd [2015] FCA 1506 at [10]; Re Toll Holdings Ltd [2015] VSC 123 at [35]–[36]; Re SAI Global Ltd [2016] FCA 1312 at [61]. [COMPANY_7] above at [24], I observed, in respect of a similar provision, that: "… the terms of a Competing Proposal would likely need to be disclosed in any event, by reason of DUET's continuous disclosure obligations. It seems to me unlikely that this provision would deter competing bids that might otherwise be made, since the process under this clause corresponds to the course that a prospective bidder would expect DUET to take, even without such a provision, in order to obtain the best possible offer if competing bidders emerged." I am satisfied that these matters should also not prevent the Court ordering the convening of the scheme meetings or giving the advice sought in respect of the trust schemes.

1. Clause 11 of the Implementation Agreement provides for the payment of a substantial break fee by [NAME_1], of USD150 million, in prescribed circumstances. As [NAME_12] points out, that break fee is not payable if the meeting of scheme participants do not approve the [NAME_16] (Implementation Agreement, cl 11.2) and would have no influence on voting at the meeting: Re Adelaide Bank Limited [2007] FCA 1582 at [31]. [NAME_12] submits that break fees are also common features in schemes of arrangement and have not been an obstacle to the making of orders under s 411(1) of the Corporations Act, and that a break fee will be permitted unless its amount is such that it could influence voting at the meeting to be convened or if there are some other unusual circumstances: Re SFE Corporation Ltd [2006] FCA 670; (2006) 59 ACSR 82 at [6]–[7]; Re [COMPANY_4] above at [43].

2. Although this break fee is very large in absolute terms, it was consistent with the Takeovers Panel's guideline of a maximum 1% of equity value when the Proposed Merger was announced (although the percentage that it bears to the transaction value has since marginally increased with changes in the price of the shares to be issued in the transaction). [NAME_12] also points out that, even if the break fee were to exceed the figure of 1%, that would not in itself be a reason to decline to order the convening of scheme meetings or withhold approval at a second hearing: Re Tatts Group Limited [2017] VSC 552 at [32]–[34]. There is evidence that substantial costs were and will be incurred in connection with the implementation of the Proposed Merger; that fee is disclosed in the [NAME_23]; the Implementation Agreement provides for [NAME_1] to be paid a reverse break fee in the same amount by [NAME_13] in specified circumstances (Implementation Agreement, cl 12); and the affidavit evidence ([NAME_19] 10.4.18 [34]–[43]) addresses the matters that should generally be addressed before a break fee is approved: Re [COMPANY_4] above at [55]. It seems to me that in this case, as [COMPANY_7] above at [29], the board of [NAME_1] could readily form a view that an agreement to pay a break fee of this size was in the interests of shareholders and [NAME_39], since it would allow them the opportunity to consider a substantial proposal that some or many of them may find commercially attractive, where that proposal might well not have been available, absent agreement to pay that break fee. Although the break fee is large in absolute terms, reflecting the scale of the transaction, I accept that it does not provide reason not to order the convening of the scheme meetings or give the advice sought in respect of the trust schemes.

3. Clause 5.6 of the [NAME_16] also contains a 'deemed warranty', by which each scheme participant warrants that, inter alia, all their Scheme Shares (as defined) transferred to [NAME_13] will be fully paid and free from all Encumbrances (as defined) and that scheme participants have full power to sell and transfer their Scheme Shares to [NAME_13] under the scheme, and corresponding warranties are provided in the two trust schemes ([NAME_3], cl 29.6; [COMPANY_17], cl 33.6). Those deemed warranties are disclosed in the [NAME_23] (section 2 item 5.8, section 3.19). The case law has recognised the legitimacy of deemed warranty provisions, provided that appropriate disclosure is made, since their purpose and effect is to ensure that a scheme participant whose shares are subject to an encumbrance is not unfairly advantaged: Re [COMPANY_4] above at [57]–[63]; Re Hostworks Group Ltd above at [41]; [COMPANY_42] above at [45]; Re [COMPANY_8] (2008) 26 ACLC 366 at [14]; Re DUET Management Company 1 Ltd [2013] NSWSC 817 at [23]. This matter also does not provide reason not to order the convening of the scheme meetings or give the advice sought in respect of the trust schemes. 4. [NAME_12] points out that, if the [NAME_16] is ultimately approved by the Court and the Court also gives the judicial advice sought at the second hearing in connection with the trust schemes, [NAME_13] and [NAME_35] (and their subsidiaries) intend to rely on the Court's approval and advice for the purpose of qualifying for the exemption from registration under s 3(a)(10) of the Securities Act 1933 (US) in connection with the issue of securities to US resident [NAME_1] securityholders under the [NAME_16]. [NAME_12] points out, and I accept, that recognition of this matter by the Court is a requirement of their qualifying for the exemption and that further consideration of the application of the exemption, if required, is a matter for the second court hearing: [COMPANY_9] (2002) 43 ACSR 601 at [11]–[20]; Re Simavita Holdings Limited above at [50]–[52].

5. As I noted above, certain members of the [NAME_24] have entered a voting agreement with interests associated with [NAME_13] by which they agreed, inter alia, to vote in favour of the Proposed Merger in the absence of [NAME_1]'s board recommending a superior proposal and subject to the independent expert concluding that the merger scheme and the trust schemes are in the best interests of [NAME_1] securityholders. There is no suggestion that that matter requires separate class meetings and [NAME_12] confirmed, in oral submissions, that votes of persons within the scope of that voting agreement will be tagged. I am satisfied that this matter is not a reason to decline to order the convening of the scheme meetings or the trust meetings.

The Demerger Transaction 1. I now turn to the Demerger Transaction in respect of [NAME_18], which is an Australian public company limited by shares and a wholly owned subsidiary of WCL. The Demerger Transaction comprises the Demerger Scheme under s 411 of the Corporations Act, the payment of a dividend and a capital reduction, which would together result in all of the [NAME_18] shares being distributed to or for the benefit of shareholders in WCL, and [NAME_18] is then proposed to be listed on the ASX. The Demerger Transaction is conditional on, inter alia, the Proposed Merger being approved, although the Proposed Merger is not conditional on the Demerger Transaction proceeding (Demerger Scheme, cl 3.1).

2. WCL shareholders who participate in the Demerger Scheme will be entitled to a Distribution (as defined) consisting of a dividend and, if necessary, an amount by way of a return of capital, implemented as an equal capital reduction pursuant to section 256B(1) of the Corporations Act (Demerger Scheme, cl 5.4). Entitlements under that dividend and capital reduction would not be paid to participants in the Demerger Scheme in cash but would instead be applied on their behalf as consideration for the transfer of [NAME_18] shares to them under that scheme (Demerger Scheme, cll 5.4(c), 5.6, 5.7). [NAME_43] would receive one [NAME_18] share for every 20 WCL shares that they hold, subject to specified arrangements that apply in respect of participants in the Demerger Scheme who are Ineligible Foreign Holders or Small Shareholders (as defined). Two meetings of WCL shareholders would be held to consider the Demerger Transaction and, if thought fit, pass certain resolutions in connection with it, comprising a Court-convened meeting of WCL shareholders for the purpose of considering and, if thought fit, approving the Demerger Scheme and an extraordinary meeting of WCL shareholders for the purpose of considering and, if thought fit, approving the proposed capital reduction. 3. [NAME_12] also points out that the Demerger Scheme is also unanimously supported by [NAME_1]'s board; and, if the Proposed Merger were implemented and the Demerger Scheme was not implemented, then [NAME_18] would remain part of [NAME_1] and would be acquired by [NAME_13] for no additional consideration. [NAME_20] has observed that this provides reason for scheme participants to vote in favour of the Demerger Scheme and that the Demerger Transaction is in the best interests of [NAME_1] securityholders (Demerger IER Report, sections 5.3–5.4) and that that report has also been verified by affidavit ([NAME_26] 9.4.18 [14]–[17]). The information contained in the Demerger Booklet has also been the subject of verification and has been made available to [NAME_29] for review ([NAME_28] 20.4.18 [5]–[6], [8]). There is no exclusivity or break fee in respect of the Demerger Scheme and, as I noted above, [NAME_18] has entered into the Demerger Deed Poll in favour of [NAME_1] securityholders under which it has undertaken to take the steps to be performed by it under the Demerger Scheme, including applying for admission to the official list of ASX and for official quotation of its shares on ASX.

4. The requirements in s 411(1) of the Corporations Act have also been satisfied in respect of the Demerger Scheme and the Court therefore has power to order the convening of meetings, and approve the Demerger Booklet if it is satisfied that it is otherwise appropriate to do so. The Demerger Transaction is also a transaction that is fit for consideration by meetings of [NAME_1] securityholders and reflects a commercial proposition that, if passed by the requisite majorities, is likely to be approved by the Court on an uncontested application. There are no discretionary reasons why the Court would refuse to order the convening of meetings pursuant to s 411 of the Corporations Act and approve the Demerger Booklet. 5. [NAME_12] points out that, if the Demerger Scheme is ultimately approved by the Court, WCL also intends to rely on the Court's approval and advice for the purpose of qualifying for that exemption in connection with the issue of the [NAME_18] shares to US resident [NAME_1] securityholders (if required). As I noted above, recognition of this matter by the Court is a requirement of [NAME_13] qualifying for the exemption from registration under s 3(a)(10) of the Securities Act 1933 (US).

Conclusion 1. I am satisfied that the [NAME_16] and the Demerger Scheme each concern the rights and obligations of shareholders in WCL and are each an arrangement for the purposes of s 411 if the Corporations Act. The independent expert's reports have concluded that the proposed transactions are fair and reasonable and detailed evidence is led as to the process which has been adopted in respect of the preparation and verification of the explanatory material. Having regard to the evidence and matters to which I referred above, I am satisfied that an order should be made convening the scheme meetings and approving the scheme booklet for distribution to shareholders. I am also satisfied that judicial advice should be given that [NAME_2] is justified in propounding resolutions to implement the proposed trust schemes and proceeding on the basis that the amendments to be made to the [NAME_3] and [COMPANY_17] constitutions to implement those trust schemes would be within the powers of alteration conferred by those documents and s 601GC of the Corporations Act.

2.

For these reasons I made the orders sought by the Plaintiffs at the conclusion of the first hearing.

********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 03 May 2018