FEDERAL COURT OF AUSTRALIA
Lehman Brothers Australia Ltd, in the matter of Lehman Brothers Australia Ltd (in liq) (No 2) [2013] FCA 965
IN THE FEDERAL COURT OF AUSTRALIA | |
IN THE MATTER OF LEHMAN BROTHERS AUSTRALIA LIMITED (IN LIQUIDATION)
LEHMAN BROTHERS AUSTRALIA LIMITED (IN LIQUIDATION) ACN 066 797 760 First Plaintiff MARCUS WILLIAM AYRES Second Plaintiff STEPHEN JAMES PARBERY Third Plaintiff |
DATE OF ORDER: | |
WHERE MADE: |
THE COURT ORDERS THAT:
1. Pursuant to section 1319 of the Corporations Act 2001 (Cth) (Corporations Act) and rule 39.05 of the Federal Court Rules 2011 (Cth) (FCR):
(a) the meetings convened by the Plaintiffs pursuant to the order numbered 2 of the Orders made on 22 May 2013 (Earlier Orders), and held and adjourned on 19 June 2013 to a date to be fixed (Cancelled Scheme Meetings), be dissolved and not be resumed;
(b) on or before 4 October 2013, the Plaintiffs despatch to those of its Scheme Creditors (as defined in the Earlier Orders) that reside or have their registered office in Australia by pre-paid post, or failing that, by email, a notice substantially in the form or to the effect of annexure "A";
(c) on or before 4 October 2013, the Plaintiffs despatch to those of its Scheme Creditors (as defined in the Earlier Orders) that reside or have their registered office outside of Australia by courier or by email a notice substantially in the form or to the effect of annexure "A"; and
(d) Earlier Orders numbered 2-4, 11-14 inclusive be vacated.
2. Pursuant to section 411(1) of the Corporations Act, the Plaintiffs convene a meeting (Scheme Meeting) of the "Scheme Creditors" (defined in subparagraph (a) below) of Lehman Brothers Australia Limited (In Liquidation) (Scheme Company) for the purpose of considering and, if it is thought fit, agreeing (with or without modification) to a scheme of arrangement (Scheme) proposed to be made between the Scheme Company and its Scheme Creditors.
(a) A "Scheme Creditor" is:
(i) an applicant or a group member in the representative action brought against the Scheme Company in this Court entitled Wingecarribee Shire Council and Ors v Lehman Brothers Australia Ltd (In Liquidation) No. NSD 2492 of 2007; and
(ii) any other creditor of the Scheme Company that has a claim in respect of an unsecured debt of, or an unsecured claim against, the Scheme Company, the circumstances giving rise to which arose on or before 26 September 2008, and which claim arose from:
A. the provision by the Scheme Company to that creditor of investment advice or investment management services in respect of the acquisition of an investment product; or
B. any alleged representation by the Scheme Company to that creditor in relation to an investment product or investment management services offered by the Scheme Company; or
C. the sale by the Scheme Company to that creditor of an investment product.
3. The Scheme Meeting be held at the Radisson Blu Plaza Hotel (Marble Room), 27 O'Connell Street, Sydney, NSW 2000 on Thursday, 17 October 2013, commencing at 11.00 am (Sydney time).
4. Leave pursuant to sub-section 411(7) of the Corporations Act be granted for the appointment of each of Marcus William Ayres and Stephen James Parbery as an administrator of the Scheme, notwithstanding the prohibition under sub-section 411(7)(f) of the Corporations Act.
Convening and notice of Scheme Meeting
5. Pursuant to section 411(1) of the Corporations Act, the explanatory statement for the Scheme, contained at Tab 1 of Exhibit "MWA-6" to the affidavit of Marcus William Ayres sworn 16 September 2013 (Explanatory Statement), be approved for distribution to each Scheme Creditor.
6. On or before 30 September 2013, the following documents be sent to each Scheme Creditor by one or more of the modes of delivery specified under regulation 5.6.12(2) (as modified by Order 13 below) of the Corporations Regulations 2001 (Cth) (Corporations Regulations), provided that the Scheme Creditor's postal address, facsimile transmission number, document exchange number or email address is known to the Liquidators:
(a) a document substantially in the form of the Explanatory Statement (including the terms of the Scheme, substantially in the form that appears at Appendix 1 of the Explanatory Statement);
(b) a Notice of Scheme Meeting, substantially in the form or to the effect of annexure "B";
(c) a cover letter to Scheme Creditors, substantially in the form or to the effect of the form that appears at Tab 11 of Exhibit "MWA-6" to the affidavit of Marcus William Ayres sworn 16 September 2013;
(d) a proxy form, substantially in the form or to the effect of the form that appears at Tab 8 of Exhibit "MWA-6" to the affidavit of Marcus William Ayres sworn 16 September 2013 (Proxy Form);
(e) an informal proof of debt form (for voting purposes), substantially in the form or to the effect of the form that appears at Tab 9 of Exhibit "MWA-6" to the affidavit of Marcus William Ayres sworn 16 September 2013 (VPOD Form); and
(f) a creditors' committee (Creditors’ Committee) nomination form, substantially in the form or to the effect of the form that appears at Tab 10 of Exhibit "MWA-6" to the affidavit of Marcus William Ayres sworn 16 September 2013 (Nomination Form).
7. For the purposes of voting at the Scheme Meeting:
(a) a Scheme Creditor must either:
(i) have previously lodged its Voting Proof of Debt Form (as defined in the Earlier Orders) for the purpose of voting at the Cancelled Scheme Meetings and was advised by the Liquidators in their letter to that Scheme Creditor dated 12 August 2013 that its claim would have been admitted for voting purposes for an amount greater than zero had the Cancelled Scheme Meetings proceeded; or
(ii) lodge its duly completed VPOD Form with Link Market Services Limited (Registry) by one of the methods specified in paragraph 7(b) of these Orders, so that the form is received by the Registry no later than 11.00 am (Sydney time) on 15 October 2013 (Cut-Off Time); and
(b) any VPOD Form, Proxy Form and/or Nomination Form (if applicable) must be lodged with the Registry, via one of the following methods:
(i) by mailing the forms to the Registry at Link Market Services Limited, Locked Bag A14, Sydney South NSW 1235; or
(ii) by emailing the forms to the Registry at lehman@linkmarketservices.com.au; or
(iii) by faxing the forms to the Registry at +61 2 9287 0303; or
(iv) by personally delivering the forms to the Registry at Link Market Services Limited, 1A Homebush Bay Drive, Rhodes NSW 2138,
provided that, whichever means of lodgement is employed, the forms are received by Registry not later than the Cut-Off Time.
8. The Plaintiffs must cause the Scheme Meeting to be advertised once in either "The Australian Financial Review" or "The Australian" by an advertisement substantially in the form or to the effect of annexure "C", such advertisement to be published on or before 2 October 2013.
9. The Plaintiffs must cause a Notice of Scheme Meeting, substantially in the form or to the effect of annexure "C" hereto, to be electronically lodged with the Australian Securities and Investments Commission (ASIC) on or before 2 October 2013 for publication by ASIC on its publication website.
10. The Plaintiffs must cause notice of any application under subsection 411(4) of the Corporations Act for approval of the Scheme to be published once in either "The Australian Financial Review" or "The Australian", by a notice substantially in the form or to the effect of annexure "D", such notice to be published on or before 23 October 2013, and the Scheme Company otherwise be exempted from compliance with rule 3.4 of the Federal Court (Corporations) Rules 2000 (Cth) (FCCR).
Conduct of Scheme Meeting
11. Mr Marcus William Ayres or, failing him, Mr Stephen James Parbery, be appointed chairperson of the Scheme Meeting (Chairperson).
12. The Chairperson appointed to the Scheme Meeting has the power to adjourn the Scheme Meeting in his absolute discretion.
13. Regulations 5.6.12 to 5.6.36A of the Corporations Regulations will apply to the Scheme Meeting, except that, pursuant to rule 2.15 of the FCCR and section 1319 of the Corporations Act:
(a) the following regulations will not apply in relation to the Scheme Meeting:
(i) subregulation 5.6.12(3);
(ii) regulation 5.6.13A;
(iii) regulation 5.6.13B;
(iv) regulation 5.6.17;
(v) subregulation 5.6.18(1);
(vi) regulation 5.6.24;
(vii) subregulation 5.6.31(1)(b);
(viii) regulation 5.6.31A; and
(ix) regulation 5.6.33;
(b) subregulation 5.6.12(2) shall apply to the Scheme Meeting as modified to read:
(2) The notice must be given to a person:
(a) by delivering it personally; or
(b) by sending it to the person by prepaid post or by courier; or
(c) if the person has a facsimile transmission number to which notices may be sent to the person -- by faxing it to the person at that number; or
(d) if the person has a document exchange number to which notices may be sent to the person -- by lodging it with the exchange at, or for delivery to, the person's receiving facilities identified by that number; or
(e) by sending it to the person by email to the email address of that person;
(c) sub-regulation 5.6.16(1) shall apply to the Scheme Meeting as modified to read: "(1) Subject to subregulation (3), a meeting must not act for any purpose except the proving of debts, unless a quorum is present.";
(d) subregulations 5.6.16(6) and 5.6.16(7) shall apply to the Scheme Meeting as modified to read:
"(6) The convenor of the meeting, or a person nominated by the convenor, may give notice of the adjournment to the persons to whom notice of the meeting must be given under regulation 5.6.12. Notice of the adjournment may be given by any of the means specified in subregulation 5.6.12(2) (as modified).
(7) A meeting on the date and at the place to which the meeting is adjourned is not to be taken to be incompetent to act only because of a failure to give notice of the adjournment under subregulation (6).";
(e) regulation 5.6.19 shall apply to the Scheme Meeting as modified to read: "Except in relation to procedural matters, a resolution put to the vote of a meeting must be decided by a poll.";
(f) regulation 5.6.20 shall apply to the Scheme Meeting as modified to read: "The manner and time at which a poll is to be taken must be determined by the Chairperson.";
(g) subregulation 5.6.23(1) shall apply to the Scheme Meeting as modified to read:
"(1) A person is not entitled to vote as a creditor at the Scheme Meeting unless:
(a) his or her debt or claim has been admitted wholly or in part by the liquidator; or
(b) he or she:
(i) lodged a Voting Proof of Debt Form (as defined in the Earlier Orders) for the purpose of voting at the meetings of creditors that were convened, pursuant to the Earlier Orders, and held on 19 June 2013 (the June Meetings); and
(ii) was advised by the Liquidators in their letter to him or her dated 12 August 2013 that his or her claim would have been admitted for voting purposes for an amount greater than zero had the June Meetings proceeded; or
(c) he or she has lodged with the Chairperson of the Scheme Meeting, or with the Registry, a duly completed VPOD Form in accordance with order 7 of these Orders, provided that the Chairperson may, in his absolute discretion, determine to admit or reject any VPOD Form in relation to the Scheme Meeting which is received by the Registry after the cut-off time of 11.00 am on 15 October 2013";
(h) subregulation 5.6.26(1) shall apply to the Scheme Meeting as modified to read: "The Chairperson of the Scheme Meeting has power to admit or reject a Voting Proof of Debt Form (as defined in the Earlier Orders) or a VPOD Form, for the purposes of voting at the Scheme Meeting even if the VPOD Form is received by the Registry after the cut-off time of 11.00 am on 15 October 2013, provided that it is received prior to the commencement of the Scheme Meeting."
(i) subregulation 5.6.26(3) shall apply to the Scheme Meeting as modified to read: "A decision by the Chairperson of the Scheme Meeting to admit or reject a Voting Proof of Debt Form (as defined in the Earlier Orders) or VPOD Form for the purposes of voting at the Scheme Meeting may be appealed against to this Court by an application filed with the Court within 3 business days of the decision, such appeal to be heard concurrently with the second court hearing";
(j) subregulation 5.6.28(3) shall apply to the Scheme Meeting as modified to read:
"(3) If a person claims to be:
(a) the proxy of a person, appointed by a Proxy Form; and
(b) entitled to attend and vote at a meeting;
the person is not entitled to speak or vote as proxy at the meeting unless:
(i) the Proxy Form; or
(ii) a facsimile copy of the Proxy Form; or
(iii) a copy of the Proxy Form sent by email;
has been lodged with the Registry, or with the chairperson, in accordance with order 7 of these Orders, provided that the Chairperson may, in his absolute discretion, treat as valid any Proxy Form in relation to the Scheme Meeting which is received by the Registry after the cut-off time of 11.00 am on 15 October 2013"; and
(k) regulation 5.6.29 shall apply to the Scheme Meeting as modified such that all references to "Form 532" are read as references to the Proxy Form.
14. The procedure for the appointment of the initial Creditors' Committee is as follows:
(a) Scheme Creditors may nominate themselves or another Scheme Creditor or any third party to represent them on the Creditors' Committee by completing and lodging the Nomination Form so that it is received by the Registry by 11.00 am on 15 October 2013;
(b) at the Scheme Meeting, each Scheme Creditor eligible to vote will be entitled to cast one vote in favour of one nominee for appointment to the initial Creditors' Committee;
(c) each Scheme Creditor's vote will be given a voting value which will be determined by the Chairperson in accordance with the estimate made of that Scheme Creditor's claims for voting purposes. The nominees who receive votes with, in aggregate, the highest voting value will be appointed to fill up to the maximum number of 5 appointments to the Creditors' Committee;
(d) the appointment of a member to the Creditors' Committee is subject to that appointee executing and delivering to the Scheme Administrators the Creditors' Committee Deed Poll (a deed poll substantially in the form set out in Schedule 5 to the Scheme); and
(e) once appointed, each member of the Creditors' Committee that is a company or some other body corporate must nominate a natural person to be its representative at Creditors' Committee meetings.
15. The proceedings be stood over to 31 October 2013 at 10.15 am for the hearing of any application to approve the Scheme.
16. There be liberty to apply on one day's notice.
17. These Orders be entered forthwith.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
“A”
LEHMAN BROTHERS AUSTRALIA LIMITED (IN LIQUIDATION)
ACN 066 797 760
(Scheme Company)
NOTICE TO cREDITORS OF THE SCHEME COMPANY OF THE cancellation of meetings called to consider SCHEME OF ARRANGEMENT Contained in the Explanatory Statement dated 22 may 2013 UNDER SECTION 411 OF THE CORPORATIONS ACT 2001 (CTH)
TAKE NOTICE that on 25 September 2013 the Federal Court of Australia, on the application of the Scheme Company and its liquidators (Liquidators):
(a) made a direction that the meetings of creditors that the Court had, on 22 May 2013, ordered to be convened, and which were held and adjourned on 19 June 2013 to a date to be fixed, be dissolved and not be resumed; and
(b) vacated orders numbered 2-4, 11-14 of the orders made on 22 May 2013.
Further details in respect of the Liquidators' decision not to proceed with the proposed Scheme of Arrangement can be found on PPB Advisory's website: www.ppbadvisory.com.
This notice is given by Marcus Ayres, one of the Liquidators.
Dated this [ ] day of September 2013.
“B”
Notice of Court Ordered Meeting to Consider Proposed Scheme of Arrangement
TO Scheme Creditors (defined below) of Lehman Brothers Australia Limited (In Liquidation) ACN 066 797 760 (LBA).
WHEREAS by an order of the Federal Court of Australia (Court) made on 25 September 2013 pursuant to section 1319 of the Corporations Act 2001 (Cth) (Corporations Act), the five meetings of creditors of LBA, convened by LBA and its liquidators pursuant to order 2 of the Orders made by the Court on 22 May 2013, and held and adjourned on 19 June 2013 to a date to be fixed (19 June 2013 Meetings), were dissolved and will not be resumed.
WHEREAS by an order of the Court made on 25 September 2013 pursuant to section 411(1) of the Corporations Act, a meeting of Scheme Creditors will be convened to consider and, if thought fit, agree to (with or without modification) a scheme of arrangement between LBA and its Scheme Creditors.
NOTICE IS HEREBY GIVEN that a meeting of Scheme Creditors (Scheme Meeting) will be held at the Radisson Blu Plaza Hotel (Marble Room), 27 O'Connell Street, Sydney, NSW on 17 October 2013, commencing at 11.00 am (Sydney time).
The Court has ordered LBA and its liquidators to convene a Scheme Meeting in respect of LBA's Scheme Creditors, being:
• the applicants and group members in the representative action brought against LBA in the Court entitled Wingecarribee Shire Council and Ors v Lehman Brothers Australia Ltd (In Liquidation) No. NSD 2492 of 2007; and
• any other creditor of LBA who has a claim, the circumstances giving rise to which arose on or before 26 September 2008, and which claim arose from:
• the provision by LBA to that creditor of investment advice or investment management services in respect of the acquisition of an investment product; or
• any alleged representation by LBA to that creditor in relation to an investment product or investment management services offered by LBA; or
• the sale by LBA to that creditor of an investment product.
The Court has directed Marcus William Ayres to act as chairperson of the Scheme Meeting (Chairperson). Failing that, the Chairperson will be Stephen James Parbery.
For further information on the Scheme and/or the Scheme Meeting, you should refer to the Explanatory Statement for the Scheme to which this Notice of Scheme Meeting is attached.
BUSINESS OF THE SCHEME MEETING
1. To consider and, if thought fit, resolve that pursuant to and in accordance with section 411(4) of the Corporations Act, the scheme of arrangement between LBA and its Scheme Creditors (as contained in Appendix 1 and more particularly described in the Explanatory Statement dated [ ] September 2013) is agreed to (with or without modification).
18. To consider and, if thought fit, resolve to appoint up to the maximum number of members of the initial Creditors' Committee (in accordance with the procedures set out in the Explanatory Statement).
19. To consider any other business that may be lawfully brought forward at the Scheme Meeting.
If you are entitled and wish to vote at the Scheme Meeting, you should ensure:
• that you previously lodged your Voting Proof of Debt Form (as defined in the Orders made by the Court on 22 May 2013) for the purposes of the 19 June 2013 Meetings and were advised by the Liquidators in their letter to you dated 12 August 2013 that your claim would have been admitted for voting purposes for an amount greater than zero had the 19 June 2013 Meetings proceeded; or
• that you lodge your duly completed VPOD Form in accordance with the instructions on the form so that it is received by the Registry no later than 11.00 am (Sydney time) on 15 October 2013 (Cut-off Time).
You may attend the Scheme Meeting in person or send a completed Proxy Form appointing a proxy to attend in your place. The Proxy Form, VPOD Form and a nomination form for the Creditors' Committee will be sent to known Scheme Creditors on or before 30 September 2013. If you are a Scheme Creditor of LBA and you do not receive one or more of those forms, you may request that the Registry send them to you.
VOTING INSTRUCTIONS
How to vote
Scheme Creditors entitled to attend and vote at the Scheme Meeting can vote in any of the following ways:
• by attending the Scheme Meeting and voting in person or, in the case of corporate Scheme Creditors, by corporate representative; or
• by appointing a proxy to attend and vote on their behalf.
Voting in person (or by corporate representative)
Scheme Creditors are asked to arrive at the venue 60 minutes prior to the time designated for the Scheme Meeting, so that their debts or claims against LBA can be checked against the Registry's records and their attendance noted.
Corporate representatives attending the Scheme Meeting must present written proof of their appointment including any authority under which that appointment is signed, prior to the commencement of the Scheme Meeting (unless previously lodged with the Registry).
Voting by proxy
A Scheme Creditor entitled to attend and vote at the Scheme Meeting is entitled to appoint a proxy. Each proxy will have the right to vote on the poll and also to speak at the Scheme Meeting.
A proxy need not be a Scheme Creditor.
If a proxy is not directed as to how he or she is to vote on an item of business, the proxy may vote or abstain from voting, as that person thinks fit.
If a proxy is instructed to abstain from voting on an item of business, that person is directed not to vote on the Scheme Creditor’s behalf on the poll, and the debt or claim the subject of the proxy appointment will not be counted in computing the denominator of the required majority.
Scheme Creditors who return their Proxy Forms with a direction on how to vote but do not nominate the identity of their proxy will be taken to have appointed the Chairperson of the Scheme Meeting as their proxy to vote on their behalf. Proxy appointments in favour of the Chairperson or any liquidator of LBA which do not contain a direction will be used to support the resolution to approve the Scheme.
A vote given in accordance with the terms of a proxy is valid despite the revocation of the proxy, unless notice in writing of the revocation has been received by the Registry by the Cut-off Time. Scheme Creditors can revoke the proxy after this time by attending the Scheme Meeting and voting in person.
To be valid, Proxy Forms must be completed and received by the Cut-off Time by one of the following methods:
• by mailing the Proxy Form to the Registry at Locked Bag A14, Sydney South NSW 1235 (using the reply paid envelope provided); or
• by emailing the Proxy Form to the Registry at lehman@linkmarketservices.com.au; or
• by faxing the Proxy Form to the Registry at +61 2 9287 0303; or
• by personally delivering the Proxy Form to the Registry at 1A Homebush Bay Drive, Rhodes NSW 2138.
Proxy forms received after the Cut-off Time will be invalid.
The Proxy Forms must be signed by the Scheme Creditor or the Scheme Creditor's attorney. Proxies given by corporations must be executed in accordance with the Corporations Act. Where the appointment of a proxy is signed by the appointor’s attorney, a certified copy of the power of attorney, or the power itself, must be received by the Registry at any of the above addresses by the Cut-off Time.
SCHEME CREDITORS SHOULD READ AND CAREFULLY CONSIDER THE EXPLANATORY STATEMENT FOR THE SCHEME OF ARRANGEMENT BEFORE DECIDING WHETHER OR NOT TO VOTE IN FAVOUR OF THE SCHEME OF ARRANGEMENT. The Explanatory Statement is available on the website www.ppbadvisory.com or by contacting the Registry on 1300 660 106 (if dialled from within Australia) or +61 1300 660 106 (if dialled from outside of Australia).
“C”
Notice of Court Ordered Meeting to Consider Proposed Scheme of Arrangement
TO Scheme Creditors (defined below) of Lehman Brothers Australia Limited (In Liquidation) ACN 066 797 760 (LBA).
WHEREAS by an order of the Federal Court of Australia (Court) made on 25 September 2013 pursuant to section 1319 of the Corporations Act 2001 (Cth) (Corporations Act), the five meetings of creditors of LBA, convened by LBA and its liquidators pursuant to order 2 of the Orders made by the Court on 22 May 2013, and held and adjourned on 19 June 2013 to a date to be fixed (19 June 2013 Meetings), were dissolved and will not be resumed.
WHEREAS by an order of the Court made on 25 September 2013 pursuant to section 411(1) of the Corporations Act, a meeting of Scheme Creditors will be convened to consider and, if thought fit, agree to (with or without modification) a scheme of arrangement between LBA and its Scheme Creditors.
NOTICE IS HEREBY GIVEN that a meeting of Scheme Creditors (Scheme Meeting) will be held at the Radisson Blu Plaza Hotel (Marble Room), 27 O'Connell Street, Sydney, NSW on 17 October 2013, commencing at 11.00 am (Sydney time).
The Court has ordered LBA and its liquidators to convene a Scheme Meeting in respect of LBA's Scheme Creditors, being:
• the applicants and group members in the representative action brought against LBA in the Court entitled Wingecarribee Shire Council and Ors v Lehman Brothers Australia Ltd (In Liquidation) No. NSD 2492 of 2007; and
• any other creditor of LBA who has a claim, the circumstances giving rise to which arose on or before 26 September 2008, and which claim arose from:
• the provision by LBA to that creditor of investment advice or investment management services in respect of the acquisition of an investment product; or
• any alleged representation by LBA to that creditor in relation to an investment product or investment management services offered by LBA; or
• the sale by LBA to that creditor of an investment product.
The Court has directed Marcus William Ayres to act as chairperson of the Scheme Meeting (Chairperson). Failing that, the Chairperson will be Stephen James Parbery.
For further information on the Scheme and/or the Scheme Meeting, you should refer to the Explanatory Statement for the Scheme to which this Notice of Scheme Meeting is attached.
BUSINESS OF THE SCHEME MEETING
2. To consider and, if thought fit, resolve that pursuant to and in accordance with section 411(4) of the Corporations Act, the scheme of arrangement between LBA and its Scheme Creditors (as contained in Appendix 1 and more particularly described in the Explanatory Statement dated [ ] September 2013) is agreed to (with or without modification).
20. To consider and, if thought fit, resolve to appoint up to the maximum number of members of the initial Creditors' Committee (in accordance with the procedures set out in the Explanatory Statement).
21. To consider any other business that may be lawfully brought forward at the Scheme Meeting.
If you are entitled and wish to vote at the Scheme Meeting, you should ensure:
• that you previously lodged your Voting Proof of Debt Form (as defined in the Orders made by the Court on 22 May 2013) for the purposes of the 19 June 2013 Meetings and were advised by the Liquidators in their letter to you dated 12 August 2013 that your claim would have been admitted for voting purposes for an amount greater than zero had the 19 June 2013 Meetings proceeded; or
• that you lodge your duly completed VPOD Form in accordance with the instructions on the form so that it is received by the Registry no later than 11.00 am (Sydney time) on 15 October 2013 (Cut-off Time).
You may attend the Scheme Meeting in person or send a completed Proxy Form appointing a proxy to attend in your place. The Proxy Form, VPOD Form and a nomination form for the Creditors' Committee will be sent to known Scheme Creditors on or before 30 September 2013. If you are a Scheme Creditor of LBA and you do not receive one or more of those forms, you may request that the Registry send them to you.
SCHEME CREDITORS SHOULD READ AND CAREFULLY CONSIDER THE EXPLANATORY STATEMENT FOR THE SCHEME OF ARRANGEMENT BEFORE DECIDING WHETHER OR NOT TO VOTE IN FAVOUR OF THE SCHEME OF ARRANGEMENT. The Explanatory Statement is available on the website www.ppbadvisory.com or by contacting the Registry on 1300 660 106 (if dialled from within Australia) or +61 1300 660 106 (if dialled from outside of Australia).
"D"
Notice of hearing to approve compromise or arrangement
TO Scheme Creditors (defined below) of Lehman Brothers Australia Limited (in Liquidation) ACN 066 797 760 (LBA).
TAKE NOTICE that at 10.15 am on 31 October 2013, the Federal Court of Australia (Court), at Law Courts Building, Queens Square, Sydney, will hear an application by the liquidators of LBA (Liquidators) seeking the Court's approval of a compromise or arrangement between LBA and its Scheme Creditors (defined below) as proposed by a resolution passed by the meeting of Scheme Creditors held on 17 October 2013 (Scheme Meeting).
For the purposes of this notice, "Scheme Creditors" are:
• the applicants and group members in the representative action brought against LBA in the Court entitled Wingecarribee Shire Council and Ors v Lehman Brothers Australia Ltd (In Liquidation) No. NSD 2492 of 2007; and
• any other creditor of LBA who has a claim, the circumstances giving rise to which arose on or before 26 September 2008, and which claim arose from:
• the provision by LBA to that creditor of investment advice or investment management services in respect of the acquisition of an investment product; or
• any alleged representation by LBA to that creditor in relation to an investment product or investment management services offered by LBA; or
• the sale by LBA to that creditor of an investment product.
[The proposed compromise or arrangement as passed by the meeting was amended from the form of compromise or arrangement previously sent to Scheme Creditors in the following respects:
Set out details of any amendment made at the meeting.]
If you wish to oppose the approval of the compromise or arrangement, you must file and serve on the Liquidators a notice of appearance, in the prescribed form, together with any affidavit on which you wish to rely at the hearing. The notice of appearance and affidavit must be served on the Liquidators at their address for service at least 1 business day before the date fixed for the hearing of the application.
Scheme Creditors of LBA should be aware that a decision by the chairperson of the Scheme Meeting to admit or reject a proof of debt or claim for the purposes of voting at the Scheme Meeting may be appealed against to the Court by the lodging of an application within 3 business days of the decision. The hearing of any appeal against a decision of the chairperson will be listed for hearing together with the Liquidators' application at 10.15 am on 31 October 2013.
The address for service on the Liquidators is:
C/- Clayton Utz
Level 15
1 Bligh Street
Sydney NSW 2000
(Attention: Karen O'Flynn)
NEW SOUTH WALES DISTRICT REGISTRY | |
GENERAL DIVISION | NSD 622 of 2013 |
IN THE MATTER OF LEHMAN BROTHERS AUSTRALIA LIMITED (IN LIQUIDATION)
BETWEEN: | LEHMAN BROTHERS AUSTRALIA LIMITED (IN LIQUIDATION) ACN 066 797 760 First Plaintiff MARCUS WILLIAM AYRES Second Plaintiff STEPHEN JAMES PARBERY Third Plaintiff
|
JUDGE: | JACOBSON J |
DATE: | 25 SEPTEMBER 2013 |
PLACE: | SYDNEY |
REASONS FOR JUDGMENT
Introduction
1 On 22 May 2013 I made orders under s 411(1) of the Corporations Act 2001 (Cth) (the Act) convening meetings of five separate classes of creditors of Lehman Brothers Australia Limited (in liq) (LBA) for the purpose of considering, and if thought fit, approving a scheme of arrangement between LBA and its creditors.
2 The scheme as it then stood is described in my reasons for judgment in Lehman Brothers Australia Ltd, in the matter of Lehman Brothers Australia Ltd (in liq) [2013] FCA 486. It is sufficient by way of introduction to say that the scheme, as then proposed, provided for a compromise of the claims of all unsecured creditors of LBA.
3 The orders which I made on 22 May provided for the scheme meetings to be held on 19 June 2013. However, on 14 June 2013 Mr Ayres and Mr Parbery (the Liquidators) were provided with a notice of assignment of the claims made by Lehman Brothers Asia Holdings Limited (in liq) (LB Asia Holdings) which comprised one of the five classes of scheme creditors. The notice of assignment was from LB Asia Holdings to Lehman Brothers Holdings Inc (LBHI), the parent company of LBA and LB Asia Holdings.
4 LBHI informed the Liquidators that it did not support the scheme and intended to direct LB Asia Holdings to vote against it. The effect of the creation of a separate class of creditors comprising LB Asia Holdings as the sole member was that it had a power of veto over the scheme.
5 Accordingly, the Liquidators determined that it was in the best interests of the creditors of LBA to adjourn the scheme meetings to enable negotiations to continue with LBHI in an effort to resolve the disagreement as to the terms of the scheme.
6 On 19 June 2013 Mr Ayres opened the scheme meetings which were the subject of my orders and adjourned them to a date to be fixed. The scheme meetings have not been reconvened because LBHI remains opposed to the scheme and the Liquidators are of the view that they are unlikely to reach a satisfactory compromise between LBA and LBHI to enable the scheme to proceed in, or to the effect of, the terms that were originally envisaged.
7 However, this has put at risk the completion of settlement agreements that were reached between LBA, the United States insurers and QBE, in May 2012 and May 2013 respectively, to which I referred at [26] ff of my earlier judgment.
8 As a result, the Liquidators now consider it to be in the best interest of LBA’s creditors not to pursue the earlier scheme, but instead to propose a new scheme of arrangement (Insurance Scheme). The object of the Insurance Scheme is to secure, for the benefit of creditors under the scheme (Scheme Creditors), the payment of the insurance proceeds from the United States insurers and QBE.
9 The Scheme Creditors under the Insurance Scheme are those creditors who were “Client Creditors” under the earlier scheme.
10 Thus, what is proposed under the Insurance Scheme is a scheme of arrangement between LBA and a class of its creditors which, unlike the earlier scheme does not effect a compromise of the claims of all unsecured creditors of LBA. Nor does it provide for the payments out of the Insurance Scheme fund (Scheme Fund) to be paid to Scheme Creditors in full satisfaction of their claims.
11 I will describe the terms of the Insurance Scheme below and the respects in which it departs from the earlier scheme.
12 The essential question which arises is whether the compromise or arrangement for which the Insurance Scheme provides is one which falls within s 411 of the Act. This is because the substance of the Insurance Scheme is to leave intact the claims of Scheme Creditors against LBA, and to provide for releases by LBA of its claims against the United States insurers (US Insurers) and related parties (US Insurer Parties) and QBE in return for the payment of USD45 million and AUD3 million respectively to the Liquidators and LBA.
13 On one view therefore the Insurance Scheme might be thought not to involve “some element of give and take” between the Scheme Creditors and LBA which would be required in order to constitute an arrangement within s 411 of the Act: see Fowler v Lindholm (2009) 178 FCR 563 at [67].
The Insurance Scheme
14 The Scheme Creditors under the Insurance Scheme are the creditors of LBA who were defined as the Client Creditors under the earlier scheme. The Client Creditors constituted the first of the five classes of creditors under the earlier scheme. It is unnecessary to repeat the definition which is set out at [44(a)] of my earlier judgment.
15 Thus, the Scheme Creditors under the Insurance Scheme comprise group members in the Wingecarribee Shire Council & Ors v Lehman Brothers Australia Ltd (in liq) proceeding NSD 2492 of 2007 (Wingecarribee Action), as well as other persons having claims against LBA arising from the provision by LBA of investment advice, the making by LBA of representations in relation to investment products or investment management services provided by LBA, or the sale by LBA of investment products.
16 The key commercial terms of the Insurance Scheme are set out in the draft Explanatory Statement as follows:
the payment by the US Insurers of USD45 million to LBA for distribution to Scheme Creditors in accordance with the provisions of the Insurance Scheme;
the Scheme Creditors, LBA and the Liquidators will provide releases in favour of the US Insurer Parties;
the payment by QBE of AUD3 million to LBA for distribution to Scheme Creditors in accordance with the provisions of the Insurance Scheme; and
the Scheme Creditors and LBA will provide releases in favour of QBE.
Similarities and differences between the Insurance Scheme and the superseded scheme
17 The similarities and differences between the Insurance Scheme and the earlier scheme are conveniently summarised in Section 1.5 of the Explanatory Statement.
18 Similarly to the earlier scheme, under the Insurance Scheme the US Insurers and QBE are to pay the insurance proceeds to LBA and the Liquidators, in exchange for releases by the Scheme Creditors of the US Insurer Parties and QBE.
19 The releases to be given to the US Insurer Parties and QBE by the Liquidators and LBA are provided for in the agreement and release documents executed by those parties in May 2012 and May 2013 respectively.
20 The differences between the Insurance Scheme and the earlier scheme are as follows:
Scheme Creditors will be bound by the terms of the Insurance Scheme but other creditors of LBA will not be bound and will not be entitled to vote on or receive a distribution under the Insurance Scheme;
the claims resolution process (CRP) which formed an essential part of the earlier scheme will not form part of the Insurance Scheme;
the Scheme Fund will consist solely of the insurance proceeds and the other assets of LBA will remain under the control of the Liquidators. Any distribution of those assets (that is to say, the non-insurance assets) to LBA’s creditors will not be made under the Insurance Scheme but in the ordinary course of the winding up of LBA;
Scheme Creditors will receive their entitlements under the Insurance Scheme in partial satisfaction of their claims against LBA, not in full satisfaction of those claims. They will be entitled to prove for the balance in the liquidation of LBA;
the payment of AUD3.535m to the applicants in the Wingecarribee Action, to which I referred at [57] in my earlier judgment, is to be paid out of the Scheme Fund which consists only of the insurance proceeds;
the appeal in the Wingecarribee Action will continue, unless it is compromised, any such compromise being subject to the approval of the Court under s 33V of the Federal Court of Australia Act 1976 (Cth);
no releases will be given by Scheme Creditors to LB Asia Holdings.
21 Based upon the assumptions set out in the draft Explanatory Statement, the Liquidators estimate that the Insurance Scheme will result in the payment to each Scheme Creditor of 44.3 to 53.8 cents in the dollar. This estimate is based upon a distribution to Scheme Creditors from the Scheme Fund and a dividend payable in the liquidation of LBA on the balance of the claim outstanding after distribution from the Scheme Fund.
22 If the Insurance Scheme does not become effective, the Liquidators estimate that the persons who constitute the Scheme Creditors will receive a dividend of 36.0 to 44.7 cents in the dollar on their claims.
23 The dividends which were estimated to be payable under the earlier scheme were 40.7 to 49.9 cents in the dollar for Client Creditors, or 33.2 to 41.6 cents in the dollar if the scheme did not proceed.
The insurance claims
24 The insurance claims and the settlements are described in Section 3 of the Explanatory Statement. I referred to the relevant details at [26] ff of my earlier judgment.
25 The only outstanding condition for the payment of the US insurance proceeds by the US Insurers is the approval of a scheme of arrangement which provides for releases of the US Insurers and the US Insurer Parties.
26 The Liquidators have obtained confirmation from the US Insurer Parties that they agree to waive or vary LBA’s compliance with that condition which, previously, contemplated the approval of all creditors under the original scheme. Thus, if the Insurance Scheme is approved, it would satisfy the necessary condition in the US Insurers’ Agreement and Release.
27 The releases to be given by Scheme Creditors to the US Insurer Parties under the Insurance Scheme are in the same terms as the releases that were to have been given by Client Creditors to those parties under the earlier scheme.
28 Similarly, the only outstanding condition for the payment of the QBE insurance proceeds by QBE is the approval of a scheme which provides for releases in favour of QBE.
29 The Liquidators have obtained QBE’s confirmation in similar terms to that which they obtained from the US Insurers, in relation to the condition which contemplated a scheme of arrangement between LBA and all its creditors. Thus, approval of the Insurance Scheme will satisfy the necessary condition in the QBE Deed of Release.
30 The releases to be given by the Scheme Creditors to QBE under the Insurance Scheme are in the same terms as the releases that were to have been given by Client Creditors to QBE under the earlier scheme.
31 An issue which arose in relation to the claims made against the US Insurers was that those insurers disputed liability in respect of certain policy years on the ground that Willis of New York Inc (the US Broker) failed to notify them of the extension of cover to LBA for those years.
32 The US Insurers’ Agreement and Release provides that upon payment to LBA of the US insurance proceeds (which can only occur after approval of the Insurance Scheme), LBA will release the US Broker and its affiliates from all causes of action under the relevant policies in respect of claims related to the Wingecarribee Action and other CDO related claims.
33 The release of the US Broker is given by LBA and not by the Scheme Creditors. It occurs outside the Insurance Scheme as a result of an agreement entered into in May 2012. The claim which is released against the US Broker is a claim in negligence which was not available to the Scheme Creditors.
“Compromise” or “arrangement”
34 The power of the Court to order a meeting of creditors under s 411(1) arises where a compromise or arrangement is proposed between a corporation and its creditors or any class of them. The existence of a proposed “compromise” or “arrangement” is therefore a threshold jurisdictional question.
35 The expressions “compromise” or “arrangement” are not defined in the Act but a number of well established principles emerge from the authorities.
36 First, s 411 is to be construed liberally and the words “compromise” or “arrangement” are not to be given a narrow or pedantic interpretation: Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 501; Re Sonodyne International Ltd (1994) 15 ACSR 494 at 497 (Hayne J); Re NRMA Ltd (2000) 33 ACSR 595 at [20] (Santow J); Re Opes Prime Stockbroking Ltd (2009) 73 ACSR 385 at [29] (Finkelstein J).
37 Second, a compromise and an arrangement are separate concepts. Unlike a compromise, an arrangement does not involve the resolution of an existing dispute: Mercantile Investment & General Trust Co v International Company of Mexico [1893] 1 Ch 484,n at 489 (Lindley LJ); Re Guardian Insurance Company (1917) 1 Ch 431 at 450 (A.T Lawrence J); Re NRMA at [140]; Re T&N Ltd (No 3) [2006] EWHC 1447 (Ch) (David Richards J) at [47]; Re Opes Prime at [29].
38 Third, almost any arrangement within the power of the company, and not contrary to law, which touches or concerns the rights of the company or creditors, may come within s 411: Re NRMA at [20], [140], citing Re International Harvester Co of Aust Pty Ltd [1953] VLR 669 at 672 (Lowe ACJ); Re Opes Prime at [29].
39 Fourth, there are some limitations on the meaning of an arrangement. It would not extend to a scheme under which a creditor abandons its claims without a compensating advantage, or under which a creditor’s rights are confiscated: Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 213 at 243 (Bowen LJ); Re NFU Development Trust Ltd [1972] 1 WLR 1548 at 1555 (Brightman J); Re Opes Prime at [29]-[31].
40 Fifth, a compromise or arrangement to be sanctioned by the Court must be reasonable. It cannot be reasonable if “you can get nothing and give up everything”. A reasonable compromise or arrangement must be one which is regarded by reasonable people conversant with the subject as beneficial to those on both sides of the bargain: Re Alabama at 243.
41 Sixth, the fifth proposition, which is drawn from the seminal authority of Re Alabama, may go to discretion rather than power but it is the source of the commonly stated principle that a compromise or arrangement implies some element of give and take, and a benefit to members or creditors: Re NFU at 1555; Re Sonodyne at 498-499; Fowler v Lindholm at [67].
42 Seventh, the “give and take” need not be between the creditors and the company but may be between the creditors and a third party: Re T&N at [50]; approved in In the matter of Lehman Brothers International (Europe) (in admin) [2009] EWCA Civ 1161 at [47]-[48].
Whether the Insurance Scheme is a compromise
43 In my opinion, the Insurance Scheme is a compromise within the meaning of s 411 as construed in the authorities to which I have referred above.
44 There is an antecedent dispute between some of the Scheme Creditors, namely the Applicants in the Wingecarribee Action, and LBA as to their ability to enforce the orders made by Rares J at first instance by proceeding directly against the US Insurers to recover the amount of their judgment in priority to the claims of other Scheme Creditors who are not Group Members.
45 Similarly, those Applicants have asserted a charge over the proceeds of the QBE insurance policies under s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) and may seek to recover those moneys in priority to the claims of other Scheme Creditors.
46 The existence of those disputes is set out in Section 5 of the draft Explanatory Statement under the heading “Implications of the Scheme not proceeding”. It is pointed out in that section that, if the Insurance Scheme does not proceed, there are likely to be priority disputes regarding the proceeds of both the US insurance policies and the QBE insurance policies between the Applicants/Group Members in the Wingecarribee Action and other Scheme Creditors, and those disputes would be likely to involve LBA as a necessary party.
47 The effect of the Insurance Scheme is that the Applicants will forego any possibility of a priority claim to the proceeds of the Policies. The Insurance Scheme will resolve all issues as to priority to the insurance proceeds both as between LBA and the Scheme Creditors, and as between the Scheme Creditors inter se. This is because the US insurance proceeds and the QBE insurance proceeds will be placed in, and comprise, the Scheme Fund under which the claims of Scheme Creditors will be met on a pari passu basis: see Section 11.2 of the draft Explanatory Statement and cl 7(a)(v) of the draft Insurance Scheme.
48 It follows in my view that the Insurance Scheme is a “compromise” which attracts the jurisdiction of the Court to make orders under s 411.
Whether the Insurance Scheme is an arrangement
49 The Insurance Scheme is similar in its structure to the scheme considered by David Richards J in Re T&N. There, the scheme was proposed between T&N and a number of associated companies and their employees and former employees who had claims for personal injury arising out of their exposure to asbestos. The insurers disputed liability but agreed to pay a sum of money to the administrators of the T&N companies subject to the approval of a scheme of arrangement under which actual and potential claimants would receive payment out of the scheme fund in return for giving up their claims against the insurers.
50 In T&N David Richards J rejected a submission that the word “arrangement” in the English equivalent of s 411 was not broad enough to apply to the scheme. This issue arose because the claimants did not give up their claims against T&N, and, it was submitted that an arrangement must be between a company and its creditors. A scheme which leaves the relationship between the company and its creditors intact cannot, so it was submitted, fall within the section.
51 In rejecting that submission, David Richards J observed at [51] that the rights of the claimants against the insurers which were compromised under the scheme were in no sense unconnected with T&N or their rights against T&N. The claims arose out of T&N’s obligations to its employees and its insurance cover was purchased for its protection against those claims. If the claimants were unable to enforce their claims against the insurers, the claims would remain against T&N and its assets would be diminished accordingly.
52 David Richards J went on to say at [52] that the settlement of the litigation was therefore a tripartite arrangement involving T&N, the insurers and the claimants. If a claimant established a claim under the distribution procedure in the scheme, this would diminish the amount which T&N would otherwise be required to pay in respect of the claim.
53 His Honour went on to say at [53]:
In my judgment it is not a necessary element of an arrangement for the purposes of section 425 that it should alter the rights existing between the company and the creditors or members with whom it is made. … To insist on an alteration of rights, or a termination of rights as in the case of schemes to effect takeovers or mergers, is to impose a restriction which is neither warranted by the statutory language nor justified by the courts' approach over many years to give the term its widest meaning. Nor is an arrangement necessarily outside the section, because its effect is to alter the rights of creditors against another party or because such alteration could be achieved by a scheme of arrangement with that other party.
54 The reasoning of David Richards J in T&N on this issue was referred to with apparent approval by Finkelstein J in Re Opes Prime at [40].
55 Similarly to the scheme in T&N, if a Scheme Creditor establishes a claim against LBA and receives payment from the Scheme Fund established by the payment of the US insurance proceeds and the QBE proceeds, the payment to the Scheme Creditor pursuant to the Insurance Scheme will diminish the amount which LBA would otherwise be required to pay in respect of the claim if the US Insurers and QBE were successful in avoiding the policies or limiting the amount of the cover.
56 Thus, although the Insurance Scheme does not terminate the rights of the Scheme Creditors against LBA, it affects the way in which their rights may be exercised in precisely the same manner as the scheme in T&N. The Insurance Scheme is therefore an arrangement within s 411 for the reasons given by David Richards J in that case.
57 The necessary “give and take” can be seen in the Insurance Scheme in the following ways:
The Scheme Creditors give up rights against the US Insurers and QBE but they take the consequent benefit flowing from the receipt by LBA of the US insurance proceeds and the QBE insurance proceeds;
LBA obtains a benefit because it receives the US insurance proceeds and the QBE insurance proceeds (which it passes on to the Scheme Creditors) thereby avoiding the risks and uncertainties of proceedings against those insurers;
Each Scheme Creditor gives up, against LBA, and against each other Scheme Creditor, the potential right to assert a priority claim to the US and QBE insurance proceeds, thereby conferring benefits to the parties on both sides of the Insurance Scheme;
There is also give and take in respect of the payment of AUD3.535m, described as the IMF Payment, to three of the Scheme Creditors, namely the Applicants in the Wingecarribbee Action. They take from LBA the benefit of that payment, which LBA was not otherwise obliged to make, whilst the other Scheme Creditors give up a rateable portion of their claims against LBA in respect of the amount of that payment. As part of that bargain, all Scheme Creditors and LBA receive the benefits referred to above.
An arrangement with a class of creditors
58 Section 411(1) contemplates, in express terms, the possibility of a compromise or arrangement between a corporation and its creditors or members “or any class of them”.
59 A compromise or arrangement with a class of creditors fell within the terms of s 2 of the Joint Stock Companies Arrangement Act 1870 (UK) upon which the present Australian legislation is based. Bowen LJ described the object of the section over 120 years ago in Re Alabama at 243 as:
… to enable compromises to be made which are for the common benefit of the creditors as creditors, or for the common benefit of some class of creditors as such.
60 T&N illustrates the power of the Court to make orders in respect of a proposed scheme between a company in administration and a class of its creditors, namely those creditors who have claims against the company to which particular policies of insurance may respond. In that respect it is, as was submitted by counsel for LBA, on all fours with the Insurance Scheme.
61 A further example is NRG London Reinsurance Company Ltd, in the matter of NRG Victory Aust Ltd and the Corporations Act 2001 [2006] FCA 872. In that case, Lindgren J remarked at [55] that s 411(1) of the Act empowers the Court to order a meeting of creditors or class of creditors to be convened.
62 The scheme in NRG was a scheme of arrangement with a class of creditors because the scheme creditors were persons in respect of whom the scheme company had a liability under contracts of reinsurance.
Exclusion of non-scheme creditors from voting
63 As Santow J observed in Re CMPS & F Pty Ltd (1997) 24 ACSR 728 at 734, some English authorities, principally from the 19th century, dealt with cases where a particular class of members could be excluded from voting on a scheme. The test which has been derived from those authorities is whether the shareholders are “concerned in the arrangement”.
64 Santow J went on to describe the test as “not a precise one” but as indicating the broad approach a court should take. His Honour said at 734 that the Court will have to determine:
… whether a group of shareholders are in reality concerned in the scheme, or whether their interests are compromised thereby, so as to have a vote at all.
65 The same approach seems to be applicable to schemes proposed with a class of creditors.
66 Here, not only will the Insurance Scheme not adversely affect the rights or interests of the non-Scheme Creditors, it will indirectly benefit them.
67 The effect of the proposed Insurance Scheme is that, in accordance with s 562 of the Act, the proceeds of the US insurance policies and the QBE policy, will, after deduction out of the Scheme Fund of the expenses of, and incidental to the getting in of those moneys, be paid by the Liquidators out of the Scheme Fund. The proceeds will be paid to the Scheme Creditors in respect of the liability to them against which LBA was insured under contracts of insurance with the US Insurers and QBE.
68 This has the result, as stated above, that if a Scheme Creditor receives a payment out of the Scheme Fund, it will diminish the amount that LBA would otherwise be required to pay out of LBA’s assets. This of course leaves a correspondingly larger amount available for non-Scheme Creditors whose rights or interests are not adversely affected by the Insurance Scheme.
69 The reasons why non-Scheme Creditors are not entitled to vote on the Insurance Scheme are adequately explained in the “Frequently asked questions” section on pages 11-12 of the draft Explanatory Statement under the question, “Why is there only one class of Scheme Creditors”.
Subdivision into further classes
70 An issue arose in the earlier scheme as to whether the Client Creditor class should be further subdivided into a number of sub-classes. I dealt with this in my earlier judgment at [52] ff.
71 The possibility of a further subdivision in the earlier scheme arose principally by reason of the CRP under which the applicants in the Wingecarribee Action were to be admitted without the need to prove the quantum of their claims. The claims of IMP Client Creditors and non-IMP Client Creditors were also to be treated differently.
72 Unlike the earlier scheme, the Insurance Scheme provides no procedure for the proof, determination or adjudication of the claims of Scheme Creditors and the CRP will not form part of the Insurance Scheme.
73 It is likely that the Liquidators will establish a process analogous to the CRP for proofs of debt and distributions to Scheme Creditors when they come to prove in the liquidation of LBA. However, that does not affect the conclusion in relation to the Insurance Scheme that there is only one class of creditor and further subdivision is not required.
74 The only difference of treatment of Scheme Creditors under the Insurance Scheme is that the applicants in the Wingecarribee Action are to receive the IMF payment of AUD3.535m which will be directed to be paid to IMF.
75 For the reasons given at [59] ff, which were drawn largely from the reasoning of Finkelstein J in Re Opes Prime and the Full Court in Fowler v Lindholm, I do not consider this to be a class creating provision of the Insurance Scheme.
76 The IMF payment will not have a material impact on the amount of the dividends payable to Scheme Creditors. The Liquidators’ view as to the appropriateness of the IMF payment and its impact on dividends is explained at pages 36-37 of the Explanatory Statement. The position mirrors that which applied under the earlier scheme but the expected dilution is 0.8 cents in the dollar for Scheme Creditors other than the Applicants in the Wingecarribee Action.
77 The expected dilution is marginally higher than the 0.7 cents in the dollar figure that was anticipated under the earlier scheme. However, non-Scheme Creditors obtain a benefit because the IMF payment will come solely out of the Scheme Fund established under the Insurance Scheme. Accordingly, there will be no dilution of the dividend payable to non-Scheme Creditors.
The releases
78 The releases by Scheme Creditors of the US Insurer Parties and QBE are in the same terms as the releases that were to be given by Client Creditors to those entities under the terms of the earlier scheme.
79 As I said in my earlier judgment, the releases are covered by what was said by the Full Court in Fowler v Lindholm. The observations made by their Honours in that case at [69], [72] and [73] are authority for the proposition that a scheme of arrangement under s 411 of the Act may include a provision affecting the rights of a creditor as against a third party.
80 For the reasons mentioned above, there is an adequate nexus between the release of the US Insurer Parties and QBE, and the Insurance Scheme itself. The claims of the Scheme Creditors against LBA and the claims against the US Insurer Parties and QBE are significantly interrelated. The claims which are to be released arise from and correspond to the claims made against LBA.
81 Further, for reasons explained above, the requisite element of give and take exists because the Scheme Creditors receive payment in return for a benefit conferred on the US Insurer Parties and QBE in the form of the releases of insurers who had denied liability and had articulated grounds for doing so. The Liquidators consider those grounds to be plausible.
Dissolution of the Original Scheme Meetings
82 The plaintiffs seek orders under s 1319 of the Act that the original scheme meetings convened by way of orders dated 22 May 2013 be dissolved and not resumed.
83 The power to make such orders has been exercised by the Court in a number of cases, including cases where the scheme meetings had been opened and then adjourned. I referred to the relevant authorities in my decision in Ross Human Directions Ltd, in the matter of Ross Human Directions Ltd (No 3) [2010] FCA 1400 at [8]-[10].
84 The principle which emerges from the authorities is that it will be appropriate to exercise the power where there is no utility in proceeding with the meetings, and to do so would result in wasted costs.
85 That is the position in the present case because LBHI has stated that it does not support the earlier scheme. It has the power to direct LB Asia Holdings to vote against the scheme. That company was the sole member of one of the classes of creditors for the purposes of the earlier scheme. LBHI therefore has, through LB Asia Holdings, the power to veto the earlier scheme.
86 It follows that there is no utility in proceeding with the meetings which I ordered on 22 May 2013 and it would merely waste costs to proceed with them.
87 Accordingly, I will exercise the power under s 1319 of the Act to order that the original scheme meetings be dissolved and not be resumed.
Other Matters
88 The other matters which I have taken into account are set out in the comprehensive outline of submissions for the hearing on 18 September 2013 prepared by Mr Sheahan SC and Mr Nixon. I have marked the submissions as MFI 2 and they will be placed with the Court papers.
89 For the reasons set out above, I will make orders in terms of the draft orders submitted by the plaintiffs.
I certify that the preceding eighty-nine (89) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson. |
Associate:
