J P Morgan Chase Bank N.A. v Australia and New Zealand Banking Group Limited [2011] NSWSC 1359 (11 November 2011)

Last Updated: 18 November 2011

Supreme Court New South Wales

Case Title:	J P Morgan Chase Bank N.A. v Australia and New Zealand Banking Group Limited
Medium Neutral Citation:	[2011] NSWSC 1359
Hearing Date(s):	8 November 2011
Decision Date:	11 November 2011
Jurisdiction:	Equity Division - Commercial List
Before:	Barrett J
Decision:	1. Declare that, for the purposes of clause 3.5(e) of the intercreditor deed dated 15 January 2009 between CPT Manager Limited and others, any instruction by the Senior Financiers (as defined by the said deed) to the plaintiff to vote in favour of the CNP hybrid lenders schemes of arrangement is an instruction that would unfairly compromise the rights of the plaintiff in a manner beyond that which is contemplated by the said deed. 2. Declare that the plaintiff is entitled to exercise its right to vote at the scheme meeting for the CNP Hybrid Lenders schemes of arrangement, in its capacity as a Bond Financier, against the proposed schemes, without separately obtaining the prior written consent of each Senior Representative (as defined in the said deed). 3. Order that the second defendants pay the plaintiff's costs of the proceedings.
Catchwords:	CONTRACTS - general contractual principles - construction and interpretation of contracts - BANKING AND FINANCE - instruments - contemporaneous agreements and collateral securities - deed between senior financiers and bond financiers regarding priority and subordination - senior financiers empowered to direct voting of bond financiers in relation to "Liquidation" of borrower - power not exercisable if "instructions would unfairly compromise the rights of the Bond Financiers in a manner beyond that which is contemplated in this Deed" - whether power exercisable in respect of voting on schemes of arrangement in the particular circumstances - question of construction
Legislation Cited:	Bankruptcy Act 1966 (Cth), Part X Corporations Act 2001 (Cth), Part 5.1, Part 5.3A, s 411, s 413
Cases Cited:	O'Grady v Northern Queensland Co Ltd [1990] HCA 16; (1990) 169 CLR 356 Re Centro Properties Limited and CPT Manager Ltd [2011] NSWSC 1171
Texts Cited:
Category:	Principal judgment
Parties:	J P Morgan Chase Bank NA - Plaintif Australia and New Zealand Banking Group Limited - First Defendant ADM Galleus Fund I Limited and other signing senior lenders listed in the schedule to Commercial List Response filed 3 November 2011
Representation
- Counsel:	Mr J T Gleeson/Mr D R Sulan - Plaintiff Submitting appearance - First Defendant Mr P R Whitford SC/Mr R M Foreman - Second Defendants
- Solicitors:	Corrs Chambers Westgarth - Plaintiff Arnold Bloch Leibler - First Defendant Arnold Bloch Leibler - Second Defendants
File number(s):	2011/00342128
Publication Restriction:

JUDGMENT

1. The plaintiff (which I shall call "JPM") is a holder of bonds issued by Centro Properties Ltd and CPT Manager Ltd under a deed dated 15 January 2009 entitled "bond deed".

2. Those two companies are also the issuers of components of "stapled securities" each of which consists of a share in the capital of the first company and a unit of a registered managed investment scheme of which the second company is the responsible entity.

3. It will be convenient to refer to the two companies together as "CNP" and to each of them as a "CNP company".

4. JPM and other holders of bonds issued by CNP under the bond deed became parties to a deed of the same date (15 January 2009) entitled "intercreditor deed". They are referred to as the "Bondholders" and are listed in schedule 3. Other parties to the intercreditor deed include the so-called "Senior Lenders" listed in schedule 2.

5. The first defendant, Australia and New Zealand Banking Group Limited ("ANZ"), is also a party to the intercreditor deed. It is the "Senior Agent" and, by virtue of that status, is the "Senior Representative" as defined by clause 1.1.

6. The intercreditor deed recites an agreement of Senior Lenders to provide further facilities through conversion of some existing debt to bonds issued under the bond deed; and that the Senior Lenders, the Bondholders and their respective representatives "have agreed to regulate certain intercreditor issues on the terms of this Deed".

7. Of central relevance to these proceedings is clause 3.5(e) of the intercreditor deed. Clause 3.5 as a whole is in these terms:

" 3.5 Restrictions on Bond Financiers

Subject to clauses 3.7 and 4, during the Subordination period, a Bond Financier shall not, without the prior written consent of each Senior Representative:

(a) ( accept payment ) require or accept payment or other satisfaction of any Bond Debt;

(b) ( event of default ) exercise any Power which may only be exercised while an Event of Default under the Common Terms Deed subsists;

(c) ( exercise of rights or powers ) take any step to enforce any Guarantee or Encumbrance held by it in relation to any Bond Debt (including any Guarantee or Encumbrance under the Transaction Documents);

(d) ( Liquidation ) In connection with any Bond Debt, take any step for the purpose of or towards:

(i) levying any execution or obtaining any judgement or order against any Transaction Party; or

the appointment of a Liquidator of any Transaction Party:

(e) ( vote ) in connection with any Bond Debt, vote in any meeting or other decision making body in relation to, or in any way seek to control or influence, the Liquidation of any Transaction Party, other than in accordance with the instructions of the Senior Financiers (except to the extent such instructions would unfairly compromise the rights of the Bond Financiers in a manner beyond that which is contemplated in this Deed);

(f) ( proof ) in connection with any Bond Debt, prove or lodge any proof of debt in the Liquidation of any Transaction Party unless the relevant Bond Financiers turnover all proceeds received to the relevant Security Trustee for application in accordance with the terms of the Security Trust Deeds;

(g) ( set-off ) exercise any right of set-off, deduction or combination of accounts or similar right or procedure in relation to any Bond Debt;

(h) ( challenge ) challenge (nor fund or facilitate another's challenge to) the validity or enforceability of any claim by a Senior Financier against, or any Encumbrance or Guarantee held by a Senior Financier from, any Transaction Party;

( negotiable instruments ) permit any Bond Debt to be evidenced by a negotiable instrument unless the instrument is expressed on its face to be subject to the debt subordination evidenced by the Deed; or

(j) ( deposit ) accept any deposit from or otherwise incur any monetary obligation to any Transaction Party which may be the subject of any set-off, deduction or combination of accounts or similar right or procedure (whether or not compulsory)."

8. The "Bond Financiers" are the holders for the time being of the bonds issued under the bond deed (being, in essence, such of the Bondholder parties as continue to hold bonds together with new holders who accede to the terms of the deed by novation). The "Senior Financiers" are likewise the persons who are for the time being the providers of the senior debt. There was, in the beginning, precise correspondence of membership of the "Bond Financiers" and "Senior Financiers" groups but that has been lost over time. "Transaction Party" refers to the borrower companies and associated companies by which guarantees and charges have been given.

9. The question arising under clause 3.5(e) is, in essence, whether the Senior Financiers may, in the circumstances now prevailing, validly instruct the Bond Financiers to cast positive votes at a particular meeting of creditors of the CNP companies scheduled to take place on 22 November 2011 - or, more precisely, whether any instruction the Senior Financiers actually give to cast positive votes at that meeting will be an instruction which, by operation of clause 3.5(e), will put the Bond Financiers into a position where they will commit a breach of contract if they cast a vote and that vote is not a positive vote. For reasons I shall explain, the answer is "no".

10. Mr J T Gleeson SC and Mr D R Sulan of counsel appeared for JPM. The contention they advanced is that, in the particular circumstances, the power to instruct may not validly be exercised in the way foreshadowed. ANZ takes no position and has filed a submitting appearance, except as to costs. The proposition that the Senior Financiers may validly give the foreshadowed instruction and that the Bond Financiers will be bound by it was advanced by Mr P R Whitford SC and Mr R M Foreman of counsel on behalf of a number of Senior Financiers who have been joined as second defendants. References in these reasons to "the parties" are references to the plaintiff and the second defendants only.

11. The question under clause 3.5(e) arises in relation to voting at a forthcoming meeting to consider proposed schemes of arrangement under Part 5.1 of the Corporations Act 2001 (Cth). The Bond Financiers, as defined by the intercreditor deed, are classified as "hybrid lenders" of CNP for the purposes of proposed schemes of arrangement between each of the CNP companies and the group of their creditors so classified. It will be convenient to refer to those schemes of arrangement as the "hybrid schemes". The Bond Financiers are not the only "hybrid lenders". "Put option lenders", holders of "ANZ DPF Unit Debt", "Facility A lenders" and "Facility B lenders" are also "hybrid lenders" for the purposes of the hybrid schemes.

12. The characteristics shared by hybrid lenders are that their claims are subordinated to those of Senior Financiers and that they have rights, exercisable in certain circumstances, to convert their debt into equity in the form of stapled securities of CNP.

13. Under the proposed hybrid schemes, $20 million will be made available to all of the "hybrid lenders" pro rata to their debts, with some $19.33 million of the $20 million passing to the bondholders.

14. The operation of the hybrid schemes, if they become binding under s 411(4) of the Corporations Act , will be such that the hybrid lenders are compelled to accept the allocated $20 million rateably among themselves in full satisfaction of rights under and associated with their debts being, in the case of the Bond Financiers, their right to principal and interest, their conversion rights and their rights of recourse to guarantees and securities. A more precise description is probably that all such rights will be compromised and extinguished by and upon payment to the Bond Financiers of their share of the $20 million earmarked for hybrid lenders (amounting, as I have said, to some $19.33 million).

15. JPM estimates that its participation in the funds so to be made available to hybrid lenders under the hybrid schemes will yield it less than two cents in the dollar in respect of its bond debt.

16. The court has made orders for the convening of Part 5.1 meetings of the hybrid lenders on the implied footing that they constitute a "class" of the creditors of each of the CNP companies, although it should be pointed out that there has been no agitation of or specific attention to the technical question of the existence of a "class" in the Part 5.1 sense. A single meeting of hybrid lenders is to be held on the day I have mentioned, 22 November 2011. The meeting will consider proposed resolutions agreeing to the two hybrid schemes (one for each CNP company).

17. The Bond Financiers, as members of the relevant group of CNP creditors, will, in terms of the Corporations Act , be entitled to vote at the meeting of creditors to consider the hybrid schemes; and such votes as they cast (along with such votes as are cast by hybrid lenders who are not Bond Financiers) will determine whether the majority contemplated in s 411(4)(a)(i) has agreed to each scheme.

18. The Senior Financiers are, in a real sense, co-proponents of the hybrid schemes put forward by CNP. I shall refer in due course to separately proposed schemes of arrangement involving the Senior Financiers.

19. In approaching clause 3.5(e) of the intercreditor deed and the question referred to at paragraph [9] above, it is necessary to note a number of preliminary matters. First, it is not controversial that there is in fact only one "Senior Representative" (as referred to at the start of clause 3.5) and that the sole "Senior Representative" is ANZ. Second, it is not controversial that the power of the Senior Financiers to give instructions as contemplated by clause 3.5(e) is a power that can only be exercised by ANZ as Senior Representative. This is because of clause 2.4(a):

"The powers of any Senior Lenders under this Deed, including all rights to vote or give instructions to the Security Trustees, may only be exercised by the relevant Senior Representative." [emphasis added]

20. The prior written consent referred to in the opening words of clause 3.5 is therefore a consent of ANZ as Senior Representative and the instructions with which clause 3.5(e) is concerned are instructions of ANZ as Senior Representative. It follows that, if ANZ were to give any instructions as to voting of the kind referred to in clause 3.5(e), the document containing the instructions would, by its central message of command, carry within it consent to obedience to the command and lack of consent to any inconsistent action with respect to voting. On that footing, I do not think that there is any need to address the question of written consent of ANZ within the opening words of clause 3.5 when dealing with an assumed instruction by ANZ to the Bond Financiers that they cast positive votes in relation to the hybrid schemes at the scheme meeting. That is the only form of instruction with which these proceedings are concerned.

21. As to the meaning of "compromise" in clause 3.5(e), it is accepted by the parties that, in the particular context, "compromise" means merely affect or impinge upon.

22. There is then a question whether there are two attributes of a relevant compromising of rights or only one - whether the clause is concerned with a compromising that is, first, "unfair" and, second, takes effect "in a manner beyond that which is contemplated in this Deed"; or whether the concern is with a compromise that, having regard to its overall effect, affects rights in a way that goes beyond the affectation contemplated by the intercreditor deed and does so in an unfair way.

23. I do not consider this a productive debate. The clause works on an implicit assumption that there is a "manner" in which the deed itself "contemplates" that "the rights of the Bond Financiers" may be "compromised". Only if obedience to a voting instruction of the Senior Representative (for the Senior Financiers) would entail a "compromise" of such "rights" (being an affectation of or impinging upon such "rights") in a "manner beyond" that contemplation of the deed itself may the exception operate upon the instruction; but it will operate upon the instruction only if, in addition, the "compromise" (or affectation or impinging) operates "unfairly" - which can only direct attention to what is fair or unfair to the Bond Financiers.

24. Determination of what the deed "contemplates" with respect to the "rights of the Bond Financiers" is thus a crucial step in determining the scope of the power to instruct under clause 3.5(e).

25. The predominant elements of what the deed contemplates, so far as rights of Bond Financiers are concerned, are the core attributes of the bonds (as interest bearing debt obligations of CNP having a specific maturity date and convertible into stapled securities of CNP in certain circumstances) and, more particularly, the character of the bonds as subordinated debt obligations intended to occupy a particular position of relativity to the prior ranking debt obligations of CNP owed to the Senior Financiers. The purpose of the deed is to regulate and ensure the inferior ranking of the indebtedness of CNP represented by the bonds as against the superior ranking of the indebtedness of CNP owed to the Senior Financiers.

26. The main "rights of the Bond Financiers", to use the clause 3.5(e) terminology, are rights to receive payments of principal and interest on a basis that, while secured by certain charges and guarantees, is subordinated so that the bondholders rank for payment behind the debts of the Senior Financiers, coupled with a right to convert to CNP stapled securities in certain circumstances.

27. The bonds, while subordinated to the senior debt, are themselves superior, in terms of ranking, to ordinary unsecured debt of CNP. The Bond Financiers have the benefit of guarantees and securities not held by ordinary unsecured creditors which cause them to occupy what is, in point of ranking and security, a "mezzanine" position.

28. The main subordination provisions of the intercreditor deed - that is, provisions which create the superior position of the Senior Financiers and the inferior position of the Bond Financiers and, in that way, define "rights" of the Bond Financiers - are clauses 3.1, 3.2 and 3.3:

" 3.1 General

The Bond Debt is subordinated to the Senior Debt in the manner set out in this Deed, which is intended to be a debt subordination within the meaning of s 563C(2) of the Corporations Act 2001.

3.2 Bond Debt

(a) Subject to clause 3.7, during the Subordination period, no Bond Debt (other than the fees and expenses of the Bond Representatives and any Reallocated Hybrid Amounts) will be due and payable or recoverable, whether before or after acceleration, except for the purpose of allowing interest or other amounts to accrue or be capitalised.

(b) Subject to clause 3.7, during the Subordination Period a Transaction Party is not obliged to make and shall not make, whether directly or indirectly, any payment of or in reduction of the Bond Debt (other than the fees and expenses of the Bond Representatives).

3.3 Distribution

Subject to clause 3.7, on any distribution of assets of a Transaction Party to creditors and/or shareholders generally, as a direct or indirect result of a Liquidation or anyother total reorganisation of the Transaction Party, all Senior Debt shall first be paid in full before any payment is made on account of any Bond Debt (other than the fees and expenses of the Bond Representatives which shall rank equally with the fees and expenses of the Senior Representatives and the Reallocated Hybrid Amounts). The Liquidator of the Transaction party will distribute the assets of the Transaction Party accordingly.

29. The provisions of clauses 3.2 and 3.3 are expressed to be subject to clause 3.7. Clause 3.5 (see paragraph [7] above) is expressed to be subject to both clause 3.7 and clause 7. In addition, the subordination provisions operate only during the "Subordination period", that is, the period until the Senior Debt has been satisfied.

30. Clause 3.7 deals with the case where bond debt has become payable. It creates permission for Bond Financiers to prove or vote (or both) in the "Liquidation" of the relevant Transaction Party, but on a basis calculated to see the proceeds sheeted home to the Senior Financiers. The purpose is thus to ensure that, if there is any Liquidation in which the Bond Financiers participate while the indebtedness of the Senior Financiers is still outstanding, the Bond Financiers may not retain that benefit as against the Senior Financiers. Clause 7 is concerned with variation and amendment of the intercreditor deed and various related documents.

31. Clause 3.5, clearly enough, operates in aid of and is supplementary to the subordination provisions, including those in clauses 3.1, 3.2 and 3.3, the intention being that the particular restrictions and constraints in clause 3.5 should operate upon the Bond Financiers to ensure the efficacy of the contracted subordination, but with exceptions being available on a case by case basis if the Senior Representative so allows. The Senior Representative is cast in the role of guardian of the clause 3.5 constraints in the interests of the Senior Financiers and the maintenance of the subordination of which they are the beneficiaries.

32. More particularly, clause 3.5(e) acts in aid of and is supplementary to the subordination for the benefit of the Senior Financiers because it enables the Senior Financiers, through the Senior Representative, to control the exercise of relevant voting rights of Bond Financiers and thereby to protect the interests of (and the superior position occupied by) the Senior Financiers - it being recognised, however, that the power of control should not be available if its exercise would "unfairly compromise the rights of the Bond Financiers in a manner beyond that which is contemplated by this deed".

33. Clause 3.5(e) is, however, limited in its coverage. It is concerned only with "the Liquidation of a Transaction Party" and with voting relevant to such a "Liquidation". It is therefore necessary to consider what the "rights" of the Bond Financiers are with respect to "the Liquidation of a Transaction Party" and the "manner" in which the intercreditor deed itself contemplates that those rights may be affected or impinged upon.

34. As noted above, "Transaction Party" refers to the two CNP companies plus the associated companies by which guarantees and securities have been given. "Liquidation" and "Liquidator" are defined as follows:

" Liquidation has the meaning given in the Headstock Security Trust Deed".

" Liquidator of an entity means any person who may be charged with the Liquidation of that entity (whether by contract, statute or otherwise). It includes a liquidator, administrator, receiver and receiver and manager."

35. The definition of "Liquidation" in the Headstock Security Trust Deed is:

" Liquidation includes receivership or other appointment of a controller, deregistration, compromise, deed of arrangement, amalgamation, administration, reconstruction, winding up, dissolution, assignment for the benefit of creditors, arrangement or compromise with creditors or bankruptcy."

36. Other provisions of the intercreditor deed concerned with "Liquidation" of a Transaction Party are:

(a) clause 3.3 regulating application of "any distribution of assets of a Transaction Party to creditors and/or shareholders generally, as a direct or indirect result of a Liquidation or other total reorganisation of the Transaction Party";

(b) clause 3.5(d) (see paragraph [7] above) regulating a Bond Financier's taking of any step for the purpose of the appointment of a Liquidator of any Transaction Party;

(c) clause 3.5(f) (see paragraph [7] above) regulating a Bond Financier's proving or lodging a proof of debt in the Liquidation of a Transaction Party;

(d) clauses 3.7(b) and (c) which, in effect, provide (as noted at paragraph [30] above) for appropriation towards Senior Debt of anything received by way of payment or distribution of assets of a Transaction Party as a direct or indirect result of a Liquidation of the Transaction Party;

(e) clause 4(c) which is concerned with the Bond Financiers lodging a proof of claim for Bond Debt in the Liquidation of a Transaction Party and the destination of proceeds (there is also provision concerning an entitlement of Bond Financiers "to vote in connection with the Liquidation of a Transaction Party"); and

(f) clause 4(d) concerning action by Bond Financiers to appoint or take a step for the purpose of appointing a Liquidator of a Transaction

37. The import of the provisions concerned with the Liquidation of a Transaction Party is that Bond Financiers are, in general, precluded from initiating such Liquidation or exercising any decision-making role in relation to any proposed Liquidation; and, if and to the extent that Bond Financiers do come to participate under such a Liquidation, proceeds they receive are to be surrendered to the Senior Financiers. These are elements of the subordination regime favouring the Senior Financiers.

38. When clause 3.5(e) is viewed in that way, it is seen to be a provision aimed at ensuring that the Senior Financiers can, in order to protect the subordination of which they are the beneficiaries, control the exercise of voting rights exercisable by Bond Financiers on any proposal to impose or initiate Liquidation of a Transaction Party or otherwise affecting any such Liquidation.

39. Implicit in the controls put at the disposal of Senior Financiers to protect the benefit of subordination is the notion that, in the case of Liquidation, Bond Financiers may come to receive or enjoy something that, according to their subordination compact with the Senior Financiers, ought properly have been received or enjoyed by the Senior Financiers.

40. The hybrid schemes, if implemented, will extinguish the rights of Bond Financiers (as a sub-group of hybrid debt creditors) to receive the face value of their bonds on maturity, the right to receive interest in the meantime on the days appointed for the payment of interest and the right to resort to guarantees and securities if payment is not forthcoming. The abolition of those rights, by force of the statutory provisions in Part 5.1, as activated by an order of the court under s 411(4)(b), is not something that the intercreditor deed contemplates. Its only contemplation is that the rights just mentioned will continue to be enjoyed by bondholders indefinitely or, more precisely, until the contracted maturity of their bonds - but with the rights qualified and regulated by the several subordination provisions while debt remains owing to the Senior Financiers.

41. It was submitted on behalf of the second defendants that the "contemplation" of the intercreditor deed is to the effect that the interests of the Senior Financiers will in all things take precedence over the interests of the Bond Financiers. Reference was made to clause 6.1 which states that each Senior Financier may "treat the interests of all Senior Financiers as paramount when exercising any Power". This provision is, to my mind, no more than a machinery aspect of the provisions designed to maintain the relativities inherent in the contracted regime of subordination. It does not warrant a finding to the effect that the deed contemplates some general and all-pervasive paramountcy of the interests of the Senior Financiers. I therefore do not accept the submission.

42. It was also submitted on behalf of the second defendants that a "contemplation" beyond the matters relevant to maintenance of the contracted relativities is indicated by provisions which, in effect, require Bond Financiers to take positive steps in some circumstances to enhance prospects of the Senior Lenders recovering payment. I disagree. Those provisions are merely part of the means of ensuring that the relativities are maintained.

43. It is relevant to note that the hybrid schemes will not become binding or be implemented unless certain specified conditions are satisfied. Certain of those conditions relate to separate but parallel schemes of arrangement (the "senior debt schemes") between each CNP company and the Senior Financiers under which the Senior Financiers will receive equity in the form of stapled securities of an enlarged and aggregated Centro entity in return for extinguishment of their CNP debt. Among the conditions to which the hybrid schemes will be subject is a condition that the senior debt schemes are approved by the court under s 411(4)(b) - a condition that is, of course, impossible of fulfilment unless the Senior Financiers have approved the senior debt schemes by the majority specified in s 411(4)(a)(i).

44. The hybrid schemes are thus formulated on a basis that prevents their taking effect unless the Senior Financiers have, by their independent voting on the senior debt schemes, approved a restructuring of their own debt so that it is converted into equity of the enlarged and aggregated Centro group.

45. It is pertinent to note also other elements of a wider plan of which the hybrid schemes and the senior debt schemes form part. In a judgment of 5 October 2011 dealing with the s 411(1) applications in respect of the senior debt schemes ( Re Centro Properties Limited and CPT Manager Ltd [2011] NSWSC 1171), I said at [4] to [12]:

"4 The proposed schemes of arrangement involving the senior lenders represent part only of a very complex re-structure proposal under which assets of a number of Centro entities (extending beyond CPL and CPT) will be, in effect, aggregated in a single entity some 74% of the equity securities of which come to be held by CNP (that is, CPL and CPT together); after which those two companies will transfer those equity securities to the senior lenders by way of what is, in concept, compensation for the extinguishment of their debts by force of the schemes.

5 The effect of the [senior debt] schemes, from the point of view of the senior lenders, will be to deprive them of their debts and creditor rights and to cause them to hold instead equity securities of the aggregated entity.

6 As part of the wider plan, certain payments will be made by CNP (that is, CPL and CPT) to parties designated the 'junior stakeholders', being the 'hybrid lenders', the 'convertible bondholders' and the 'CNP security holders'. The moneys proposed to be paid to these 'junior stakeholders' constitute the 'junior stakeholder amount'. The aggregate sum is $100 million.

7 The 'hybrid lenders' are creditors of CPL and CPT in respect of whom separate schemes of arrangement are to be proposed. Those schemes, if implemented, will see the debts of the hybrid lenders compromised and extinguished in return for an aggregate payment of $20 million to those creditors.

8 The 'convertible bondholders' hold unsecured debt obligations of CPL and CPT which are convertible into stapled securities in certain circumstances. They are accordingly creditors of CPL and CPT.

9 The 'CNP security holders' are the holders of the stapled securities each of which consists of a share in the capital of CPL and a unit of the managed investment scheme of which CPT is the responsible entity. They are the equity investors.

10 Under the wider proposal, the hybrid lenders will be called upon to vote at court-convened meetings in respect of the separate scheme of arrangement for extinguishment of their debt in return for payment of the $20 million earmarked for that purpose.

11 The convertible bondholders will be called upon to vote at a meeting (convened pursuant to provisions of the trust deed under which the convertible bond have been issued) with a view to adopting amendments to the trust deed that will see all the convertible bonds redeemed in consideration of payment to bondholders of the sum of about $21 million set aside for that purpose.

12 The CNP security holders will be called upon to vote at a combined general meeting of CPL and CPT convened to consider a resolution approving transfer of all the stapled securities of the new entity received by CPL and CPT . . .".

46. I also referred to the way in which a particular fund of $100 million was proposed to be applied under the wider plan:

(a) $20 million, as already noticed, for payment of consideration under the hybrid schemes;

(b) $21,074,918 for payment of consideration under the proposal for redemption of the convertible bonds;

(c) $48,925,082 for payment to the CNP security holders in connection with transfer of their stapled securities;

(d) $10,000,000 to be set aside for contingent creditors.

47. I have referred at paragraph [43] above to the condition of the hybrid schemes that makes their effectiveness and implementation dependent on the Senior Financiers' agreeing to the senior debt schemes and the court approving those schemes. Other conditions to which the hybrid schemes will be subject are that the voting constituencies mentioned at 11 and 12 of the extract at paragraph [45] above pass the resolutions to be placed before them. There is, in that way, a composite and inter-linked plan that will see the elimination of not only all debt owed by CNP to the Senior Financiers, the Bond Financiers, the other hybrid lenders and the convertible bondholders but also the availability of only a limited (and apparently modest) fund for other creditors.

48. Given the whole of the surrounding circumstances, is it correct to regard voting by Bond Financiers at the hybrid scheme meeting as voting "in relation to ... the Liquidation of" the CNP companies?

49. This question must be answered "yes". The definition of "Liquidation" is not exhaustive, in that it begins, " Liquidation includes . . .". The definition must thus be taken to extend to "liquidation" in its ordinarily accepted meaning as the process that sees assets assembled, liabilities ascertained and the former applied towards satisfaction of the latter. It seems to me that all the particular instances following "includes" contemplate a process affecting the generality of creditors. Items such as "deed of arrangement" and "assignment for the benefit of creditors" (concepts found in Part X of the Bankruptcy Act 1966 (Cth)), "administration" (a term used in Part 5.3A of the Corporations Act ), "winding up" (probably synonymous with the undefined "liquidation" already mentioned) and "reconstruction" and "amalgamation" (terms found in s 413 of the Corporations Act ) are things which, of their nature, affect creditors as a general body - as do "bankruptcy" and "arrangement or compromise with creditors". Unless the definition is aimed at processes involving the generality of creditors, the "compromise" (being the word appearing in the definition between "deregistration" and "deed of arrangement") of a single creditor's debt of $100 would be a "Liquidation".

50. The defined concept of "Liquidation" is employed in the particular provisions that constrain action of Bond Financiers so as to make more secure the protections afforded to the Senior Financiers by way of subordination of the rights and claims of the Bond Financiers. "Liquidation" is thus a process that, if not made the subject of specific regulation, might see Bond Financiers participate on a footing not taking account of their contracted subordination. "Liquidation", of its nature, thus entails participation by Senior Financiers and Bond Financiers in what would be competition with one another were it not for the agreed subordination. This reinforces the nature of "Liquidation" as something extending beyond one creditor or group of creditors to the body of creditors generally.

51. The voting in which Bond Financiers will be invited to engage at the hybrid scheme meeting is, in a narrow and immediate sense, voting with respect to the hybrid schemes but, in a commercial sense, voting in relation to all of the interlinked elements. Having regard to the conditions to which they are subject, the hybrid schemes cannot be viewed in isolation. According to their own terms, they will proceed to completion, if at all, only in company with all of the other elements on which they are conditional; and those elements, taken together with the hybrid schemes themselves, entail a radical and wholesale alteration of the rights of creditors across the board: the Senior Financiers will forego their debt and receive equity, the hybrid lenders will become subject to a compromise which sees them receive less than the amount of their debts, the convertible bondholders will become subject to a compromise under which they receive less than the face amounts of their bonds, and the unsecured creditors will be left with a modest fund to share among them.

52. These elements, taken together, amount to a collecting of assets and the application of those assets in defined ways towards or in respect of the claims of the various categories of creditors. The overall process is therefore, in my opinion, within the concept of "Liquidation" as defined for the purposes of the intercreditor deed.

53. The envisaged voting by the Bond Financiers will be, in an immediate sense, voting on the proposal to approve the hybrid schemes; but, given the overall context, it will be, in a real and substantial sense, voting "in relation to" (words of very wide import: O'Grady v Northern Queensland Co Ltd [1990] HCA 16; (1990) 169 CLR 356 at 365 per Brennan J) the "Liquidation" of each of the CNP companies as contemplated by clause 3.5(e).

54. It follows that the power of the Senior Representative may be exercised so as to give an instructions under clause 3.5(e) as to voting at the meeting of creditors to consider the hybrid schemes - except to the extent that the instruction would "unfairly compromise the rights of the Bond Financiers in a manner beyond that which is contemplated by this Deed".

55. I am of the clear opinion that exercise of the instructing power to preclude the casting of Bond Financiers' votes otherwise than in favour of approval of the hybrid schemes would entail affectation of or impingement upon the rights of the Bond Financiers beyond the contemplation of the deed.

56. The Bond Financiers will have a statutory right, as creditors summoned to the hybrid schemes meeting, to vote as they choose on the question of the approval of the hybrid schemes. Obedience to the postulated instruction would mean that the Bond Financiers had to vote in favour of the approval of the hybrid schemes or desist from voting altogether. There would thus be an obvious affectation of or impingement upon their right to vote as they choose. The contemplation of the deed, as I have said, is to ensure that there is maintained, for the benefit of the Senior Financiers, the inferior and subordinated position of the Bond Financiers while debt obligations are owed by CNP to both groups (subject to the possibility that the Senior Financiers may themselves decide to forego the advantage of the Bond Financiers' subordinated position); and that the creditor rights of the Bond Financiers should be curtailed so as not to compete for payment in a "Liquidation" with those of the Senior Financiers. An element of this is that the Bond Financiers should not receive payment of principal while the indebtedness owed to the Senior Financiers remains unsatisfied and that any payments the Bond Financiers do receive should be surrendered by them to the Senior Financiers.

57. Voting by the Bond Financiers in accordance with the postulated instruction (that is, in favour of approval of the hybrid schemes) would do nothing to protect the position of the Senior Financiers as the beneficiaries of the subordination. That voting would, in a narrow sense, go to the question whether the Bond Financiers should lose their creditor rights altogether in return for the stipulated payment of $19.33 million to be shared rateably among them. In a broader sense, the voting would go to the question whether the wider plan as a whole should be implemented, including elimination of the Bond Financiers' creditor rights in return for the $19.33 million and elimination of the Senior Financiers' creditor rights in return for an equity position in the enlarged Centro group. In each of those outcomes, the relativities of Senior Financiers and Bond Financiers as creditors, in terms of competition for funds, is simply not an issue. The particularly envisaged "Liquidation" is one that sidesteps the issues of creditor relativity and competition that are the preoccupation of the intercompany deed and the reason for its existence.

58. It is, I think, significant that the Senior Financiers are co-promoters of the hybrid schemes. The explanatory statement indicates that the $100 million of which the $19.33 million for Bond Financiers forms part will be made available by agreement of the Senior Financiers out of funds in an escrow account established by the Senior Financiers. Whether the money in this account is, as it were, "owned" by CNP or by the Senior Financiers is a question that was noted but not answered in the judgment of 5 October 2011 at [35] to [37]. It is, however, clear that the availability of the money is a product of some form of forbearance by the Senior Financiers.

59. The fact that the Senior Financiers are co-promoters of the hybrid schemes, as part of the wider plan, is, in my opinion, relevant to the last question to be considered, that is, whether the affectation or impingement that the postulated instruction would produce is unfair, in that the instruction would compromise the Bond Financiers' rights "unfairly".

60. I am satisfied that the answer is "yes". The voting instruction, if given, would do nothing to preserve or protect the position of subordination that is the central concern of the intercompany deed. Obedience to it would mean that Bond Financiers were required to sacrifice their own interests, as regards voting, except to the extent that those interests, as perceived by the Bond Financiers themselves, happened to coincide with those of the Senior Financiers as reflected in the instruction. The instruction would be a means by which the Senior Financiers, as co-promoters of the overall plan of which the hybrid schemes form part, imposed their will with a view to enhancing the prospects of achieving fulfilment of their overall plan and thus for a purpose foreign to any purpose to be served by the intercompany deed and the power to give voting instructions it creates. That purpose would accordingly be an extraneous and improper purpose; and effectuation of it by the Senior Financiers would impact unfairly on the right of the Bond Financiers to decide for themselves how their votes should be cast in relation to the hybrid schemes.

61. In the result, therefore, I am satisfied that any instruction purportedly given by the Senior Financiers under clause 3.5(e) of the intercreditor deed that the Bond Financiers vote at the hybrid scheme meeting in favour of the hybrid schemes would be an instruction that, according to the correct construction of clause 3.5(e), was beyond the scope of the power to instruct that the clause confers.

62. JPM, as plaintiff, is entitled to the declaratory relief claimed in the summons filed on 26 October 2011, as follows:

1. Declare that, for the purposes of clause 3.5(e) of the intercreditor deed dated 15 January 2009 between CPT Manager Limited and others, any instruction by the Senior Financiers (as defined by the said deed) to the plaintiff to vote in favour of the CNP hybrid lenders schemes of arrangement is an instruction that would unfairly compromise the rights of the plaintiff in a manner beyond that which is contemplated by the said deed.

2. Declare that the plaintiff is entitled to exercise its right to vote at the scheme meeting for the CNP Hybrid Lenders schemes of arrangement, in its capacity as a Bond Financier, against the proposed schemes, without separately obtaining the prior written consent of each Senior Representative (as defined in the said deed).

63. There will also be a costs order as follows:

3. Order that the second defendants pay the plaintiff's costs of the proceedings.

64. I should observe, by way of footnote, that, the questions raised by these proceedings have been approached by me as questions of construction of the contract and that, while it has been necessary to have regard to elements of today's circumstances as they affect the parties, I have viewed the matter of the value of the Bond Financiers' bonds (in particular, whether they today have any remaining economic worth) as beyond the scope of the necessary inquiry. I have therefore not considered evidence going to the value question that was received subject to determination of an objection as to relevance.

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