Corporate Advisory Update | March 2015

Welcome to the March 2015 update from Gilbert + Tobin’s Corporate Advisory team.

Legislation and proposed legislation

Corporations Legislation Amendment (Deregulatory and Other Measures) Act 2015(Cth) now in force – goodbye 100 member rule

The Corporations Legislation Amendment (Deregulatory and Other Measures) Act 2015 (Cth) has now come into force.  Key changes that companies should be aware of include the removal of the obligation to hold a general meeting at the request of 100 members and alterations to executive remuneration reporting requirements.  We also await further proposals to clarify the dividend payment test which were omitted from the Bill last year following stakeholder feedback.

On 19 March 2015, the Corporations Legislation Amendment (Deregulatory and Other Measures) Act 2015 (Cth) (Act) came into force.

Key changes in the Act include:

  • removing the obligation to hold a general meeting at the request of 100 members  under section 249D of the Corporations Act 2001 (Cth) (so that only a member or members with 5% of the votes that may be cast at the general meeting will have such a right);
  • replacing the requirement to disclose in a remuneration report the value of options previously granted to key management personnel which lapse during a financial year with a requirement to disclose the number of options which lapse during the financial year and the financial year in which they were granted;
  • relieving certain disclosing entities from the obligation to prepare a remuneration report and exempting certain companies limited by guarantee from the obligation to appoint an auditor;
  • clarifying the circumstances in which a financial year may be less than 12 months;
  • empowering the President of the Takeovers Panel to give directions about the composition of the Panel while overseas and allowing members of the Panel to participate in proceedings while overseas; and
  • transferring the remuneration-setting responsibilities of the Financial Reporting Council, Australian Accounting Standards Board and the Auditing and Assurance Standards Board to the Remuneration Tribunal.

As we have previously reported, the reforms to clarify the dividend payment test in section 245T of theCorporations Act 2001 (Cth) were omitted from the Bill late last year, and are subject to further consideration following stakeholder feedback.


ASIC consults on collective action by investors

Consistent with global trends, shareholder activism has been on the rise in Australia, grabbing headlines in recent times.  An issue often faced by activist shareholders is uncertainty as to whether, in pursuing a common goal or agenda with other likeminded shareholders, they become associates, which would raise substantial holding disclosure and takeovers issues under the Corporations Act 2001 (Cth).  ASIC is currently consulting on some new draft guidance on these issues which, once finalised, will provide greater certainty for institutional shareholders. Submissions on the draft guidance are due by 20 April 2015.

ASIC is currently consulting on draft updates to its existing guidance inRegulatory Guide 128 Collective action by investors (which was last updated in 1998).

Consultation Paper 228 Collective action by investors: Update to RG 128 (CP 228) includes:

  • updated guidance on how the takeovers and substantial holding notice provisions apply to collective action by investors, including illustrative examples of conduct which is unlikely or likely to give rise to association and thus trigger these provisions;
  • an outline of ASIC’s proposal to approach enforcement in relation to these provisions by focusing on conduct that is control seeking rather than simply promoting good corporate governance; and
  • an overview of other legal and regulatory issues that can arise in relation to investor engagement.

ASIC also proposes to discontinue the existing class order relief available to facilitate agreements between institutional investors about voting as it does not reflect the way in which institutional investors tend to engage with entities and has not been used for many years.

Comments on CP 228 are due by 20 April 2015.

For further discussion on the new draft guidance (in particular on the draft guidance to clarify when shareholders may become associates), see G+T CA Client Alert on 2 March 2015.

See also Draft Regulatory Guide 128 Collective action by investors and media release dated 17 February 2015.

ASIC makes enquiries into responsible entities’ risk management practices

ASIC has announced that it is undertaking enquiries with a range of responsible entities in relation to their risk management practices.  While ASIC’s final policy position is still under consideration, responsible entities should continue to ensure that adequate risk management systems are in place to comply with their obligations.

In 2013, ASIC published Consultation Paper 204 Risk management systems of responsible entitles to provide guidance on current risk management practices of responsible entities.  While ASIC’s final policy position is still under consideration, ASIC has announced that it is undertaking enquires with a range of responsible entities of registered managed investment schemes regarding their risk management practices.  The enquiries are focusing in particular on:

  • fixed income funds;
  • exchange-traded funds; and
  • other funds that may experience liquidity issues during periods of market volatility.

While ASIC does not have any specific concerns about the entities involved, it will use the enquiry process to raise and address any red flags as appropriate. 

See media release dated 13 February 2015.

ASIC updates enforceable undertakings guidance

ASIC has updated its guidance on enforceable undertakings to enhance the transparency of outcomes under enforceable undertakings accepted by ASIC.  The updated guidance, which focuses on public reporting of compliance with enforceable undertakings and also independent expert reports, applies to enforceable undertakings accepted by ASIC since 9 March 2015.

ASIC has updated its guidance about enforceable undertakings (being undertakings which ASIC may accept as an alternative to civil court action or certain other administrative actions).

The changes to Regulatory Guide 100 Enforceable undertakings (RG 100) provide new guidance about:

  • public reporting by ASIC on compliance with enforceable undertakings, including public summaries of independent expert reports which will be made available on ASIC’s enforceable undertakings register.  ASIC’s view is that publicising enforceable undertakings serves to promote deterrence and educate consumers and industry;
  • criteria for use in assessing the competence of an independent expert, the independence of the expert and the expert’s arrangements to manage conflicts of interest arising during the engagement; and
  • the circumstances where ASIC will generally seek to appoint an independent expert.

The revised guidance also makes a number of minor technical changes to RG 100.

The updated guidance applies to enforceable undertakings accepted by ASIC since 9 March 2015.

See media release dated 19 February 2015.


ASX consults on proposed clarification of its continuous disclosure guidance

Following recent developments, ASX is consulting on proposed changes to its Guidance Note 8 Continuous Disclosure: Listing Rules 3.1 - 3.1B.  In summary, the proposed new guidance provides useful clarification (rather than a re-write of ASX’s fundamental position) on analyst and investor briefings, analyst forecasts, consensus estimates and earnings surprises.  Submissions on the proposed changes are due by 24 April 2015.  We will continue to monitor the progress of the consultation.

ASX has issued a consultation paper seeking public comments on proposed changes to ASX Listing Rules Guidance Note 8 Continuous Disclosure: Listing Rules 3.1 - 3.1B (GN8).

GN8 was only recently updated in May 2013 but recent developments, including the issuance of ASIC’s report on the handling of confidential information (REP 393) and the $1.2 million penalty imposed by the Federal Court on Newcrest Mining for contravening its continuous disclosure obligations, have shown that listed entities and their advisers would benefit from further guidance on analyst and investor briefings, analyst forecasts, consensus estimates and earnings surprises.

Some of the main proposed changes to GN 8 include:

  • clarifying the distinction between:
    • a ‘market sensitive earnings surprise’ – that is, where an entity’s actual or projected earnings differ so significantly from market expectations that a reasonable person would expect information about its actual or projected earnings to have a material effect on the price or value of its securities; and
    • the lesser ‘earnings surprise’ – that is, where an entity’s reported earnings differ from consensus estimates, but not necessarily to the extent that a reasonable person would expect the information to have a material effect on the price or value of its securities,
  • emphasising that only ‘market sensitive earnings surprises’ require disclosure under Listing Rule 3.1; 
  • emphasising that listed entities are under no obligation, whether under the ASX Listing Rules or otherwise, to correct the earnings forecast of any individual analyst, or the consensus estimate of any individual market data vendor, to bring it in line with the entity’s internal earnings projections; and
  • adding a new section ‘Publishing analyst forecasts or consensus estimates’ which will give detailed explanation on information that should or shouldn’t be disclosed in relation to analysts’ forecasts.

While the proposed changes do not appear to fundamentally change ASX’s existing position, they provide useful guidance for ensuring compliance with the continuous disclosure regime.

Comments on the consultation paper are due by 24 April 2015, with ASX aiming for the updated guidance to be in place by 1 July 2015.

See media release dated 6 March 2015.


Negotiating parties may become legally bound before formal agreements are entered into: Vantage Systems Pty Ltd v Priolo Corporation Pty Ltd [2015] WASCA 21

In this case, a series of negotiations by email were held to be legally binding, even where the parties clearly intended (and expressly agreed) that formal documentation would be entered into.  The key point was that, on an objective assessment, the parties intended that there would be a concluded and binding agreement at the point at which the lease and licence proposal was accepted by the parties.  Negotiating parties who do not wish to be legally bound before execution of formal agreements should ensure that this is clearly and expressly communicated in writing at start of their negotiations.

As a lease and licence between Priolo Corporation Pty Ltd (Priolo) (as lessor) and Vantage Systems Pty Ltd (Vantage) (as lessee) neared

expiry, Priolo’s property agents emailed a proposal for a new lease and licence to Mr Walker of Vantage. As the original proposal was not acceptable to Mr Walker, the agents then emailed a revised proposal to Mr Walker, and also sought written confirmation that the proposal was acceptable to Vantage so that formal documents (which the revised proposal stated would be based on Priolo’s standard lease and licence, incorporating the relevant terms in the revised proposal) could then be prepared. On 10 June 2009, Mr Walker replied by email stating “Vantage Systems is happy with the terms of the proposal. I have just emailed Deugro Projects [Vantage’s sub-tenants], and requested their acceptance of these terms in writing”, followed by a second email stating, “We have received our sub-tenants [sic] approval of the terms as well. Please proceed with wrapping this up.” On 2 July 2009, the agents emailed the draft documents, which were to commence on 1 July 2009, to Mr Walker.

Mr Walker did not respond until September 2009 when he raised issue with the “make-good” clause under the new lease. As the alternative clause proposed by Mr Walker was not accepted by Priolo, Vantage then gave one month’s notice to vacate pursuant to the holding over provisions in the original lease on the basis that there was no concluded agreement for a new lease.

Buss JA (with whom Newnes JA and McLure P agreed) in the Supreme Court of Western Australia - Court of Appeal dismissed Vantage’s appeal against the trial judge’s finding that the parties intended to enter into a binding agreement for lease by acceptance of the revised proposal by Vantage in its emails on 10 June 2009. In so doing, Buss JA first examined the legal principles to be applied, namely that:

  • the fundamental question is whether the parties intended that, upon Vantage accepting the revised proposal in its emails on 10 June 2009, the parties would be bound immediately and exclusively by the express and any implied terms of the revised proposal, despite expecting to execute formal documents which would contain additional negotiated terms;
  • whether a completed and binding agreement has been made is to be assessed objectively, and what is essential is not a subjective meeting of minds but an objective manifestation of mutual assent; and
  • the relevant objective intention is the intention that a reasonable person, with the knowledge of the words and actions of the parties communicated to each other, and the knowledge that the parties have of the surrounding circumstances (in this case, the dealings and communications between the parties over a period of time and the commercial circumstances surrounding those dealings and communications) would conclude that the parties had.

In finding that Priolo and Vantage intended that there would be a concluded and binding agreement to lease and take a licence, and that they would be bound immediately and exclusively by the express and any implied terms of the revised proposal, Buss JA noted that:

  • the revised proposal embodied all the terms that were legally necessary to form a contract and did not involve accepting terms that were more onerous or materially less advantageous than the original lease;
  • the failure of the parties to agree the make-good provision did not mean that there was no intention that there be a concluded and binding agreement.  The consequence was just that the parties were bound by the express term in the revised proposal (and any other terms with respect to repair, maintenance and reinstatement that may be implied); and
  • the revised proposal provided that Vantage must pay Priolo’s costs of “preparing, negotiating and executing the legal documentation” and as such, the parties did not agree that the terms of Priolo’s standard lease and licence agreements would constitute the binding agreement between them.  Rather, they were to be merely a guide for negotiations and would be supplemented not only by the express terms in the revised proposal but also by any further terms agreed by the parties.

A well-drafted obligation to transfer clear title is key:  Protector Glass Industries Pty Ltd v Southern Cross Autoglass Pty Ltd [2015] NSWCA 16

In this case, a party to an asset sale agreement advised the other party by letter that it would have to terminate the agreement if the other party did not resolve claims by liquidators of a third party over certain of the assets within a certain period.  The sending of such a letter was held not to constitute repudiatory conduct or anticipatory breach in circumstances where the other party was contractually obliged to sell the assets free from any adverse interests.  This case illustrates not only the importance of including clear and fulsome obligations to transfer clear title in sale agreements, but also the need to be sure that when terminating a contract on the basis of alleged repudiatory conduct by the other party, such conduct would have evinced, to a reasonable person, an unwillingness or inability by the other party to perform the contract or an intention to no longer be bound by it.

Protector Glass Industries Pty Ltd (PGI) and Southern Cross Autoglass Pty Ltd (SCA) entered into an asset sale agreement (Agreement) pursuant to which PGI agreed to purchase SCA’s assets.  Prior to completion of the Agreement, PGI received written notice from the liquidator of Nielsen and Moller Autoglass (NSW) Pty Limited (NMA) of claims to some of the assets the subject of the Agreement.  PGI then wrote to SCA on 23 January 2009 (PGI Letter) requiring that the issues be resolved within 30 days before it decided whether the Agreement was capable of completion, and stating that if the matters were not resolved, it would terminate the Agreement.    PGI also drafted a deed terminating the Agreement which was never actually signed.  After 3 March 2009, SCA began selling off its trading stock at discount prices to third parties.

Barrett JA (with Meagher and Gleeson JJA agreeing) in the Supreme Court of New South Wales – Court of Appeal found that by sending the PGI Letter, PGI had neither repudiated the Agreement nor committed anticipatory breach. In so finding, Barrett JA found that:

  • SCA had contractual obligations under the Agreement to sell the assets “free from all charges, encumbrances, options and adverse interests of any kind” and to deliver on completion “possession of and title to [the assets] free from all mortgages, charges, liens and encumbrances”;
  • in the circumstances, a compulsion on PGI to complete the Agreement would have offended the basic expectation that no one is obliged to buy a lawsuit.  Such compulsion was denied because SCA was contractually obliged to sell the assets free from any adverse interests;
  • what was relevant in determining whether PGI repudiated the Agreement by sending the PGI Letter was whether a reasonable person, in the position of SCA, would have regarded the conduct as having evinced an unwillingness or inability to substantially perform the Agreement or an intention to no longer be bound by it.  Barrett J found that PGI’s conduct was not of this quality.  Rather, the PGI Letter evinced a desire and intention to see the Agreement completed according to its terms, emphasised that those terms contemplated SCA giving clear title to the assets and stated that it was for SCA to find a means of achieving this; and
  • PGI tendering the draft deed of termination was also not repudiatory conduct, and in fact made it clear that PGI regarded itself bound by the Agreement and would continue to be bound unless and until it was terminated.

Don’t rely on just a handshake to seal the deal:  Re Opes Prime Group Ltd (in liquidation) [2015] VSC 27

While it may be natural to conclude that a handshake in some circumstances may indicate that a deal has been done, Courts will also have regard to the words of the parties at the time.   In this case, it was found that a reasonable person would have concluded that a statement by a party immediately after the handshake that he would speak to his lawyer to “see if something could be worked out” meant that the handshake represented only an indication of goodwill, and not that an agreement had been reached.  This case illustrates the importance of parties being very clear by their words that an oral agreement has been reached, and ideally following that up with a written agreement or confirmation as soon as possible.

Mr Emini (a director of Opes Prime Group Limited (Opes Prime)) met with Mr Mitris (a client of Opes Prime) to try and resolve a counterclaim by Mr Mitris and his company against him, arising out of the collapse of Opes Prime in 2008.

The parties were in agreement that Mr Mitris offered $20,000 to settle the matter and that Mr Emini immediately rose from his chair and shook hands with Mr Mitris.  Mr Mitris claimed that he then said that the next step was to get “this documented” and to advise the Court immediately.  However, Mr Emini claimed that upon shaking hands with Mr Mitris, he said that he would need to speak to his lawyer to “see if something could be worked out”.  On this basis, Mr Emini claimed that no agreement had been reached and matters did not go beyond ‘mere negotiations’.

Robson J in the Supreme Court of Victoria found that:

  • it was clear that an objective approach is required in determining whether a contract has been formed.  The key determination is what each party, by words and conduct, would have led a reasonable person in the position of the other party to believe, not the subjective beliefs and understandings of the parties; and
  • a reasonable person in the position of Mr Mitris would not have believed that Mr Emini had accepted the offer because:
    • at no stage did Mr Emini say that he accepted the offer; and
    • given the words of Mr Emini after the handshake, a reasonable person would have formed the view that the handshake did not indicate an agreement having been reached, but only that it was an indication of goodwill in trying to resolve the matter and reach agreement.

A reminder that failure to agree price up front with sufficient certainty will be fatal to a contract:  Mushroom Composters Pty Ltd v IS & DE Robertson Pty Ltd [2015] NSWCA 1

In this case, no concluded and binding supply contract was found to exist in circumstances where the parties had effectively been content to leave the price for a substantial part of the term subject to negotiation between them.  Contracting parties are reminded to ensure that a sufficiently certain pricing mechanism (including for any price variations) has been agreed up front and that such mechanism is clearly reflected in the contract.

Negotiations between Mushroom Composters Pty Ltd (Composters) and IS & DE Robertson Pty Ltd (Robertson) for the supply of straw by Robertson began in January 2008, during a period of prolonged drought when the price of straw was relatively high. Following discussions about a potential 4 year supply contract, Composters sent a letter to Robertson on 25 January 2008 (Letter) stating that “the contract would in the first instance be for a period of four years to commence with the 2008/9 season” and further that “in terms of the farmers’ royalty payment, a cost of $60 per tonne is anticipated, but if there is an overabundance of straw in one season, then it would be reasonable to expect that a portion of the supply could command a lower royalty.”

The key question for the Supreme Court of New South Wales – Court of Appeal was whether the parties had reached consensus on the amount of the royalty payment (being one of 2 components of the supply price) for the 4 year period.  In finding that no such consensus was reached, Sackville AJA (with MacFarlan JA and Gleeson JA agreeing) found that:

  • an agreement that is incomplete will not give rise to an enforceable contract, and an alleged contract will fail for incompleteness if, even though the parties have used clear language, a term which is regarded as essential as a matter of law has not been agreed;
  • for an agreement for the supply and sale of goods to constitute an enforceable contract, the parties must agree as to price, although they may leave the price to be determined by a third person or an agreed mechanism.  As such, if a contract expressly provides for the price to be agreed between the parties, there is no concluded contract;
  • where a price has been agreed, an express term to the effect that the parties must negotiate in good faith to vary that price in certain circumstances is capable of imposing a valid and enforceable obligation on each party to negotiate genuinely and in good faith to vary the price.  If the parties negotiate in good faith but fail to agree on a variation, the previously agreed price will remain the price;
  • the Letter did not constitute an agreement as to the amount of the royalty payment over the 4 years.  It merely said that a royalty payment of $60 was “anticipated” but may be less if there was an overabundance of straw.  The Letter was also drafted in the context of the parties’ knowledge of the prevailing drought conditions and the strong possibility (if not likelihood) that the price of straw would decrease;
  • on the facts, the dealings between the parties could not be construed as an agreement that the overall price to be paid for straw was set, subject to a term requiring the parties to negotiate the royalty payment in good faith should there be an overabundance of straw.  This is because, while subsequent discussions confirmed the royalty payment of $60 per tonne, this was just for the first year.  The parties never discussed what would happen in the event that they could not reach agreement following a review of the royalty payment in respect of years 2, 3 and 4.  As such, the royalty payment for years 2, 3 and 4 was not set, but was to be resolved by negotiations prior to each season (and would vary depending on the outcome of those negotiations); and
  • on the basis of the above, the parties never reached final agreement on an essential term of the alleged 4 year contract (ie the price to be paid) and there was therefore no binding and concluded contract.

The terms of engagement of an expert may vary the payment dispute resolution clause in the principal agreement:  Cox & Ors v Wettenhall & Anor [2015] VSC 38

In this case, the court found that a dispute resolution clause was varied by a separate letter of engagement of an independent expert (and the conduct of the parties).  Contracting parties appointing an expert to resolve a dispute should be mindful that the terms of that engagement and their conduct in relation to the engagement, may constitute a variation of the dispute resolution clause in the principal agreement (or a waiver of their rights under such clause) thereby authorising the independent expert to deviate from its terms.  Contracting parties should take care in engaging experts where such a variation is not intended.

Mr Cox, Mr Harrington, Mr Jones and Ms Rofe (Vendors) sold shares in Padgham & Partners Pty Limited to Sweett Group (Australia) Pty Ltd (Sweett Group). Pursuant to the share purchase agreement (SPA):

  • the purchase price was to be paid in three tranches and Sweett Group was to prepare annual accounts to support the calculation of the second and third tranches (EarnOut Accounts); and
  • in the event of a dispute in relation to the EarnOut Accounts and failing agreement, “any party may refer the matter in dispute to an Independent Expert for determination in accordance with [this clause 3.12].”

When a dispute arose in relation to the calculation of the third tranche payment, the parties purported to appoint an expert under clause 3.12.  The expert was appointed in the absence of EarnOut Accounts, with the parties adopting a less formal approach, relying on a spreadsheet identifying agreed and contentious items based on 3 versions of accounts (T3 Reconciliation).  The parties treated the T3 Reconciliation as sufficient and expressly agreed with the expert in the letter of appointment that the T3 reconciliation was to be treated, for the purpose of clause 3.12, as the EarnOut Accounts.  Further, when the expert told the parties that he required the EarnOut Accounts “to appropriately comply with the Agreement clause 3.12(c)”, he was told to complete his work without those accounts.

Judd J in the Supreme Court of Victoria dismissed the Vendors’ claims that in the absence of the EarnOut Accounts, the expert failed to perform his contract (which therefore vitiated his determination) and that he should have required Sweett Group to prepare EarnOut Accounts.  In reaching his decision, Judd J made the following findings:

  • the key question is one of contract – what did the parties bargain for?;
  • it was an agreement between the parties to the SPA (and a term of the engagement of the expert) that diverted the expert from a consideration of the EarnOut Accounts, requiring instead that he consider the T3 Reconciliation.  In so doing, the parties agreed on a convenient modification to the SPA which did not deprive the expert’s determination of its binding effect; and
  • by their agreement, the Vendors waived their right under the SPA to the preparation and delivery of EarnOut Accounts and are thereby precluded from contending that the expert failed to perform his contract in the absence of EarnOut Accounts.

Judd J also noted that the expert’s determination was not merely a mechanical calculation (in which case there would typically be only one uniquely correct value), but he was also called upon to make a discretionary judgment (ie whether the EarnOut Accounts, as reflected in the T3 Reconciliation, fairly represented the financial position and profit after tax of the entities in accordance with the relevant principles specified).  His Honour noted that where there is a discretionary judgment, the question is not whether there is an error in that discretionary judgment, but rather whether the valuation complies with the terms of the contract.  Ultimately, Judd J found that the Vendors failed to establish on the facts that the expert made errors in his determination that amounted to a deviation from the terms of the SPA.

Some clarification on the scope of the Court’s power to make orders in connection with the transfer of property under a scheme of arrangement:  Fiducian Portfolio Services Limited v Fiducian Investment Management Services Limited (No 2) 2015 FCA 95

The Federal Court has provided useful clarification on the scope of the Court’s power under section 413(1) of the Corporations Act 2001 (Cth) to make orders relating to the transfer of the undertaking of a transferor body in connection with a scheme for reconstruction or an amalgamation.  Firstly, the Court has confirmed that section 413(1) allows for separate transfers of separate parts of the undertaking of the transferor body to separate transferees, where all 3 entities remain part of the same corporate group.  Secondly, the Court has provided clarification on the circumstances in which an order will be “necessary” to “fully and effectively carry out” the scheme, finding that an order preventing counterparties terminating a contract as a consequence of the scheme was not sufficiently “necessary” in this case, particularly where there was no evidence that the purpose of the scheme would be frustrated without it.

This case involved a scheme of arrangement for the restructure of the Fiducian Group pursuant to which its superannuation business would be retained by Fiducian Portfolio Services Limited (FPSL) and FPSL’s other businesses would be transferred to other companies in the Fiducian Group.  The purpose of the restructure was to introduce a more focused governance structure for the Fiducian Group and to help eliminate the potential for conflicts of interest consistent with FPSL’s obligations under Prudential Standards.

In approving the scheme under section 411(4)(b) of the Corporations Act 2001 (Cth) (Act) following approval by FPSL members, Yates J in the Federal Court of Australia also considered a number of additional orders proposed by FPSL under section 413(1) of the Act to give effect to the restructure including:

  • orders providing for the transfer of FPSL’s funds management and investment services business to Fiducian Investment Management Services Limited (FIM) and  the transfer of its group services business to Fiducian Services Pty Limited (FSL) (Transfer Orders); and
  • an order to the effect that no party to a contract to be transferred to FIM or FIL pursuant to the Transfer Orders (or to another contract to which FPSL or another member of the Fiducian Group is a party) is entitled to exercise any right to terminate or vary such contract merely as a result or consequence of the scheme or the transfers to FIM or FSL (No Action Order).

In making the Transfer Orders, Yates J found that:

  • section 413(1) is based on the conception that under a scheme for reconstruction, substantially the same business will be carried on by substantially the same body;
  • section 413(1) expressly recognises that “the whole or any part of the undertaking or of the property” of the transferor body can be transferred.  As such, there is no reason in principle why a reconstruction cannot be one under which several parts of the undertaking or property of the transferor body can be transferred and, if that is so, the transfer of separate parts must comprehend several transfers to separate transferees; and
  • on the basis of the above, orders for the transfer of FPSL’s funds management and investments business to FIM and the separate transfer of FPSL’ group services business to FSL, where FPSL, FIM and FSL were all part of the Fiducian Group, could be made under section 413(1).

In refusing to make the No Action Order, Yates J found that:

  • while section 413(1)(g) broadly empowers the Court to make orders which are “necessary to ensure that the reconstruction or amalgamation is fully and effectively carried out”, “necessary” does not mean “more than desirable but less than vital”;
  • the fact that there might be contractual provisions (eg change of control, certain events of default or similar provisions) that are triggered by the scheme and which would then enable a party to the contract to terminate or vary it, is an essentially abstract or theoretical possibility and does not establish that the order is “necessary” to fully and effectively carry out the scheme;
  • FPSL was merely seeking to avoid a contractual outcome that had already been agreed and the Court should not interfere in a blanket fashion with such contractual rights, particularly when it had no knowledge of the reasons for which the contract was made on that basis;
  • the No Action Order sought to provide for the consequences of the scheme, not its effectuation; and
  • there was no evidence that the purpose of the scheme could be frustrated without the No Action Order.



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