Snowside Pty Ltd as trustee for the Snowside Trust v Boart Longyear Ltd

1. [1]

   THE COURT: By judgment given last Tuesday 22 August 2017, the primary judge (Black J) approved two creditors’ schemes of arrangements pursuant to s 411 of the Corporations Act 2001 (Cth): In the matter of Boart Longyear Ltd (No 2) [2017] NSWSC 1105. The same judge had earlier convened meetings of secured and unsecured creditors: In the matter of Boart Longyear Ltd [2017] NSWSC 567, and this Court (as presently constituted) dismissed an appeal: First Pacific Advisors LLC v Boart Longyear Ltd [2017] NSWCA 116. The schemes are, to say the least, highly complex. Their detail is summarised in each of those three earlier decisions and is to a very large extent not presently relevant to the application, filed yesterday, by the applicants to seek leave to appeal from the decision last week.

2. [2]

   The applicants seek, in the first instance, what is styled as a stay of the operation of the orders, although in substance it amounts to an interlocutory injunction preventing the taking of the various steps (including issuing of shares) required by the schemes. They do not proffer an undertaking as to damages, and recognise that they are “in no position to give” such an undertaking which would be in an indeterminate amount.

3. [3]

   The matter has come on very urgently, in light of the fact that the affidavit in support of interlocutory relief stated that the Implementation Date of the schemes might be as soon as 29 August 2017. All other conditions precedent having been satisfied, the Implementation Date turns upon the day when certain orders are made in the United States Bankruptcy Court Southern District Court of New York. As it turns out, Dr Austin, who appeared for the applicants, advised at the commencement of the hearing that the Australian market had been told that the likely Implementation Date was 1 September 2017. The Court was relieved of the need to address the application for interlocutory relief on the assurance of the first respondent Boart Longyear Ltd that nothing would happen overnight to render the applicants’ claims nugatory. The Court heard full argument on the substance of the appeal and reserved its judgment until this morning.

4. [4]

   The applicants, which hold legal title to some 2.8% of the shares in the listed company, were granted leave to appear at the second hearing before the primary judge, to oppose the approval of the scheme. If the scheme is approved, their shareholdings will be diluted very considerably. To the extent it was necessary, leave was granted at the hearing pursuant to r 2.13 of the Supreme Court (Corporations) Rules 1999 for them to appear again.

5. [5]

   The applicants wish to advance two narrow points on appeal. Both are based on the fact that the scheme approved by the Court differs materially from that which was voted upon at the meetings of creditors. Those differences were summarised by the primary judge at [86]-[89], and include alterations to the interest rates and the terms governing the redemption of the Senior Secured Notes and a reallocation of the ordinary shares to be issued (in a way that is disadvantageous to some note holders, who nonetheless support it). The details do not matter in relation to the submissions raised on appeal. The primary judge accepted the parties’ agreed position that the variations were “substantive and material in nature” and further observed that the changes would not have been within the reasonable contemplation of creditors at the time they voted: at [94] and [97]. Save for an explanation of how they came about, it is not necessary for present purposes to say anything more than that.

6. [6]

   Those differences appear to have emerged following a mediation ordered by the primary judge in unusual circumstances described in some detail at [27]-[28], as follows:

7. [7]

   As amended, the company’s application is now supported by First Pacific, Centerbridge, Ares and Ascribe and the overwhelming majority of secured and unsecured creditors.

Grounds of the appeal

1. [8]

   The first proposed ground of appeal was that the power in s 411(6) is not available to a scheme which has substantial or material amendments from that upon which creditors voted.

2. [9]

   The second proposed ground turned on the terms of the resolution which attracted the support of the requisite majorities of creditors and provided for approval:

3. [10]

   Subsection (6) is worded as follows:

4. [11]

   It will be seen that both proposed grounds of appeal are confined to questions of the limits of the discretionary power to approve conferred on the Court, rather than to the favourable exercise of that discretionary power. Although the grounds were formulated in terms of “jurisdiction”, oral submissions used “jurisdiction” and “power” interchangeably, in both cases in contradistinction to the exercise of discretion to approve the scheme as amended. The primary judge addressed power and discretion separately.

5. [12]

   ASIC intervened before the primary judge and submitted that the variations were within power, as the primary judge recorded at [96]. So did the creditors (including those who had previously opposed the convening of the meetings).

6. [13]

   It will be convenient to refer to aspects of the reasons of the primary judge below when addressing the applicants’ submissions. Dispositively, at [108] his Honour explained why he had formed the view that there was power to approve the scheme as varied:

7. [14]

   The reasoning underlying the proposed second ground of appeal was at [107]:

Resolution of the appeal

1. [15]

   The application proceeded on the basis that leave was required. In light of the fact that the Court heard full argument, there should be a grant of leave. However, the appeal should be dismissed.

2. [16]

   Dr Austin took the Court through a series of decisions in which the power under s 411(6) had been mentioned, in order to make two points. The first was that the power had never been used in respect of a scheme which had been amended so significantly as the present scheme. That submission may readily be accepted, and was in fact accepted by the primary judge, who acknowledged at [106] that the present application likely involved variations which went beyond those in any other decided case.

3. [17]

   The second point of the review of authority was in order to rely upon statements in some of the cases, including the following passage in the judgment of Barrett J in Re Permanent Trustee Co Ltd [2002] NSWSC 1177; 43 ACSR 601 at [21]:

4. [18]

   The applicants also pointed to two propositions formulated by Gyles J in Re Investorinfo Ltd [2005] FCA 1848 at [7]:

5. [19]

   The applicants’ submission conflates what is sufficient with what is necessary. None of the decisions to which the Court was taken, save for one, expressed the outer bounds of the s 411(6) power. All, save for one, stated that the power was available in the relatively narrowly confined circumstances of the particular case. There is no sound reason to read the instances to which Dr Austin took the Court as illustrating a limitation upon the power, as opposed to being examples where it was available. The same point is made in the commentaries. T Damian and A Rich, Schemes, Takeovers and Himalayan Peaks (3rd ed, 2013, University of Sydney) p 172 note that:

6. [20]

   I A Renard et al, Takeovers and Reconstructions in Australia (LexisNexis, looseleaf) state that:

7. [21]

   Of course, this is a highly unusual case, by reason especially of the mediation, and the near universal support by creditors for the scheme as amended. The primary judge was alert to the same considerations. His Honour observed at [92] that the power was conferred in unconfined terms, and the circumstances before him were unusual:

8. [22]

   We respectfully agree. In our view, the primary judge was correct to conclude that the power conferred by s 411(6) was not confined in the way in which the applicants contend. There is no reason in the text, or context, or purpose of the section to confine the power to approve of “such alterations or conditions as it thinks just” to alterations or conditions which fall short of being material. The power to approve is conferred in broad terms. It is conferred upon a superior court of record. Ordinary principles of construction would suggest the power is not to be confined in a way which has not been articulated by Parliament: see for example Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270; [2000] HCA 30 at [17], in relation to the power conferred by s 447A:

9. [23]

   None of the Australian authorities supports the existence of the implied limitation. The decision of the Privy Council in Kempe v Ambassador Insurance Co (in liq) [1998] 1 WLR 271, allowing an appeal from the Court of Appeal of Bermuda, is the exception adverted to above. Lord Hoffmann, giving the advice of the Privy Council, dealt with the court’s inherent jurisdiction to correct mistakes in the scheme document, and stated the following limitations at 276:

10. [24]

    Dr Austin maintained that the limitations upon the courts’ inherent jurisdiction not to alter the “substance” of the scheme reflected unstated limitations upon s 411(6). As it was put orally:

11. [25]

    With this we cannot agree. There was no equivalent to s 411(6) in the Bermudian legislation (a point noted by Santow J, obiter, in Re Matine Ltd (1998) 28 ACSR 268 at 286). It would be quite inconsistent with the statutory language to read down the broad terms of s 411(6) by reference to a decision on a legislative scheme which lacked such a power. It is clear that s 411(6) empowers the court to grant its approval to a scheme which is different from that which was approved by members or creditors; if that were not so, the subsection would be entirely otiose.

12. [26]

    Subsection 411(6) is not without limitation. But the power is not circumscribed by the limitations favoured by the appellants, namely, to alterations which are not “material” or “substantial” or “significant”. Instead, it is circumscribed by the requirement that the Court thinks the alteration is one that is just.

13. [27]

    Proposed ground 2 was not at the forefront of the applicants’ written or oral submissions, and for good reason. The submission turned on a qualification in the form of the approval given by creditors. However, as the primary judge noted at [2] of his reasons, all voting secured creditors (representing some 99.63% of the secured debt) informed the Court that they also approved of the scheme as altered following the mediation, notwithstanding the qualification in the resolution at the meeting. And all save one of the voting unsecured creditors (representing some 96.19% of the unsecured debt) likewise informed the Court that they also approved of the scheme as altered following the mediation. There was one creditor whose attitude was not known. It would be to take an extremely narrow view of power to conclude that although there was power under s 411(6) to approve the material changes to the terms of the scheme, the power was unavailable by reason of the terms in which the creditors had formally expressed their approval, notwithstanding their demonstrated approval of the altered scheme.

14. [28]

    In any event, there is nothing in the point. The necessary and sufficient conditions prescribed by s 411(4) for a compromise or arrangement to be binding are twofold. The first is (relevantly) that the requisite majorities agree to the proposed scheme. The second is that the scheme is approved by the Court. The discretion exercised by the Court to approve a scheme will be informed by any qualifications upon the approval expressed by members or creditors. However, the availability of the power to approve (including the power to approve subject to alterations or conditions thought to be just) turns merely on the majorities being achieved. Any condition subject to which the votes are expressed to have been cast does not go to power.

15. [29]

    For those reasons, although there should be a grant of leave, the appeal should be dismissed (as a consequence of which the notice of motion seeking interlocutory relief dated 28 August 2017 will also stand dismissed). The Court’s orders are: