In the matter of Telstra Corporation Limited (No 2)

At the first Court hearing in this matter on 23 August 2022, I made orders, inter alia, that the Plaintiffs, Telstra Corporation Limited (“Telstra”), convene and hold a meeting of Telstra shareholders to consider and, if thought fit, agree to a proposed scheme of arrangement, which relates to an internal restructure of the Telstra group of companies (“Telstra Group”). I set out my reasons for making those orders in my judgment delivered on 2 September 2022 (Re Telstra Corporation Ltd [2022] NSWSC 1180) (“First Judgment”). Telstra’s shareholders have since approved the proposed scheme by the requisite statutory majorities and Telstra now seeks orders under s 411(4)(b) of the Corporations Act 2001 (Cth) (“Act”) approving that scheme and ancillary orders. Telstra also seeks orders under s 413 of the Act for the transfer of certain of Telstra’s assets and liabilities to other entities within the Telstra Group.

Mr Roger de Robillard, who claims to be a contingent creditor of Telstra, opposed the approval of the scheme, or at least sought orders other than that the scheme be approved, and was heard at the second Court hearing under r 2.13 of the Supreme Court (Corporations) Rules 1999 (NSW).

I have drawn on the helpful submissions of Mr Young, with whom Mr Holmes appeared for Telstra, in this judgment.

By way of background, I summarised the essential features of the scheme in the First Judgment at [3]-[4]. I set out that summary below and adopt the definition of terms in that summary in this judgment:

Mr Young points out that the Implementation Deed was amended on 13 October 2022 in relation to the proposed transfer of assets and liabilities as part of the Business Restructure Arrangement. The amendments relate to certain infrastructure assets (alarm assets, mobile huts and cabinets), certain agreements and the scope of historical liabilities regarding legal proceedings remaining with InfraCo Fixed. These amendments do not materially alter the effect of the allocations of those assets and liabilities set out in the Implementation Deed.

Telstra read several affidavits at the second Court hearing in support of the application. By his affidavit dated 14 October 2022, Mr Jack Hill, who is a partner in the firm of solicitors acting for Telstra in the application, refers to the registration of the scheme booklet by the Australian Securities and Investments Commission (“ASIC”) prior to its dispatch to Telstra shareholders and to the notice of the second Court hearing published in a national newspaper.

By her affidavit dated 13 October 2022, Ms Paula McLachlan, who is a business specialist in board and shareholder services at Telstra, outlines the procedures adopted in relation to the dispatch of the scheme booklet and related materials to Telstra shareholders. By her affidavit dated 13 October 2022, Ms Emma Jones, who is a client relationship manager at Link Market Services Limited (“Link”), refers to Link’s engagement by Telstra to provide services in relation to the preparation and dispatch of the scheme booklet and related materials to Telstra shareholders, and to assist with the conduct of the scheme meeting, at which Ms Jones was appointed returning officer. Ms Jones also refers to the conduct of the scheme meeting and her preparation of reports recording the results of the poll conducted on the scheme resolution.

By his affidavit dated 14 October 2022, Mr John Mullen, who is a non-executive director of Telstra and the chair of the Telstra board, outlines the conduct of the scheme meeting, which he chaired, and the voting results of the poll conducted on the scheme resolution. He also refers to a Notice of Appearance received from Mr de Robillard stating his intention to appear at the second Court hearing and object to Telstra’s application for approval of the scheme.

By her affidavit dated 13 October 2022, Ms Karen O’Rourke, who is an executive of Telstra, describes the steps undertaken by Telstra to give notice of relevant aspects of the scheme to Telstra’s creditors and other affected contractual counterparties and, in particular, to inform those parties that their contract with Telstra will be transferred to a different legal entity within Telstra’s group structure. Ms O’Rourke also refers to the responses received from certain contractual counterparties to the notices given by Telstra.

By his affidavit dated 17 October 2022, Mr Benjamin Kiely, who is also a partner in the firm of solicitors acting for Telstra, addresses amendments made to the Implementation Deed in relation to the transfer of assets and liabilities proposed as part of the Business Restructure Arrangement, as set out in an Amending Deed exhibited (Ex BGK-2) to that affidavit. Mr Kiely also refers to the preparation of the Transferring Litigation List (Ex BGK-3 to his affidavit) which sets out the legal proceedings to which Telstra is a party and which, pursuant to the orders it seeks under s 413 of the Act, will be continued by or against ServeCo. Thirdly, Mr Kiely refers to the preparation of the Transferring Property List (Ex BGK-4 to his affidavit) which contains certain land interests owned or held by Telstra or its subsidiaries that will transfer to ServeCo pursuant to the orders sought by Telstra under s 413 of the Act, and notes that it is not an exhaustive list of Telstra’s land interests that will transfer to ServeCo, and that the identification and verification of additional land interests to be transferred remains ongoing.

Finally, by his fourth affidavit dated 19 October 2022 (“Fourth Hill Affidavit”), Mr Hill exhibits a certificate given by Telstra stating that all conditions precedent to the Implementation Deed and the scheme (other than the conditions relating to Court approval of the scheme) have been satisfied or waived. Mr Hill also exhibits a letter from ASIC stating that ASIC has no objection to the scheme for the purposes of s 411(17) of the Act.

As Mr Young points out, s 411(4) of the Act provides that a scheme of arrangement is binding if, at a meeting of members, it is passed by a majority of members present and voting (in person or by proxy) and by 75% of votes cast, and it is subsequently approved by order of the Court. On an application to approve a scheme at the second Court hearing, the Court will consider whether all statutory and procedural requirements in relation to the convening and conduct of the meeting have been observed. Those requirements include whether the meeting was properly convened and held in accordance with the orders made at the first Court hearing, the resolution to agree to the scheme was duly passed, and all relevant requirements of the Act and the Supreme Court (Corporations) Rules 1999 (NSW) have been complied with.

My Young notes that the orders made at the first Court hearing (“Convening Orders”) required Telstra to convene the scheme meeting by providing various documents to Telstra shareholders on or before 9 September 2022, including the scheme booklet which annexed, inter alia, the notice of scheme meeting. The evidence to which I have referred above indicates that these requirements were satisfied.

In respect of full and fair disclosure to members, Mr Young relies on ASIC’s registration of the explanatory statement to submit that ASIC must be taken to have been satisfied that the requirements of sub-s 412(1) were met. I have regard to that matter, but give greater weight to the evidence that a due diligence and verification process was in place and the Court’s review of the substance of that statement. Mr Young also points to the evidence led at the first Court hearing that the prescribed information required under reg 5.1.01 of Sch 8 of the Corporations Regulations 2001 (Cth) was included in the scheme booklet. There is no reason to think that the information in the scheme booklet is not accurate, or that any material facts or considerations have been omitted, or that it is misleading or deceptive. On that basis, there is also no reason to doubt that there has been full and fair disclosure to members of all information material to the decision whether to vote for or against the scheme.

Mr Young notes that order 10 of the Convening Orders provided that a direct vote lodged prior to the scheme meeting and a proxy appointment in respect of the scheme meeting will be valid and effective if, and only if, a voting form is completed and delivered in accordance with its terms and received by Telstra, or a direct vote or a proxy appointment is lodged online by the voting platform, by a specified time. There is evidence that all direct votes and proxy appointments received prior to that time were duly processed and audited, with the voting instructions and proxy appointments recorded against the relevant Telstra shareholder’s details in Link’s software, and a report was generated recording all valid votes and proxy appointments received prior to that time. The evidence also establishes that the requirements of the Convening Orders in relation to the conduct of the scheme meeting were satisfied.

The evidence indicates that the scheme resolution was passed by 99.58% of the votes cast and by 84.99% of shareholders present and voting at the scheme meeting (in each case, in person or by proxy), satisfying the requirement in s 411(4)(a)(ii) of the Act that the scheme resolution be passed by a majority in number of members present and voting (either in person or by proxy) at the scheme meeting, and by 75% of the votes cast on the scheme resolution.

Mr Young recognises that the number of shares voted at the scheme meeting as a percentage of Telstra’s total issued share capital was approximately 48%, and the number of shareholders who voted as a percentage of the total number of Telstra’s shareholders was relatively low, approximately 2.01%, although of a similar order to the percentage of shareholders who have voted at Telstra’s recent annual general meetings. Mr Young submits that this does not give rise to any concern that shareholders were deterred from attending the scheme meeting or did not have notice of it and refers to the observation of Farrell J in Re TriAusMin Ltd (No 2) [2014] FCA 833 at [10]–[12] that:

Mr Young also refers to the observations of Beach J in Re Amcor Ltd (No 2) [2019] FCA 842 at [18]-[20] (“Amcor”) as follows:

Mr Young points out that that approach has been applied in a number of other cases when approving a scheme with a low voter turnout, including Re Beadell Resources Ltd (No 2) [2019] WASC 53; Re Avita Medical Ltd (No 3) [2020] FCA 896 at [10]–[11]; Re Vocus Group Ltd [2021] NSWSC 843 at [11] (“Vocus”); and Re BINGO Industries Ltd [2021] NSWSC 911 at [11]. Mr Young also submits and I accept that the relatively low voter turnout at the scheme meeting does not give rise to any concern that shareholders were deterred from attending or did not have notice of the scheme meeting where, here, as in Amcor, there is nothing to suggest that there was any irregularity in the manner of dispatch of material to the shareholders; shareholders were provided with notice of the scheme meeting; there is no evidence of any issue that would have deterred shareholders from voting at or from attending the scheme meeting; and those shareholders who did vote voted overwhelmingly in favour of the scheme. As Mr Young points out, the relatively low voter turnout at the scheme meeting may reflect the fact that the scheme is uncontroversial for Telstra shareholders, who will retain an equivalent economic interest in the Telstra Group to that which they presently hold after its implementation. As I noted above, the voting participation rate at the scheme meeting was also broadly comparable to the voting participation rates at Telstra’s recent annual general meetings. This matter does not give rise to any reason not to approve the scheme at this hearing.

Mr Young points out that, in accordance with r 3.4 of the Corporations Rules and order 11 of the Convening Orders, Telstra published a notice of the hearing to approve the scheme in a national newspaper substantially in the form that appeared at Annexure B of the Convening Orders not later than 5 days prior to the second Court hearing. No shareholder or creditor other than Mr de Robillard gave notice of an intention to appear at this hearing. I address Mr de Robillard’s submissions below.

Mr Young also recognises that, before approving a scheme, the Court will ordinarily require that all conditions precedent to the scheme (other than the Court’s approval of the scheme and the scheme coming into effect) have been satisfied or waived. Mr Young points out that the Implementation Deed (cl 2.3(b)(iii)) provides that the implementation of the Top Hat Arrangement is a condition precedent to the implementation of the Business Restructure Arrangement. Clause 3.1 of the Implementation Deed in turn provides that the “Restructure” (defined in effect as the Top Hat Restructure and the Business Restructure) is conditional on, and will have no force or effect until, the satisfaction or waiver of the conditions precedent listed in cl 3.1 of the Implementation Deed, which include, inter alia, shareholder and Court approval; a competition law authorisation relating to the agreement between Telstra, ServeCo and nbn that amends the Definitive Agreements (as defined) between them; regulatory consents; necessary third party authorisations; and the ASX confirming that it will grant permission for New Telstra Corp to be admitted to the official list of the ASX and New Telstra Corp Shares to be quoted on the ASX. Clause 3.1 of the scheme in turn provides that the scheme is conditional on several matters.

A certificate confirming that all of conditions precedent in each document respectively (other than the condition requiring Court approval of the scheme) was satisfied or waived as at the specified time on the date of this hearing is exhibited (Ex JAH-4) to the Fourth Hill Affidavit and that provides sufficient evidence that all conditions precedent (other than the conditions relating to Court approval of the scheme) have been satisfied or waived.

I am satisfied that the relevant statutory and procedural requirements in respect of the scheme have been met, and Mr de Robillard did not submit to the contrary. I now turn to the exercise of the Court’s statutory discretion whether to approve the scheme.

Once satisfied of the procedural matters arising at the second Court hearing, the Court will exercise a judicial discretion whether to approve the scheme under 411(4)(b) of the Act: Vocus at [9]; Re Isentia Group Ltd [2021] NSWSC 1069 at [9]; Re Afterpay Ltd [2021] NSWSC 1709 at [14]; Re AusNet Services Ltd (No 2) [2022] NSWSC 79 at [9]; Re Tabcorp Holdings Ltd (No 2) [2022] NSWSC 725 (“Tabcorp”) at [3]; Re ResApp Health Ltd [2022] NSWSC 1353 (“ResApp Health”) at [23]. Mr Young rightly points out that the Court’s role is to assess the scheme taking into account whether it is fair and reasonable such that an intelligent and honest shareholder properly informed and acting alone might approve it; and, although the Court is not bound to approve a scheme simply because it has previously made orders for the convening of a scheme meeting and the statutory majorities have been achieved, the Court will recognise that shareholders are generally the best judges of whether an arrangement is to their commercial advantage, and accordingly, absent good reason, will give effect to their intentions as manifested in the voting at the scheme meeting: Re Seven Network Ltd (No 3) (2010) 267 ALR 583 (“Seven Network”) at 588; Amcor at [7]–[11]; Re Coca-Cola Amatil Ltd [2021] NSWSC 489 (“Coca-Cola Amatil”) at [7]; Vocus at [9]; Tabcorp at [3]; ResApp Health at [23].

Mr Young also rightly recognises that, in deciding whether to give final approval to a scheme, the Court will typically wish to be satisfied that the scheme was approved by shareholders in the requisite majorities, acting in good faith and for proper purposes, and there is no suggestion of oppression of any minority; that there was full and fair disclosure to members of all information material to the decision whether to vote for or against the scheme; that the scheme is fair and reasonable so that an intelligent and honest shareholder, properly informed and acting alone, might approve it; that all matters that could be considered relevant to the exercise of the Court’s discretion have been drawn to the Court’s attention; that the conditions precedent to the scheme have been satisfied or waived, save for court approval; that ASIC has been given the opportunity to draw the Court’s attention to any relevant matter; and that the Court is satisfied under s 411(17) that the scheme has not been proposed to avoid Ch 6 of the Act, or there is a statement from ASIC that it has no objection to the scheme: Seven Network at [35]–[40]; Re Tatts Group Ltd (No 2) [2017] VSC 770 at [32]; Re Westfield Corporation Ltd (No 2) [2018] NSWSC 921 at [7]; Re Coca-Cola Amatil at [8]–[9]; ResApp Health at [24]; Re Crown Resorts Ltd (No 2) [2022] FCA 710 (“Crown Resorts”) at [13]–[14].

Mr Young submits, first, that the scheme is fair and reasonable, in the sense that an intelligent and honest shareholder, properly informed and acting alone, might approve the scheme. He points to the strong support of the Telstra shareholders for the scheme as reflected in the voting results of the scheme meeting. He submits and I accept that proof of the relevant statutory majorities establishes that, prima facie, the scheme is fair, and that the Court generally takes the view that shareholders are in the best position to judge whether an arrangement is in their commercial interests. I have referred to the relevant case law above. Mr Young also draws attention to the Telstra directors’ recommendation that Telstra shareholders vote in favour of the scheme, for the reasons given in the scheme booklet, and the fact that each Telstra director stated their intention to vote the Telstra shares held or controlled by them in favour of the scheme; the opinion of the independent expert that the scheme is in the best interests of Telstra shareholders; the disclosures in the scheme booklet which set out a detailed description of the scheme; and the absence of evidence of any oppression in the conduct of the scheme meeting. Subject to addressing Mr de Robillard’s submissions, which I do below, I am satisfied that the scheme is fair and reasonable, in the sense that an intelligent and honest shareholder, properly informed and acting alone, might approve the scheme.

Second, Mr Young submits that there is nothing to suggest that the scheme has been proposed other than in good faith, or that the Telstra shareholders voted other than in good faith and for proper purposes; and there is no suggestion of oppression of any minority, and no evidence that any third party will be disproportionately adversely affected by the operation of the scheme. I address, and do not accept, Mr de Robillard’s submissions to the contrary below and I am also satisfied of this matter.

Third, Mr Young submits that all necessary matters have been brought to the Court’s attention. He notes that, at the first Court hearing, Telstra drew attention to several matters warranting the Court’s attention, which I addressed in the First Judgment. For the reasons set out in that judgment, none of those matters prevents the Court making the orders sought approving the scheme. Mr Young submits that Telstra has otherwise brought all necessary matters to the attention of the Court and there is no reason to doubt that matter, subject to addressing Mr de Robillard’s submissions.

Telstra seeks orders under s 413 of the Act which would have the effect of transferring certain of Telstra’s assets and liabilities to other entities within the Telstra Group, as well as having the effect that certain litigation pending by or against Telstra is deemed to be continued by or against ServeCo. I summarised the scope of the Court’s jurisdiction under that section in Ovato Print at [47] as follows:

Mr Young in turn points to my observations in the First Judgment (at [28]-[30]) that:

Mr Young properly accepts that the potential effect on creditors occasioned by the proposed transfer of the relevant assets and liabilities is relevant to the discretion whether to approve the scheme and also to the orders sought under s 413 of the Act. He acknowledges that, in reconstruction schemes, whether or not creditors are prejudiced by such a reconstruction is the “real issue in question”; and that, although the scheme does not involve the transfer of assets out of the Telstra Group, it does involve the transfer of assets and liabilities between members of the Telstra Group, and accordingly the interests of creditors may be affected.

Mr Young also submits that the evidence establishes that the scheme is not proposed to defeat or prejudice the interests of creditors of the Telstra Group, including contractual counterparties, and that that creditors of the Telstra Group will not suffer any material prejudice by the proposed transfer of the relevant assets and liabilities. He draws attention to Ms Stoyles’ evidence at the first Court hearing (Stoyles 19.8.22 [197]) and summarised that evidence as follows:

I address the submissions of Mr de Robillard, who claims to be a contingent creditor rather than a creditor, as to these matters below.

Telstra also relies upon the affidavit dated 13 October 20202 of Ms O’Rourke to which I referred above, which describes the steps undertaken by Telstra to give notice of relevant aspects of the scheme to Telstra’s creditors and other affected contractual counterparties, in particular, informing those parties where their contract with Telstra will be transferred to a different legal entity within the Telstra’s Group. Mr Young points out that Telstra also undertook a targeted counterparty engagement process which involved sending notices to affected parties by email and by letter, and adopted other methods of communication such as conducting briefing sessions. Telstra also published two rounds of public notices in newspapers and made other public announcements in respect of its restructuring, and addressed queries raised by affected parties in response to receiving these communications.

Mr Young also recognised that the effect of a scheme on employees of a company being restructured is important, and I referred to that matter in the First Judgment. He submits and I accept that there is no reason to think that the interests of employees will be adversely affected if the proposed scheme proceeds, where they will be transferred on the same terms and conditions as apply to them in their employment with Telstra and their accrued entitlements will also be recognised. Mr Young recognises that it also relevant to consider the interests of counterparties to litigation which are to be affected by the scheme. There is evidence that Telstra has caused litigation searches to be conducted across Australia, including searches covering the High Court of Australia, the Federal Court and the Supreme Courts of each of the States and Territories. Mr Young submits and I accept that there is no reason to think that any party to a proceeding that has not been finalised will be prejudiced by a change of the other relevant party to ServeCo; and, to the extent that any of the opposing parties in the litigation end up being successful in obtaining a money judgment against ServeCo, their positions will be covered by ServeCo’s assets and liabilities and the intercompany agreements.

Telstra submits, and I accept subject to the matters raised by Mr de Robillard, that the Court can be satisfied that creditors of the Telstra Group will not suffer any material prejudice by the proposed transfer of the relevant assets and liabilities provided for on the s 413 orders or the proposed orders in relation to litigation. I address Mr de Robillard’s submissions as to any impact of the scheme on Telstra’s creditors below.

It is now convenient to address Mr de Robillard’s submissions, before turning to several other matters relating to the scheme which were not contested by Mr de Robillard. I should first identify the grounds of objection to the scheme set out in Mr de Robillard’s Notice of Appearance, as follows:

Mr de Robillard addressed his objections to the proposed scheme in oral submissions seeking leave to cross-examine several witnesses, which I did not grant for reasons set out in an ex tempore judgment, and in his submissions concerning the scheme. I will address his objections as articulated on both occasions here. Mr Young submits, in respect of those objections, that Mr de Robillard is a Telstra customer, and the grounds of objection set out in his Notice of Appearance relate to several disputes which he has had with Telstra since 2018 in relation to his mobile, fixed line and broadband services, as well as his Bigpond email account. None of these disputes are the subject of any legal proceedings. Mr Young submits that none of the grounds set out in Mr de Robillard’s Notice of Appearance relate to the proposed scheme or the matters relevant to the Court’s exercise of discretion to approve the scheme, except perhaps that Mr de Robillard asserts in his Notice of Appearance that he is a contingent creditor of Telstra. Mr Young submits that the Business Restructure Arrangement will not materially prejudice the interests of Telstra’s creditors, including Mr de Robillard.

In seeking leave to cross-examine, Mr de Robillard identified a question whether the Court's attention had been drawn to all relevant matters. That submission was notable for its lack of specificity and Mr de Robillard did not identify any particular issue which he suggests was not properly drawn to the Court's attention. Telstra has recognised its obligation of ex parte disclosure at this hearing and I have referred in the First Judgment to the evidence as to the verification process in respect of the scheme booklet. There is no reason to doubt that relevant matters have been disclosed to the Court in respect of the scheme.

Second, Mr de Robillard indicated a concern that the scheme has compulsive, and as he puts it, “oppressive” effect on minority creditors or potential creditors. That proposition has a degree of generality about it, where the scheme plainly, by its structure, involves allocation of assets and liabilities between several entities within the Telstra group, and does not treat creditors differently so it is not apparent how any category of “minority” creditors arises. Any effect of the scheme on creditors, “minority” creditors or potential creditors depends upon the particular impact of the scheme on a particular company in respect of its assets and liabilities. Obviously enough, if each company has sufficient assets to meet any claim or potential claim against it, after the restructuring, then there will be no adverse effect on creditors or potential creditors in that respect. That is a matter which is here addressed by expert evidence, in an independent expert report directed to creditors, and Mr de Robillard did not seek to challenge that evidence and it does not seem to me that any serious question of any adverse effect on creditors arises.

In seeking leave to cross-examine, Mr de Robillard also identified a question whether the interests of other groups would be affected by implementation of the scheme. He does not identify which other groups are likely to be affected, or in which manner, and his interest arises from a claim in respect of poor service from Telstra or conduct which he regards as inappropriate by Telstra. I have had regard to the interest of claimants of that kind and no other groups or representatives of them have themselves identified any concern in respect of the scheme.

In seeking leave to cross-examine, Mr de Robillard identified a question as to an interplay between ss 411 and 413 of the Act and other statutory provisions and public interest issues. I will assume, without deciding, that Telstra may well receive many complaints and Mr de Robillard is likely not its only customer who is, from time to time, dissatisfied with its services; that there are, from time to time, also third party actions against it, as the schedule of transferred proceedings make clear; and, from time to time, there are regulatory actions against it, which from time to time result in damages or regulatory penalties. Those matters do not advance the Court’s assessment of the issues in respect of this scheme. There is no reason to think that the distribution of assets between the particular companies would prejudice the creditors to those companies, or their contingent creditors, a matter which the independent expert report has addressed, again in a report that Mr de Robillard does not challenge.

In seeking leave to cross-examine, Mr de Robillard also referred to the judgment in Australian Competition & Consumer Commission v Telstra Corporation Ltd [2021] FCA 502, which was adverse to Telstra, and identified a question as to the steps which Telstra has taken to address the issues in those proceedings. Mr Young responded that that was not a relevant issue, and pointed to the context of that judgment, and the difference between the issues in that judgment and the service issues of which Mr de Robillard complains. It seems to me that the existence of that judgment also does not raise any significant concern that any creditors or contingent creditors in respect of claims against Telstra will be prejudiced by the reorganisation of the relevant companies and the consequential distribution of assets and liabilities between them.

In seeking leave to cross-examine, Mr de Robillard also referred to Telstra's process for dealing with complaints. So far as he contended this raises a "public interest” issue, Mr de Robillard refers to Re CSR Ltd (2010) 183 FCR 358; 77 ACSR 592; [2010] FCAFC 34 (“CSR”) where, on appeal, Finkelstein J (at [72], [84], [86]) observed that the Court’s role at a first Court hearing was not to consider the merits or fairness of the proposed scheme, but to determine whether there should be scheme meeting(s) and decide the manner in which those meeting(s) should be summoned and conducted and criticised the subjectivity of a concept of “commercial morality” as a basis for not convening such a meeting and, in particular (at [82]-[84]) that:

The proposition that “public policy” does not extend beyond consideration of whether a scheme is fair and reasonable and that “commercial morality” was not an independent ground for refusing approval to a scheme was also approved by Barrett J in Re Centro Properties Ltd (2011) 86 ACSR 584; [2011] NSWSC 1465, there dealing with the approval of a scheme at a second Court hearing. Barrett J there noted what he described as the “strong reservations about the relevance (or, rather, irrelevance) of ‘public policy’ and ‘commercial morality’ as criteria to be applied by the court when deciding whether to approve a scheme” in Finkelstein J’s observations in CSR although noting that the majority did not join in those observations and took a narrower approach. His Honour went on to observe (at [43]-[44]) that:

The same approach was taken in and in Re Capilano Honey Ltd (No 2) (2018) 132 ACSR 332; [2018] FCA 1925 at [6] and in Re Ovato Print Pty Ltd [2020] NSWSC 1882 (“Ovato Print”) at [50].

I recognise, of course, that this is a second and not a first Court hearing, but it seems to me that the question of “public interest” here is not at large, but is confined by the nature of the statutory jurisdiction exercised by the Court. I recognise that Mr de Robillard also draws on cases where, implicitly, he contents the transactions have occurred which are adverse to the public interest, including the redomiciliation of a public company which had substantial asbestos claims against it. He fairly recognises that there is no suggestion that there will be any transfer of assets overseas as a result of this scheme, in a manner that could potentially impact upon the Telstra companies’ ability to meet claims of creditors. This is also an issue which is addressed in the independent expert's report, and Mr de Robillard did not seek to cross-examine the independent expert or challenge the conclusions of that report.

Mr de Robillard also refers to the possibility that there may be third parties with claims against Telstra and that Telstra could be exposed to substantial class actions. I will assume, without deciding, that many Australian companies have consumer claims against them and many Australian companies can be and have been exposed to substantial class actions. That proposition does not suggest that, in the particular circumstances, any judgment in any substantial class action could not be met by reason of the restructuring to be implemented here, which is again a matter which is within the province of the relevant expert report.

In seeking leave to cross-examine, Mr de Robillard indicated that he wishes to cross-examine about Telstra's commercial relationship with a third party and he raises allegations of serious breaches of privacy legislation in that respect. Even if such breaches existed, and to the extent that they sound in money claims against Telstra, there is again no suggestion that the distribution of assets and liabilities between scheme companies will prejudice creditors' ability to make those claims, and that is again addressed by the independent expert report. So far as Mr Robillard here invokes any wider criterion of public interest, that emphasises the significance of the Full Court's observations in CSR case as to the limits of the Court's discretion in that respect. Even if, for example, that commercial relationship had given rise to breaches of privacy legislation, that is not a matter that would warrant the Court refusing the approval of a scheme which was supported by substantial majorities of Telstra’s shareholders; which was not opposed by the Australian Competition and Consumer Commission, ASIC, any representative community organisation, or any creditor or contingent creditor other than Mr de Robillard; and which was otherwise proper for approval. The Court's jurisdiction to approve or not approve schemes under s 411 of the Act is not an ancillary enforcement mechanism for individual claims of a contravention of privacy legislation.

Next, Mr de Robillard raised the question of the number of complaints made to regulators in respect of Telstra, and how many issues remain unresolved. Again, I accept that, notionally, the existence of many unresolved complaints, and many unresolved claims, may be a factual matter that is relevant to the extent of Telstra's liabilities and contingent liabilities to third parties. However, that emphasises that, even if there are some, many, or very many complaints made about Telstra to regulators, there is no suggestion that the structure of the scheme will impact on Telstra's ability to meet any claims for damages against it in respect of such complaints.

Mr de Robillard also noted, in seeking leave to cross-examine, that he submitted that the Court would not necessarily approve the scheme, but would explore other ways in which the scheme could be improved, and referred to the possibility of, for example, mediation in that respect. The case law in respect of schemes makes clear that the Court's role is to assess the scheme which is brought before it, against the relevant statutory criteria, and not to consider whether some better scheme could have been proposed but has not been. Here, the scheme which has been proposed has been put to shareholders of Telstra, who have considered it and expressed their view as to it at a meeting, by approving it by strong majorities. There is no proper basis for the Court to develop or promote any alternative scheme not approved by shareholders, and that does not support withholding approval of the scheme.

In further oral submissions as to whether the Court should approve the scheme at this second Court hearing (T46), Mr de Robillard responded to Mr Young’s submission that the capacity of the several companies, including ServeCo, to meet claims would not be diminished by submitting that the “major assets” of the Telstra Group, including infrastructure assets, will not be held by ServeCo. That submission rightly recognises the structure of the claim, which separates Telstra’s infrastructure business and service business, but takes no account of the adjustment of liabilities under the scheme, or the cross-guarantees which continue after the scheme, or, most importantly, the independent expert’s assessment that creditors are not prejudiced by the transactions, which Mr de Robillard did not challenge. This matter does not give rise to any reason not to approve the scheme at the second Court hearing.

I now turn to several other matters which were addressed by Mr Young but were not relied on by Mr de Robillard in his opposition to the scheme. At the approval stage, the Court must be satisfied there is no proscribed purpose as described in s 411(17)(a) of the Act or there must be provided to the Court a statement in writing by ASIC that it has no objection to the arrangement under s 411(17)(b) of the Act. ASIC has provided that statement which was annexed to the Fourth Hill Affidavit. That satisfies the requirements of s 411(17)(b) and, as Mr Young points out, it is otherwise well established that the Court should not refuse approval of a scheme of arrangement merely because it could have been effected under Ch 6 of the Act.

Section 411(11) of the Act requires, subject to s 411(12), that a copy of the Court’s order approving a scheme of arrangement be annexed to every copy of the company's constitution issued after the order is made. Section 411(12) allows the Court to exempt a body from compliance with this provision or to determine the period during which it shall comply. Mr Young submits and I accept that the Court should exempt Telstra from compliance with s 411(11) where the scheme will not alter Telstra’s constitution; no ongoing purpose would be served by requiring the orders approving the scheme to be annexed to Telstra’s constitution; current shareholders of Telstra are fully informed of the scheme and will be informed if the Court approves the scheme; and an order under s 411(12) is regularly made on the above basis. I accept that exemptions is consistent with the case law:

Mr Young notes that New Telstra Corp Shares (as defined in the scheme) that are to be issued pursuant to the scheme will not be registered under the Securities Act of 1933 (US) or the securities laws of any other state jurisdiction in the United States. At the first court hearing, Telstra foreshadowed an intention to seek to rely on the exemption to registration requirements set out in s 3(a)(10) of the Securities Act of 1933 (US), if the scheme is approved and I noted that matter in the First Judgment.

Mr Young refers to Jacobson J’s consideration of this issue in Re Atlantic Gold NL (No 2) [2014] FCA 869, which has been followed in later cases including Re Ardent Leisure Ltd [2018] NSWSC 1990 at [19] and Re Ellerston Global Investments Ltd 1108 at [18]–[19]. In the former case, I observed that:

I accept that I should adopt that approach in the present case, and record that Telstra has satisfied the requisite conditions of the exemption, as follows. First, the Court was advised before the commencement of the approval hearing that reliance would be placed on the s 3(a)(10) exemption on the basis of the Court’s approval of the scheme, and Telstra shareholders were also informed of this on page 2 of the scheme booklet. Second, the Court has been informed of the securities to be offered as scheme consideration, and an independent expert report concluded that the proposal is in the best interests of shareholders. Third, the Court has held a hearing to consider the fairness and reasonableness of the proposed scheme. Fourth, that hearing was open to the public, and any person to whom New Telstra Corp Shares are to be issued had standing to appear. Notice of the time and date of the approval hearing was included in the scheme booklet sent to Telstra shareholders and was advertised in a daily newspaper circulating throughout the country. In accordance with the usual practice, the Court orders also note that Telstra and New Telstra Corp intend to rely on the Court’s approval of the scheme and s 3(a)(10) of the Securities Act of 1933 (US) in connection with the issue of the New Telstra Corp Shares.

Telstra submits that, having regard to the matters I have addressed above and notwithstanding Mr de Robillard’s submissions, it has satisfied all applicable statutory and procedural requirements for approval of the scheme, and that it is appropriate that the Court exercise its discretion in favour of approving the scheme, and make the transfer orders sought pursuant to s 413 of the Act. I accepted that submission for the reasons I have set out above, and I made the orders sought by Telstra at the conclusion of the second Court hearing on 19 October 2022.