In the matter of Opes Prime Stockbroking Limited [2009] FCA
813 (Finkelstein J) Fowler v Lindholm, in the matter of Opes Prime
Stockbroking Limited [2009] FCFCA 125 (Emmett, Gordon & Jagot
JJ)
Facts
- The Opes group of companies engaged in financing its clients'
share trading and, as part of that process, entered into securities
lending arrangements.
- In March 2008 the Opes group of companies was insolvent.
- This insolvency led to the appointment by various creditors of
receivers and managers, then voluntary administrators and
eventually liquidators.
- This insolvency also led to a spate of litigation, including
against ANZ and Merrill Lynch. The essential allegation was that,
when they lent their securities, clients were misled about the true
nature of the arrangements they entered into. There were also
allegations of breach of trust, breach of fiduciary duty, breach of
contract and mistake.
- The allegations against ANZ and Merrill Lynch were that they
received the securities from the Opes group companies, as part of
their financing arrangements with those companies, with knowledge
of the various allegations detailed above.
- The liquidators were considering actions against various
parties over certain transactions and ASIC commenced an
investigation that could have seen ANZ in hot water.
- The liquidators entered into mediation with the banks which
eventually led to a settlement recorded in an Implementation
Agreement dated 1 May 2009.
- The key terms of settlement were:
- settlement would be effected by a series of schemes of
arrangement under the Corporations Act
(Act);
- ANZ and Merrill Lynch would contribute $226 million to a scheme
fund to be distributed to creditors;
- certain assets held by the receivers would be returned to the
liquidators; and
- ANZ, Merrill Lynch, the receivers, Green Frog (an Opes group
company) and its liquidators would be released from all claims by
the Opes companies, their liquidators and Opes clients. ASIC would
indicate it would take no action against ANZ and Merrill Lynch and
their officers.
Issues
Trial
Finkelstein J considered several
issues. The key issues were:
- Can a scheme of arrangement bar a claim against a third
party (the scheme's releases would prevent Opes clients from suing
ANZ and Merrill Lynch)?
Finkelstein J answered the question in the affirmative. His Honour
held that, provided there was a sufficient nexus between a release
and the relationship between the creditor and the scheme company,
the scheme can validly incorporate the release. His Honour
considered that the creditors' claim against the Opes companies and
the banks largely, and in some cases completely, overlapped. The
schemes were in settlement of interlocking claims and, in the
absence of the release, none of the claims would have been
compromised.
- Whether s411 of the Act permits the acquisition of property
other than on just terms in breach of the Constitution?
His Honour answered this question in the negative. His Honour held
that in effect neither the schemes nor the Act could be
characterised as dealing with, or with respect to, the acquisition
of property for the purposes of the Constitution. Any acquisition
of property was merely an incident of the scheme. His Honour was
not satisfied that what was contemplated was other than fair.
The remaining issues concerned procedural matters relevant to
schemes of arrangement that need not be dealt with in this case
note.
Court of Appeal
The Court of Appeal upheld the findings
of Finkelstein J on the issue of the release of third-party claims,
which was the main ground of appeal.
The Court confirmed it is permissible to incorporate into a scheme
of arrangement an involvement or participation by an outsider,
being a person or entity who is not a party to the scheme as a
company or creditor. There was nothing in principle to prevent a
scheme of arrangement incorporating an arrangement between
creditors and third parties provided there was an element of 'give
and take'. The contribution by the banks in exchange for the
release (and indemnity) was such a give and take.
The Court held there was a sufficient nexus between the release and
indemnity and the relationship between the creditor and the
company, as creditor and debtor such as to qualify the schemes as
schemes of arrangement under the Act. The claims of creditors
against the scheme companies and the claims against the banks
substantially overlapped and the scheme arrangement involved a
settlement of claims that were significantly interrelated. Without
the release, there would be no compromise or arrangement.
Observation
These decisions provide a new
possibility for resolving complex insolvencies with multi party
interests.
A note of caution, however. The third-party release issue was also
recently considered in City of Swan v Lehman Brothers
Australia [2009] FCFCA 130 in the context of a DoCA. The Court
of Appeal, constituted by Stone, Rares and Perram JJ, found the VA
provisions of the Act did not permit the release of third-party
claims. This Court of Appeal was not enthusiastic about the
findings of the Opes Court of Appeal on the issue, although its
observations were not strictly necessary for the findings it
made.
The High Court has granted special leave to appeal the decision.
The outcome will be known later this year.