FEDERAL COURT OF AUSTRALIA

Lendlease RL (Rowville) Pty Ltd v Lendlease Capital Services Pty Ltd (No 2) [2018] FCA 1601

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) (Corporations Act), each scheme of arrangement or compromise proposed between such shareholder or shareholders and the relevant plaintiff, the terms of which are set out in Annexure A to the Explanatory Statement dated 10 October 2018 (each a Scheme, and collectively, the Schemes), be approved.

2.    Pursuant to s 413(1) of the Corporations Act (and using the definitions in each Scheme), at the Effective Time, each Scheme be implemented by the following steps taken in the following order, and speaking as at that time:

(a)    first, the Property of each relevant plaintiff will, simultaneously with the Property of every other plaintiff be transferred to and vested in the defendant without the need for any further act or deed, pursuant to s 413(1)(a) of the Corporations Act;

(b)    second, all Liabilities of each relevant plaintiff will, simultaneously with the Liabilities of every other plaintiff, be transferred to and become Liabilities (as defined in each Scheme) of the defendant without the need for any further act or deed, pursuant to s 413(1)(a) of the Corporations Act;

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

(d)    fourth, each plaintiff will attend to such incidental, consequential and supplemental matters as are necessary to ensure that the Schemes are fully and effectively carried out; and

(e)    fifth, each plaintiff will be deregistered by the Australian Securities and Investments Commission (ASIC) without winding up, pursuant to s 413(1)(d) of the Corporations Act.

3.    Pursuant to s 413(1)(g) of the Corporations Act, on and from the Effective Time (as that word is defined in the Schemes):

(a)    the defendant or any director, officer, company secretary or other duly authorised signatory of the defendant from time to time may, in the name of each plaintiff, sign all documents and do all things required to be done by each plaintiff to complete or perfect the transfer of the Property and Liabilities (as defined in each Scheme) of that plaintiff as contemplated by the Schemes provided for in Orders 2(a) and 2(b) above, whether by lodgement, registration, notification or otherwise; and

(b)    each of the plaintiffs may disclose to the defendant all personal information (including tax file numbers) held by each of them.

4.    Pursuant to s 413(1)(g) of the Corporations Act, on and from the Effective Time (as that word is defined in the Schemes):

(a)    in contracts which form part of Property and Liabilities (as defined in each Scheme) transferred to, and vested in, the defendant pursuant to Orders 2(a) and 2(b) above, and to which each plaintiff (as applicable) is named as a party, any reference to that plaintiff be read as a reference to the defendant; and

(b)    the defendant may use, disclose and otherwise handle all information transferred and vested in it by each plaintiff provided always that the defendant shall receive the information upon the same terms as each plaintiff held the information and subject to the Liabilities (as defined in each Scheme) of each plaintiff in respect of that information.

5.    Pursuant to s 411(12) of the Corporations Act, the plaintiffs be exempted from complying with s 411(11) of the Corporations Act in relation to the Schemes.

6.    Upon lodgement of an office copy of these orders with ASIC by each of the plaintiffs in accordance with s 413(3) of the Corporations Act, pursuant to s 411(10) of the Corporations Act, the date on which these orders are taken as having effect is 23 October 2018.

7.    Liberty be reserved to any party to apply for any further orders as may be considered necessary or desirable under s 413 of the Corporations Act.

8.    These orders be entered forthwith.

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

REASONS FOR JUDGMENT

YATES J:

1    On 9 October 2018, the Court made orders (the earlier orders) for the convening of meetings in relation to proposed schemes of arrangement: Lendlease RL (Rowville) Pty Ltd v Lendlease Capital Services Pty Ltd [2018] FCA 1534 (my earlier reasons). The schemes have been proposed for the purposes of, or in connection with, the reconstruction or amalgamation of companies within the Lendlease Capital Services Group. The definitions used in my earlier reasons are used in these reasons.

2    On 10 October 2018, a sealed copy of the earlier orders was lodged with ASIC, as required by r 3.5 of the Federal Court (Corporations) Rules 2000. The explanatory statement approved by the Court was also registered, as required by s 412(6) of the Act. On 12 October 2018, the explanatory statement was distributed in accordance with the earlier orders. The meetings were duly convened and held on 16 October 2018. As expected, the resolutions agreeing to the schemes were passed with the statutory majorities in favour of each scheme being attained: s 411(4)(a)(ii) of the Act. The holding of the present hearing has been advertised, in accordance with the earlier orders. No person has come forward to oppose the schemes or the making of orders under s 413(1) of the Act. ASIC has advised that, under s 411(17)(b) of the Act, it has no objection to the schemes. These matters are established by the evidence in the affidavits of:

    Wai See Chung, sworn 18 October 2018;

    Tony Randello, sworn 19 October 2018;

    Stephen John Knight, sworn 22 October 2018; and

    Michael Richard Hughes, sworn 23 October 2018 (two affidavits).

3    The plaintiffs now seek orders pursuant to s 411(4)(b) of the Act that each scheme be approved. They also seek orders under s 413(1) of the Act to facilitate the reconstruction or amalgamation in contemplation.

4    The background to the schemes, and the proposed reconstruction or amalgamation, is set out in my earlier reasons. It is not repeated here. The schemes have been appropriately propounded as members’ schemes only, even though creditors will be transferred by the proposed s 413 orders: In the matter of Stork ICM Australia Pty Ltd; Stork ICM Australia Pty Ltd v Stork Food Systems Australia Pty Ltd [2006] FCA 1849 (Stork) at [69]. That said, all the scheme companies are intra-group companies. The only real issue of substance is whether or not the Court is satisfied that the orders under s 413(1) are likely to have any prejudicial effect on third parties, in particular the creditors of the scheme companies or the creditors of the transferee of the assets and liabilities, LCS.

5    As I noted in my earlier reasons (at [4]), as at 30 June 2018 each scheme company’s external liabilities were either nil or the subject of a provision reflected in the balance sheet extracted from LCS’s audited financial statements. For some time now, each scheme company has been entirely funded by LCS, which is a wholly-owned subsidiary of LLC, the ultimate holding company of each scheme company. The plaintiffs submit, and I accept, that, in these circumstances, the Court should have no concerns about the effect of the proposed s 413(1) orders on creditors. No creditor of a scheme company or of LCS will be worse off. Indeed, arguably, the creditors of each scheme company will be better off. As I have noted, no person has come forward to oppose the schemes or the making of the orders under s 413(1) of the Act.

6    I will, however, make mention of the position of a potential creditor referred to in my earlier reasons. In my earlier reasons at [18], I referred to the fact that PLTNZ had been notified that it may be subject to a warranty claim by a purchaser under an agreement styled “Agreement for Sale and Purchase of New Zealand Lendlease Retirement Living Portfolio” dated 31 January 2016 (the Agreement), under which LLPL is also PLTNZ’s guarantor. The purchaser under the Agreement is a New Zealand company, FourFive LLRL Limited, which has been renamed Arena Living Holdings Limited (Arena). As I recorded in my earlier reasons, while notification of the potential warranty claim has been received, no formal dispute process or litigation has been commenced against PLTNZ or LLPL, and any amount that might be sought from PLTNZ or LLPL has not been particularised.

7    In a further affidavit sworn on 22 October 2018, Mr Cockerill has deposed to the following additional facts. On 3 October 2018, he informed Arena, by letter, of the proposed schemes and the proposed transfer of assets and liabilities to LCS. This was well before the first court hearing. On 17 October 2018, he received an oral response from an officer of Arena requesting a letter from LCS confirming that it would assume the obligations of the scheme companies. Mr Cockerill responded by letter dated 18 October 2018, in which he enclosed the explanatory statement, drew attention to clause 6.2 of the schemes, enclosed a copy of my earlier reasons, and informed Arena that the second court hearing would take place on 23 October 2018. This letter was sent by email on 19 October 2018, with a copy to Arena’s solicitors, Bell Gully. On the same day, in a telephone conversation between Mr Cockerill and the officer of Arena, Arena asserted (in effect) that its consent was necessary for any asset transfer to occur. In response to this assertion, Mr Cockerill informed Arena (in effect) that the orders for the reconstruction or amalgamation would oblige LCS to assume the obligations of the scheme companies. He declined to provide the requested letter from LCS.

8    Clause 16.7 of the Agreement is a “no assignment” clause. It provides:

16.7 No assignment

No party shall assign or deal in any manner with the benefit or burden of this Agreement or any part of it, including for the avoidance of doubt the benefit of the Warranties, without first obtaining the written consent of the other Party or Parties (such consent not to be unreasonably withheld or delayed). The Vendor hereby consents to the security assignment (or grant of any other form of security interest) by the Purchaser of or over all of its right, title and interest under this Agreement to any lenders or other finance parties (including any security agent representing such finance parties in such security assignment) providing Acquisition Financing in respect of the transactions contemplated hereunder. The Vendor agrees to sign any customary acknowledgement in connection with the Purchaser’s security assignment (or grant of any other form of security interest) contemplated under this clause that is reasonably requested by Purchaser.

(emphasis added)

9    The plaintiffs submit that this provision does not create a contractual restriction on them proceeding with the schemes or the reconstruction or amalgamation that is proposed. I accept that submission. Further, clause 16.7 of the Agreement provides no impediment to the Court making the orders that are sought under s 411(4)(b) or s 413(1) of the Act.

10    In Stork at [98]–[99], Lindgren J said:

98     In relation to the “no assignment of interest without consent” provision, my view is that that provision applies only to assignments by an act of the insured, and has nothing to say to a transfer effected by an order of the Court under s 413. The provision contemplates an assignment by the holder of the interest under the policy. Sections 413(1) and (2), on the other hand, contemplate a court order “providing for” a transfer. It is the operation of s 413(2) on the order, if and when made, that causes the transfer of the property and liabilities, without any involvement of Stork ICM. Neither Stork ICM nor the Court “transfers” the property or liabilities of Stork ICM for the purposes of the policy provision. Stork ICM's application for the order does not effect the transfer, and, in case it matters, strictly the Court's order that provides for the transfer does not do so either: it is the operation of s 413(2) upon such an order that does so.

99     Support for the view expressed in the preceding paragraph is found in a line of authority concerning contractual promises not to assign real or personal property without consent. It is held that such promises do not extend to assignments effected by operation of law upon the making of an order of the court following an adjudication, even if it was the person who promised not to assign who applied for the order: In re Riggs; ex parte Lovell [1901] 2 KB 16; Marsh v Gilbert [1980] 2 EGLR 44; In re Landau (a Bankrupt) [1998] Ch 223; Krasner v Dennison [2001] Ch 76.

11    Stork was followed by Farrell J in 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 at [28]:

28    The Australian group has made considerable efforts to obtain consent to the transfer of material contracts which were identified during the due diligence process. Although many consents have been received, in respect of those contracts for which consent has not yet been received, I accept the submission that by force of ss 413(1)(a) and 413(2), the effect of the Court's order would be to transfer those contracts in any event: see In the matter of Stork ICM Australia Pty Ltd; Stork ICM Australia Pty Ltd v Stork Food Systems Australasia Pty Ltd [2006] FCA 1849 per Lindgren J at [98]-[99].

12    I am satisfied that each scheme should be approved and that the orders sought under s 413(1) should be made. For the avoidance of doubt, I am satisfied that the legal requirements for the Court’s approval of each scheme under s 411(4)(b) have been fulfilled and that there is no discretionary reason why approval should not be given. So far as the application of s 413(1) is concerned, I am satisfied that each scheme is for a compromise or arrangement that has been proposed for the purposes of, or in connection with, a scheme for the reconstruction or amalgamation of Part 5.1 bodies, and that the transfer of assets and liabilities involved in that reconstruction or amalgamation will be to “a company” within the meaning of the Act. The orders that are proposed in that regard are appropriate and satisfactory in form, and should be made.

Associate:

Dated:    23 October 2018

SCHEDULE OF PARTIES