FEDERAL COURT OF AUSTRALIA

J.P. Morgan Operations Australia Limited v J.P. Morgan Australia Group Pty Limited, in the matter of J.P. Morgan Operations Australia Limited (No 2) [2018] FCA 1180

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) (Act), the schemes of arrangement (collectively, "Scheme") the subject of the scheme document, a copy of which is Annexure A to these orders (Scheme Document), be approved.

2.    Pursuant to s 411(12) of the Act, the plaintiffs be exempted from compliance with the requirements of s 411(11) of the Act.

3.    Orders 5 to 11 below are made pursuant to s 413 of the Act for the purpose of facilitating the Scheme and are subject to, and in accordance with, the terms of the Scheme Document. In the orders below, capitalised nouns and acronyms not defined in order 1 have the meanings given to them by the Scheme Document.

4.    Pursuant to s 413(1)(g) of the Act, orders 5 to 11 below have effect:

(a)    in respect of orders 5, 6 and 7, sequentially in the order set out below at and following the JPMAL, JPMIAPL and JPMMAPL Implementation Time;

(b)    subject to completion of orders 5, 6 and 7, in respect of order 8 only, at the JPMIAPL and JPMMAPL Deregistration Time;

(c)    subject to completion of orders 5, 6 and 7 and subject to the satisfaction of the JPMOAL Condition, in respect of order 9, sequentially in the order set out below at and following the JPMOAL Implementation Time;

(d)    subject to completion of orders 5, 6, 7 and 9 and subject to the satisfaction of the JPMOAL Condition, in respect of order 10 only, at the JPMOAL Deregistration Time; and

(e)    in respect of order 11, immediately upon the making of these orders by the Court.

The JPMMAPL Share Transfer Scheme

5.    Pursuant to ss 413(1)(a) and (b) of the Act, from the JPMAL, JPMIAPL and JPMMAPL Implementation Time, all of the shares in JPMMAPL held by JPMOAL be transferred to JPMASAL in consideration for the issue by JPMASAL of 190,000,000 of its ordinary shares to JPMOAL.

The JPMAL, JPMIAPL and JPMMAPL Share Transfer Schemes

6.    Pursuant to ss 413(1)(a) and (b) of the Act, subject to the completion of the steps in order 5, from the JPMAL, JPMIAPL and JPMMAPL Implementation Time:

(a)    all of the shares in JPMAL held by JPMASAL be transferred to JPMSAL in consideration for the issue by JPMSAL of 150,000,000 of its ordinary shares to JPMASAL for a value of $150,000,000;

(b)    all of the shares in JPMIAPL held by JPMASAL be transferred to JPMSAL in consideration for the issue by JPMSAL of 755,000 of its ordinary shares to JPMASAL for a value of $5,000,000; and

(c)    all of the shares in JPMMAPL held by JPMASAL be transferred to JPMSAL in consideration for the issue by JPMSAL of 190,000,000 of its ordinary shares to JPMASAL for a value of $194,869,633.

The JPMAL, JPMIAPL and JPMMAPL Schemes

7.    Subject to the completion of the steps in order 6, from the JPMAL, JPMIAPL and JPMMAPL Implementation Time:

(a)    pursuant to s 413(1)(a) of the Act, all Assets of JPMAL excluding the JPMAL Remaining Asset be transferred to, and vested in, JPMSAL, including crediting the retained earnings and reserve accounts of JPMSAL with the balances of the retained earnings and reserve accounts held by JPMAL immediately before the Implementation Time, without the need for any further act or deed;

(b)    pursuant to s 413(1)(g) of the Act, all Powers of Attorney granted by JPMAL as principal be transferred to, and vested in, and constitute Powers of Attorney of, JPMSAL as principal, including all Powers of Attorney granted by JPMAL as principal which are subsisting and unrevoked immediately before the Implementation Time, without the need for any further act or deed;

(c)    pursuant to s 413(1)(a) of the Act, all Liabilities of JPMAL be transferred to, and become Liabilities of, JPMSAL without the need for any further act or deed;

(d)    pursuant to s 413(1)(c) of the Act, all legal proceedings pending by or against JPMAL be continued by or against JPMSAL without the need for any further act or deed, other than an amendment of the record of the relevant court or tribunal;

(e)    pursuant to s 413(1)(a) of the Act, all Assets of JPMIAPL be transferred to, and vested in, JPMSAL, including crediting the retained earnings and reserve and share capital accounts of JPMSAL with the balances of the retained earnings and reserve and share capital accounts held by JPMIAPL immediately before the Implementation Time, without the need for any further act or deed;

(f)    pursuant to s 413(1)(g) of the Act, all Powers of Attorney granted by JPMIAPL as principal be transferred to, and vested in, and constitute Powers of Attorney of, JPMSAL as principal, including all Powers of Attorney granted by JPMIAPL as principal which are subsisting and unrevoked immediately before the Implementation Time, without the need for any further act or deed;

(g)    pursuant to s 413(1)(a) of the Act, all Liabilities of JPMIAPL be transferred to, and become Liabilities of, JPMSAL without the need for any further act or deed;

(h)    pursuant to s 413(1)(c) of the Act, all legal proceedings pending by or against JPMIAPL be continued by or against JPMSAL without the need for any further act or deed, other than an amendment of the record of the relevant court or tribunal;

(i)    pursuant to s 413(1)(a) of the Act, all Assets of JPMMAPL be transferred to, and vested in, JPMSAL, including crediting the retained earnings and reserve and share capital accounts of JPMSAL with the balances of the retained earnings and reserve and share capital accounts held by JPMMAPL immediately before the Implementation Time, without the need for any further act or deed;

(j)    pursuant to ss 413(1)(a) and (g) of the Act, all Client Money, and all rights, powers, duties and obligations relating to Client Money, held by JPMMAPL (including all Client Money, and all rights, powers, duties and obligations relating to Client Money, held by JPMMAPL immediately before the Implementation Time), be transferred to and vested in, and held for and on behalf of, the relevant Client by JPMSAL, without the need for any further act or deed;

(k)    pursuant to s 413(1)(g) of the Act, all Powers of Attorney granted by JPMMAPL as principal be transferred to, and vested in, and constitute Powers of Attorney of, JPMSAL as principal, including all Powers of Attorney granted by JPMMAPL as principal which are subsisting and unrevoked immediately before the Implementation Time, without the need for any further act or deed;

(l)    pursuant to s 413(1)(a) of the Act, all Liabilities of JPMMAPL be transferred to, and become Liabilities of, JPMSAL without the need for any further act or deed; and

(m)    pursuant to s 413(1)(c) of the Act, all legal proceedings pending by or against JPMMAPL be continued by or against JPMSAL without the need for any further act or deed, other than an amendment of the record of the relevant court or tribunal.

8.    Pursuant to s 413(1)(d) of the Act, subject to the completion of the steps in order 7, at the JPMIAPL and JPMMAPL Deregistration Time, each of JPMIAPL and JPMMAPL be deregistered by ASIC without winding up.

The JPMOAL Schemes

9.    Subject to completion of the steps in order 7 and satisfaction of the JPMOAL Condition, from the JPMOAL Implementation Time:

(a)    pursuant to ss 413(1)(a) and (b) of the Act, 1,093,551,751 ordinary shares in JPMASAL be issued to JPM Australia for a value of $1,093,551,520;

(b)    pursuant to ss 413(1)(g) and 259A(c) of the Act, all of the ordinary shares in JPMASAL issued to JPMOAL be acquired by JPMASAL;

(c)    pursuant to s 413(1)(g), the shares acquired by JPMASAL under order 9(b) be cancelled;

(d)    pursuant to s 413(1)(a) of the Act, all Assets of JPMOAL be transferred to, and vested in, JPMASAL, including crediting the retained earnings and reserve and share capital accounts of JPMASAL with the balances of the retained earnings and reserve and share capital balances held by JPMOAL immediately before the Implementation Time, without the need for any further act or deed;

(e)    pursuant to s 413(1)(g) of the Act, all Powers of Attorney granted by JPMOAL as principal be transferred to, and vested in, and constitute Powers of Attorney of, JPMASAL as principal, including all Powers of Attorney granted by JPMOAL as principal which are subsisting and unrevoked immediately before the Implementation Time, without the need for any further act or deed;

(f)    pursuant to s 413(1)(a) of the Act, all Liabilities of JPMOAL be transferred to, and become Liabilities of, JPMASAL without the need for any further act or deed; and

(g)    pursuant to s 413(1)(c) of the Act, all legal proceedings pending by or against JPMOAL be continued by or against JPMASAL without the need for any further act or deed, other than an amendment of the record of the relevant court or tribunal.

10.    Pursuant to s 413(1)(d) of the Act, subject to the completion of the steps in order 9 and satisfaction of the JPMOAL Condition, at the JPMOAL Deregistration Time, JPMOAL be deregistered by ASIC without winding up.

11.    These orders be entered forthwith.

12.    Liberty be granted to any party to apply for any further orders pursuant to s 413 of the Act as to the Court seems necessary or desirable.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ANNEXURE A TO ORDERS MADE ON 7 AUGUST 2018

REASONS FOR JUDGMENT

FARRELL J

1    The plaintiffs have applied for orders pursuant to ss 411(4)(b) and 413(1) of the Corporations Act 2001 (Cth) to approve schemes of arrangement to effect a reorganisation and amalgamation of their assets, property, liabilities and undertakings by way of transfer to other members of the group of companies all of which are wholly owned subsidiaries of JP Morgan Australia Group Pty Ltd. Orders convening a meeting of the sole shareholders of each of the plaintiffs were made on 27 July 2018: see J.P. Morgan Operations Australia Limited v J.P. Morgan Australia Group Pty Limited, in the matter of J.P. Morgan Operations Australia Limited [2018] FCA 1131.

Submissions and affidavits read

2    This is the second court hearing. Annexure A to these reasons contains submissions dated 6 August 2018 in support of the application (footnotes omitted). The affidavits referred to in Annexure A at [4] were read. Having regard to the principles set out in the submissions and the evidence, I am satisfied that it is appropriate to make the orders proposed by the plaintiffs.

Formal matters

3    On the basis of the evidence submitted, I am satisfied that:

(1)    The explanatory statement for the schemes, in the form of Exhibit A, was lodged with the Australian Securities and Investments Commission (ASIC) on 27 July 2018;

(2)    Notices of the meetings, consents to short notice, the explanatory statement including a signed copy of the independent expert’s report in relation to the position of creditors and a confidential letter were despatched by email to directors of their shareholder companies and to the company secretary of the shareholder companies, Ms Karagiannis;

(3)    Meetings of the sole members of the plaintiffs were held on 31 July 2018, the sole members (by their representatives appointed on that day) consented to the meetings being held at short notice and passed resolutions to approve the schemes, the chair of each meeting was in accordance with the orders made on 27 July 2018 and those orders appear to have been complied with in all material respects;

(4)    This hearing was advertised in The Australian on 1 August 2018;

(5)    Ashurst, the plaintiffs’ legal representative, has not received any notification from creditors of their intention to appear at this hearing. No one attended the hearing to oppose the Court making the orders;

(6)    By letter dated 6 August 2018, ASIC has advised that it has no objections to the schemes under s 411(17)(b);

(7)    I have no reason to believe that the plaintiffs have not brought to the attention of the Court all matters that could be considered relevant to the exercise of the Court’s discretion; and

(8)    The schemes appear to be fair and reasonable so that an intelligent and honest shareholder, properly informed and acting alone, might approve them.

Issues of note

4    There are a few issues of note.

5    Order 9(b) provides for the transfer of ordinary shares in JPMorgan Administrative Services Australia Ltd which had been issued to JPMorgan Operations Australia Ltd be acquired by Administrative Services. In general, s 259A of the Corporations Act prohibits the acquisition of shares in itself by a company. An exception to this general prohibition is where the court has made an order for that to occur: s 259A(c).

6    It is clear, having regard to the authorities cited at [22]-[23] of the submissions, that a scheme may be approved which contains a condition subsequent where it is clear, certain, fair and contains a reversion to the status quo if the condition is not met. I note that the scheme relating to Operations has an end date of 30 June 2019; that end date is included in the definition of the “JPMOAL Condition” in cl 1.1 of the scheme of arrangement which is required for certainty, having regard to the fact that Operations will be deregistered upon satisfaction of that condition. I note that the “JPMOAL Condition” is the “stamp duty condition” referred to in my previous reasons. Having regard to the nature of these schemes, the Court would have been in a position to approve the schemes affecting the other companies including all relevant steps even if the scheme with respect to Operations were not proposed; no issue of “reversion to the status quo” arises if the “JPMOAL Condition” is not met.

7    To the extent that matters raised in the confidential submissions raise any issues which might be regarded as having public policy implications, I am satisfied that the relevant entities have been made aware of the scheme proposals and have not objected.

Associate

Dated:    10 August 2018

SCHEDULE OF PARTIES

ANNEXURE A TO REASONS FOR JUDGMENT

PLAINTIFFS' OUTLINE OF SUBMISSIONS

Nature of application and orders sought

1.    This is the second hearing of certain schemes to reorganise, pursuant to sections 411 and 413 of the Corporations Act 2001 (Cth), a corporate group comprising certain JP Morgan companies.

2.    At this hearing, the plaintiffs apply for:

(a)    an order under section 411(4)(b) approving the schemes of arrangement;

(b)    orders under section 413(1)(a), (b), (c) and (g) to effect the schemes; and

(c)    an order under section 411(12) exempting the plaintiffs from complying with the requirements of section 411(11).

Evidence relied upon in support of the application

3.    The plaintiffs rely upon the following parts of the affidavits read at the first hearing and to the exhibits referred to in those parts and tendered:

(a)    first affidavit of Phillip Andrew Stewart Breden affirmed 16 July 2018 (first Breden affidavit) paragraphs 1 to 3;

(b)    first affidavit of Stewart Fraser Old affirmed 24 July 2018 (first Old affidavit) paragraphs 1 to 13 and 24 to 34;

(c)    first affidavit of Joanne Lupton affirmed 25 July 2018 (first Lupton affidavit);

(d)    confidential second affidavit of Stewart Fraser Old affirmed 25 July 2018 (confidential second Old affidavit) paragraphs 1 to 12;

(e)    third affidavit of Stewart Fraser Old affirmed 26 July 2018 (third Old affidavit); and

(f)    second affidavit of Phillip Andrew Stewart Breden affirmed 26 July 2018 (second Breden affidavit) paragraphs 1 to 7.

4.    The plaintiffs propose to read the following further affidavits:

(a)    third affidavit of Phillip Andrew Stewart Breden affirmed 1 August 2018 (third Breden affidavit);

(b)    third affidavit of Maria Karagiannis sworn 1 August 2018 (third Karagiannis affidavit);

(c)    fourth affidavit of Stewart Fraser Old affirmed 3 August 2018 (fourth Old affidavit); and

(d)    fourth affidavit of Phillip Andrew Stewart Breden, to be affirmed on 7 August 2018 (fourth Breden affidavit).

Legal principles

5.    The principles which govern the exercise of the Court's discretion to approve a scheme are well settled (see Re NRMA Ltd (2000) 33 ACSR 595 at 607 [41] per Santow J; Re Seven Network Ltd (No. 3) (2010) 77 ACSR 701 at [31]-[40] per Jacobson J). In summary, the Court's task is to determine:

(a)    whether all the procedural requirements in section 411 have been complied ;

(b)    whether the majority of members have acted in good faith and not for any illegitimate purpose; and

(c)    whether the proposal is at least so fair and reasonable that an intelligent and honest person, who is a member and acting alone in respect of his or her interest as a member, might approve it.

6.    In the exercise of its discretion to approve a scheme the Court will generally take the view that the shareholders are the best judges of whether an arrangement is to their commercial advantage and will be reluctant to make decisions contrary to views of security holders expressed at meeting: Re Central Pacific Minerals NL [2002] FCA 239 at [13], Emmett J; Re Seven Network Ltd (No. 3) (2010) 77 ACSR 701 at [32]-[33].

7.    Compliance with necessary procedural requirements requires compliance with the court orders made at the first hearing, compliance with any statutory requirements and establishing that the scheme meetings passed the resolution by the requisite majority.

Registration of Explanatory Statement with ASIC

8.    Section 412(6) of the Corporations Act 2001 (Cth) prohibits a company from sending out an explanatory statement for a proposed members’ scheme of arrangement unless a copy of that statement has been registered by ASIC.

9.    The scheme booklet in the form contained in exhibit A tendered on 27 July 2018 was lodged with ASIC on 27 July 2018 and registered by ASIC that day. That was the form of the scheme booklet approved for distribution to members at the first court hearing.

Delivery of Scheme Booklet to the sole members of the plaintiffs

10.    On 27 July 2018, the scheme meetings were convened by notices of meeting which notices were accompanied by the explanatory statement (including the independent expert’s report appended to it), which were delivered to a director or company secretary of each of the sole members of the plaintiffs in accordance with order 3 of the 27 July 2018 orders .

11.    The explanatory statement was in the form contained in exhibit A tendered on 27 July 2018 and therefore corresponds with that approved for distribution at the first court hearing .

12.    The explanatory statement informed members of the steps involved in the schemes, the reasons for the schemes, and the risks involved if the schemes were to be implemented. It is submitted that there has therefore been full and fair disclosure to shareholders of information material to their decision whether to vote for or against the schemes.

Conduct of and approval at scheme meetings

13.    On 31 July 2018, Ms Karagiannis (company secretary of the plaintiffs and defendants) received from each of the sole members a form appointing its corporate representative for the scheme meeting at which it was voting, as permitted by order 4(c)(ii) of the 27 July 2018 orders. On 31 July 2018, the appointments of the corporate representative for each of the first, second and fifth plaintiffs were tabled at their respective scheme meetings by Mr Old as chair and the appointments of the corporate representative for each of the third and fourth plaintiffs were tabled at their respective scheme meetings by Mr Bruce as chair, in accordance with order 4(c)(iii) of the 27 July 2018 orders .

14.    Each scheme meeting was held consecutively on 31 July 2018 (in accordance with order 4(c)(i) of the 27 July 218 orders) and at the times and place and in the order specified in order 1 of the 27 July 2018 orders . Mr Old chaired the meetings of the first, second and fifth plaintiffs and Mr Bruce chaired the meetings of the third and fourth plaintiffs, in accordance with orders 4(b)(i) and (ii) respectively of the 27 July 2018 orders.

15.    At each meeting, each sole member voted all of its voting entitlement and agreed to the scheme, meeting the requirement of s 411(4)(a)(ii)(A) of the Corporations Act 2001 (Cth) (Corporations Act). In each case, 100% of total votes cast approved the resolution, meeting the requirement of s 411(4)(a)(ii)(B) of the Corporations Act.

16.    In circumstances where there was 100% support for the schemes and where the schemes were for legitimate commercial purposes, the sole members voted in good faith and for legitimate purposes.

Advertisement regarding Second Court Hearing

17.    An advertisement notifying interested persons that the second scheme hearing had been listed before this Court on 7 August 2018 to consider and, if thought fit, approve the schemes was published in The Australian newspaper on 1 August 2018, substantially in the form of Annexure A to the 27 July 2018 orders. The plaintiff has therefore complied with order 5 of the 27 July 2018 orders.

Section 411(17)(b), letter received from ASIC

18.    ASIC has confirmed that it has no objection to the schemes and has provided a letter under section 411(17)(b) to that effect .

No notice of intention to appear at Second Court Hearing

19.    No notice of appearance has been served by any person wishing to address the Court with respect to the schemes.

JPMASL shares

20.    Among the orders sought by the plaintiffs are orders that:

(a)    pursuant to sections 413(1)(g) and 259A(c) of the Act, all of the ordinary shares in JPMASAL issued to JPMOAL be acquired by JPMASAL; and

(b)    pursuant to section 413(1)(g), the shares acquired by JPMASAL under order 9(b) be cancelled.

21.    The purpose of these orders is to give effect to the steps stipulated in clause 4.8(a) of the scheme document (involving, among other things, the issue, transfer and cancellation of shares in J.P. Morgan Administrative Services Limited). These steps are required to ensure that the schemes comply with United States banking regulations and collectively constitute a plan of reorganisation for the purposes of United States revenue laws.

Condition subsequent

22.    The condition subsequent requiring that stamp duty relief be confirmed by various revenue authorities prior to the implementation of the JPMOAL scheme (see clauses 4.8, 4.9 and 6 of the scheme document) does not constitute an impediment to approval by this Court.

23.    Schemes which are subject to conditions subsequent have previously been approved: Re Buka Minerals NL (1983) 8 ACLR 507 at 508-9, McLelland J; Re NRMA Ltd (2000) 33 ACSR 595, [2000] NSWSC 82 at [61]-[64], Santow J; Re GE Mortgage Insurance Pty Ltd [2004] FCA 154 at [21]-[24]. In considering whether conditions subsequent should be approved, the Court should consider whether there is clarity, certainty and fairness and a reversion to the status quo if the condition is not met: Re GE Mortgage Insurance Pty Ltd at [21] relying on Re NRMA Ltd.

24.    The operation of the JPMOAL Condition set out in paragraphs 2.2(b) and 4.7 of the explanatory statement is clear; if the condition is not fulfilled then the JPMOAL scheme is not implemented. The Court should conclude that the condition is reasonably capable of fulfilment. Members have been informed that the revenue authorities in South Australia, Western Australia, Victoria and Queensland have confirmed that they are of the view that relief should be granted and only the ACT has so far not given its response. The condition does not give rise to any issues of fairness and there is reversion to the status quo if the condition is not met, in that the JPMOAL scheme in its entirety does not proceed.

25.    Moreover, even if the JPMOAL scheme is not implemented, that would not prevent the other schemes from being effective. JPMOAL would simply continue in existence and operate as a member of the JPM Australia Group.

The Schemes are fair and reasonable

26.    The plaintiffs rely upon their 26 July 2018 outline of submissions for the first hearing at [34]-[36] and [45]-[46] and their confidential submissions at [40]-[44].

The Schemes should be approved

27.    For the reasons set out above, it is submitted that the plaintiffs have made out a case for approval of the schemes pursuant to subsection 411(4)(b) of Corporations Act. It follows also that the Court should make the orders under section 413 sought by the plaintiffs.

Section 411(12) order

28.    Section 411(11) would, unless an exemption under section 411(12) were granted, require a copy of the orders made by the Court to be annexed to every copy of each participant's constitution issued after the date of these orders.

29.    It is appropriate for an exemption under section 411(12) to be granted where, as here, the schemes will not result in any amendment to the constitution of any participant: Re the Australian Gas Light Co; Re Alinta Ltd (2006) 60 ACSR 406 at 408 [10]; Re Felix Resources Ltd (No 3) [2009] FCA 1483 at [27].

Correction to 26 July 2018 outline of submissions

30.    In footnote 15, the citation for Alstom Signalling Solutions Pty Ltd v Alstom Transport Australia Pty Ltd should be [2016] FCA 838 not [2016] FCA 852.

6 August 2018