Supreme Court New South Wales

• Medium Neutral Citation: In the matter of Centro Retail Limited and Centro MCS Manager Limited in its capacity as Responsible Entity of Centro Retail Trust [2011] NSWSC 1175
• Hearing dates: 29, 30 September 2011
• Decision date: 05 October 2011
• Jurisdiction: Equity Division - Corporations List
• Before: Barrett J

Decision

Judicial advice that the applicant, as responsible entity of the Centro Retail Trust, would be justified in modifying the constitution of the Centro Retail Trust under s 601GC(1)(b) of the Corporations Act 2001 (Cth) in accordance with the proposed amending deed at tab 5 of exhibit MDB1 to the second affidavit of Michael Dean Benett sworn on 29 September 2011 and the proposed amended constitution at tab 4 of that exhibit

• Catchwords: CORPORATIONS - managed investment schemes - modification of constitution of registered scheme under s 601GC(1) - whether in the particular case the responsible entity may effect modification under s 601GC(1)(b) - meaning of "members' rights" - whether members have a "right" to see new units issued for the price stated in the existing constitution and not otherwise unless some different basis is added by special resolution of members - held that "members' rights" do not extend to a "right" to have the scheme administered according to the existing constitution and not otherwise - "members' rights" to be construed by analogy with company law - need nevertheless for the responsible entity, as a trustee, to act for the benefit of beneficiaries - the possibility of dilution of existing members is a matter to be taken into account in assessing benefit to beneficiaries
• Legislation Cited: Company Law Review Act 1998 (Cth); Corporations Act 2001 (Cth), Part 5.1, ss 601FB(1), 601FC(2), 601GC(1); Trustee Act 1925, s 63
• Cases Cited: Armitage v Nurse [1998] Ch 241; Eagle Star Trustees Ltd v Heine Management Ltd (1990) 3 ACSR 232; ING Funds Management Ltd v ANZ Nominees Ltd [2009] NSW 243; (2009) 228 FLR 444; In the matter of Centro Properties Ltd and CPT Manager Ltd [2011] NSWSC 1171; Lowry (Inspector of Taxes) v Consolidated African Selection Trust Ltd [1940] AC 648; Re Mirvac Ltd [1999] NSWSC 457; (1999) 32 ACSR 107; Premium Income Fund Action Group Inc v Wellington Capital Ltd [2011] FCA 698; Re John Smith's Tadcaster Brewery Ltd [1953] Ch 308; Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146; Shearer (Inspector of Taxes) v Bercain Ltd [1980] 3 All ER 295; Smith v Permanent Trustee Australia Ltd (1992) 10 ACLC 906; White v Bristol Aeroplane Co Ltd [1953] Ch 65; Whitehouse v Carlton Hotel Pty Ltd [1987] HCA 11; (1987) 162 CLR
• Category: Interlocutory applications
• Parties: Centro Retail Limited - First Plaintiff; Centro MCS Manager Limited in its capacity as Responsible Entity of Centro Retail Trust - Second Plaintiff
• Representation: Mr J G Santamaria QC/Mr P Zappia - Plaintiffs; Mr M A Izzo - Australian Securities and Investments Commission as amicus curiae; Clayton Utz - Plaintiffs
• File Number(s): 2011/00285738

Judgment

1 Reasons just published ( In the matter of Centro Properties Ltd and CPT Manager Ltd [2011] NSWSC 1171) concerned one aspect of a complex restructure proposal affecting the Centro Group.

2 These reasons concern another aspect of the same overall plan. They are related to an application under s 63 of the Trustee Act 1925 by Centro MCS Manager Ltd for the opinion, advice or direction of the court on a question relevant to its participation in that complex restructure proposal.

3 Centro MCS Manager Ltd (which I shall call "the applicant") is the "responsible entity" of the Centro Retail Trust ("CRT"), a managed investment scheme registered as such under the Corporations Act 2001 (Cth). Because of the operation of s 601FC(2) of that Act, the applicant is a "trustee" within the meaning of the Trustee Act. The jurisdiction created by s 63 is therefore available to the applicant: Re Mirvac Ltd [1999] NSWSC 457; (1999) 32 ACSR 107.

4 Units of this managed investment scheme are "stapled" to shares in the capital of Centro Retail Ltd ("CRL") to form "stapled securities" each of which consists of one CRT unit and one CRL share.

5 As outlined in the earlier reasons, the overall plan is directed towards aggregation in a single entity of assets of a number of Centro entities. Among the elements of the overall plan are a scheme of arrangement under Part 5.1 of the Corporations Act between CRL and its members and new provisions of the constitution of CRT adopted by the statutory mechanism for altering the constitution of a registered managed investment scheme.

6 The aggregation process envisages the issue by the applicant of new CRT units to the responsible entities of two other registered managed investment schemes or their members at a fixed price. To that end, it is proposed that the constitution of CRT be altered to include a new provision as follows:

"Units may be issued in such number at the Aggregation Issue Price, and to such persons, as is contemplated by the Steps Plan."

7 It is also proposed to insert a definition of "Steps Plan' which cross-refers to an implementation agreement dealing with other aspects of the overall proposal.

8 The proposed definition of "Aggregation Issue Price" is as follows:

" Aggregation Issue Price of a Unit at any time on the Aggregation Implementation Date (in relation to an Aggregation Step which involves the issue of Units) is the amount determined in accordance with the following formula:

AIP = NEV + IAA

TUI___

Where:

AIP means, in respect of a Unit, the Aggregation Issue Price of that Unit;

NEV means at any time, the net equity value of the Assets of the Trust determined in accordance with Schedule 5 of the constitution (as certified by the Auditor or an Independent Adviser);

IAA at any time, is the total of the adjustments to the NEV up to and including that time calculated in accordance with Schedule 5 of this Constitution (as certified by the Auditor or an Independent Adviser). For the removal of doubt IAA may be a negative number; and

TUI means in relation to a proposal issue of Units on the Aggregation Implementation Date, the number of Units on issue at the point in time immediately prior to that issue of Units."

9 The complexities of this definition need not be addressed. Its important feature, for present purposes, is that the main component of "Aggregation Issue Price", at a particular time, is "net equity value of the Assets of the Trust" at that time, determined in accordance with Schedule 5, a schedule which will itself be added to the constitution as part of the amendments under consideration. It is unnecessary to go into the complexities of the Schedule 5 valuation process. It is sufficient to note that the "net equity value of the Assets of the Trust" at a particular time reflects, in general terms, the then value of the trust assets. This, plus the fact that "Aggregation Issue Price" of a unit is the "net equity value" figure, adjusted in certain ways and divided by the number of units on issue immediately before the issue of new units pursuant to the new clause allowing issue at the "Aggregation Issue Price", means, in essence, that units issued under the new clause will be priced by direct reference to the value of the trust assets.

10 This proposed new pricing basis contrasts sharply with the pricing basis permitted by the constitution as it stands. The general rule under the existing provisions is that, where existing units are, either alone or as part of a stapled security, listed for quotation on Australian Securities Exchange (as they now are), new units are to be issued at the "Market Price of the Units" or, if a unit is a component of a stapled security, at the "Market Price of Stapled Securities less the issue price of the Attached Securities".

11 A number of definitions inject meaning into the quoted phrases but it is unnecessary to go to them. The underlying concepts is sufficiently clear from the words themselves: while a unit, either alone or as part of a stapled security, is traded on the stock market operated by ASX, it is the price established by activity on that market that sets the issue price for new units.

12 The new provisions now proposed will sit side by side with the existing geared to market value. The new provisions will allow a single issue, for the purposes of the aggregation involved in the Centro restructure plan, which is at an issue price geared to the value of the fund assets rather then the market value of existing units; and issues, if any, after that single issue has been completed will again have to be at the price dictated by the market value of existing units.

13 The question on which the applicant seeks judicial advice goes to the permissible methods of amending the constitution of CRT by adding the several provisions allowing the single issue of units at an assets value price for the purposes of the proposed aggregation. It is accepted that the matter of alteration of the constitution of the managed investment scheme is governed by s 601GC(1) of the Corporations Act:

"The constitution of a registered scheme may be modified, or repealed and replaced with a new constitution:

(a) by special resolution of the members of the scheme; or

(b) by the responsible entity if the responsible entity reasonably considers the change will not adversely affect members' rights".

14 The applicant asks the court whether it would be justified in acting unilaterally (that is, in the absence of a special resolution of the members of the scheme) to make the envisaged modification of the scheme's constitution - in other words, whether the power conferred by s 601GC(1)(b) is available to effect the modification in question or whether the proposal for modification must be put to members at a meeting for adoption by special resolution.

15 Mr Santamaria QC, who appeared with Mr Zappia of counsel for the applicant, canvassed arguments both for and against and ultimately submitted that a positive answer should be given. Mr Izzo of counsel appeared for Australian Securities and Investments Commission ("ASIC") which had leave to assist the court as amicus curiae . Mr Izzo submitted that the question must be answered in the negative.

16 Both counsel referred to my decision in ING Funds Management Ltd v ANZ Nominees Ltd [2009] NSWSC 243; (2009) 228 FLR 444 (" ING case") and that of Gordon J in Premium Income Fund Action Group Inc v Wellington Capital Ltd [2011] FCA 698 (" Premium case"). ASIC submitted that the reasoning in the latter case points clearly to the unavailability of s 601GC(1)(b) in the present case where a different pricing basis for the new units is proposed to be adopted. The applicant's position is that conclusion to that effect reached by Gordon J is not warranted by the terms of the statutory provision and that s 601GC(1)(b) is available.

17 Both counsel agreed that the approach under s 601GC(1)(b) is as stated in the ING case (at [100] and [102]):

"The task of a responsible entity under s 601GC(1)(b) ... is to assess members' rights as they exist before the modification and members' rights as they will exist after the modification and, if the rights afterwards are different from the rights beforehand, to decide whether the difference in the rights will be, from a member's perspective, unfavourable. To put this another way, the responsible entity must decide whether the change will remove, curtail or impair existing rights in a way that is disadvantageous to the persons whose holdings of units cause them to possess and enjoy the rights. No particular degree of affectation is contemplated by the legislation. Any adverse affectation at all, however slight, is sufficient to deny the responsible entity the modification power."

"The s 601GC(1)(b) power is available to a responsible entity only if it 'reasonably considers' that the modification will not adversely affect members' rights. This form of words has the same meaning as 'considers on reasonable grounds' or 'believes on reasonable grounds'. The requirement is twofold: first, that the relevant belief or opinion be actually held by the responsible entity; and, second, that facts exist that are sufficient to induce the belief or opinion in a reasonable person."

18 A threshold question is whether it is, in the abstract, possible to conclude that the proposed modification now under consideration would not "affect members' rights". Only if "members' rights" are affected does it become necessary for a responsible entity to address the question whether the effect on those rights will be "adverse" and to conclude on reasonable grounds that it will not.

19 The question of adverse affectation of members' "rights" posed by s 601GC(1)(b) was said in the ING case (at [101]) not to be

". . . a general question whether members will be 'worse off' if the change is made (to use language found in the judgment of J D Phillips J in Eagle Star Trustees Ltd v Heine Management Ltd [(1990) 3 ACSR 232]. Nor is it a general question of prejudice or disadvantage. It is a specific question that goes wholly and exclusively to the much narrower matter of members' rights. Their interests are, as stated, another thing altogether. So is the value of their rights."

20 The Premium case concerned the availability of s 601GC(1)(b) to effect a modification of the constitution by which the issue price of new units would be changed. The pre-existing position (laid down by clause 3.2 of the constitution) was stated by Gordon J as follows (at [35]):

"For the first quarter of the PIF Scheme, the Issue Price would be $1.00 per Unit and thereafter $1.00 per Unit unless Wellington considered that the total value of all Scheme Property, divided by the number of issued Units ('Variable Price') was less than one dollar and Wellington was unable to access further funds under the MFS Support Mechanism to increase the total net value of Scheme Property, in which case the Issue Price of the Units would be the Variable Price. The Variable Price reflected the net asset backing of the Units at the time any further Units were to be issued."

21 The effect of the amendment was described by her Honour as follows (at [39]):

"No longer would Units be issued at $1.00 or the Variable Price but instead, relevantly:

1. as at 9 May 2011, Units could be issued at an Issue Price no less than the 90 day volume weighted average price on the NSX; and

2. as at 16 May 2011, while the PIF Scheme is listed on the NSX, the Issue Price could be determined by Wellington who may determine an Issue Price which is more than or less than the current trading price on NSX, provided that any discount would not exceed a maximum discount of 5% to the 30 day volume weighted average price (VWAP) of Units traded on the NSX."

22 In general terms, therefore, an issue price based on net asset backing was to be replaced by an issue price geared to prices at which units traded on a securities market. The shift was thus similar to that proposed in the present case, although, as it were, in the opposite direction (net assets base to market price base, rather than, as here, market price base to net assets base) but with the difference that the new pricing mechanism there was to apply to all future issues, whereas the new pricing mechanism in this case is to apply only to one particular future issue.

23 Gordon J was of the opinion that the proposed constitutional modification was one that did "adversely affect members' rights" or, more accurately, that there was no conceivable basis on which it could be open to the responsible entity to conclude that the modification would not "adversely affect members' rights". Central to that conclusion was the finding that "the contractual right conferred on Unit Holders was that the Issue Price of a Unit would be determined by reference to cl 3.2" (at [35]), that "[t]he legal right was to have new Units issued at a particular price" (at [38]) and that there was a " right conferred on Unit Holders that the Issue Price of a Unit would be determined by reference to cl 3.2 " (at [42]) . The right was more fully described at [34]:

"Here, each unitholder had the right to have any new units issued in the PIF Scheme issued on the terms that were fixed by the PIF Scheme Constitution and not otherwise. Any dilution of their interest was to be a dilution in accordance with the PIF Scheme Constitution, unless of course agreement to modify the PIF Scheme Constitution was achieved by special resolution of the Unit Holders: see s 601GC(1)(a) of the Act."

24 The provision of the constitution setting the issue price for new units was thus seen as the source of a contractual right on the part of every existing member to insist that no new unit be issued except at that price and that, if any new units were to be issued at all, they should be issued at that price and not at any other price. The right was said to be, in effect, a right to maintain a proportionate interest in the scheme based on the existing issue pricing formula and to suffer only such dilution as might result from new issues of units priced according to that formula.

25 Gordon J's actual decision, however, was that s 601GC(1)(b) had not authorised the responsible entity to make the modification because, on the facts, the responsible entity had identified numerous rights of the scheme members (including rights to vote, rights to receive distributions and information and rights in respect of scheme property) but had not identified, let alone considered the impact of, the right to have new units issued at the clause 3.2 price and not otherwise. The responsible entity had therefore not, as a matter of fact, been of the state of mind contemplated by the words " reasonably considers the change will not adversely affect members' rights".

26 That was sufficient to dispose of the matter before Gordon J. Her Honour did, however, express (at [42]) the following opinion on the objective matter of adverse affectation of members' rights:

"Furthermore, in my view, it is apparent that given the modification on 9 May 2011 and also on 16 May 2011, it cannot be said that the change would not adversely affect members' rights. It removed or impaired existing rights in a way that was disadvantageous to Unit Holders. The affectation was adverse to them and, accordingly, that adverse affectation was sufficient to deny Wellington the modification power absent a special resolution of the members of the PIF Scheme."

27 Mr Santamaria submitted that it is incorrect to regard a member of a managed investment scheme of the kind under consideration both here and in the Premium case as having a "right" today to insist that new units not be issued at any time in the future except at the issue price dictated by the constitution as it stands today (there can be no doubt, of course, that there is a right today to insist that units issued today be issued only in accordance with the constitution as it stands today). Such a characterisation would, it is said, entail acceptance of an argument considered but rejected in the ING case (at [98]):

"It is possible to argue that 'members' rights' include a right to have the managed investment scheme operated and administered according to the constitution as it stands. If that is so, any modification of the constitution involves an invasion of that right that is arguably adverse. I am not persuaded that this is a correct approach. It denies all efficacy to s 601GC(1)(b) and must, for that reason, be rejected. Because the power to modify is concerned with the constitution, the focus is on rights created or secured by the constitution itself."

28 Having focussed on the need to consider rights created or secured by the constitution, Mr Santamaria turned to cases about modification of shareholders rights, particularly White v Bristol Aeroplane Co Ltd [1953] Ch 65 and Re John Smith's Tadcaster Brewery Ltd [1953] Ch 308. On the basis of those cases, Young J decided in Smith v Permanent Trustee Australia Ltd (1992) 10 ACLC 906 that the "rights of unitholders" referred to in an amendment provision of a unit trust deed were "the contractual and equitable rights conferred on unitholders by the deed". This is consistent with the earlier decision of J D Phillips J in Eagle Star Trustees Ltd v Heine Management Ltd (1990) 3 ACSR 232 where the right of unitholders to have their units repurchased was seen as a central component of "the rights of unitholders" for the purposes of an amendment provision denying the trustee ability to act alone if of the opinion that "the rights of unitholders may be adversely affected".

29 White v Bristol Aeroplane Co Ltd , a decision of the English Court of Appeal, concerned a proposed issue of both ordinary shares and preference shares, with the latter ranking pari passu with existing preference shares. The question was whether the effect of the proposed new issues was such that "the rights or privileges attached to" the existing preference shares would be "affected, modified, varied, dealt with, or abrogated in any manner", so as to activate a modification of rights provision of the articles forbidding such affectation in the absence of permission given by a resolution of the preference shareholders. One argument in favour of a positive answer was that, because the issue of the new shares would increase the total number of votes exercisable at a general meeting (the preference shares were voting shares, as were the ordinary shares), the rights attaching to the existing preference shares would be "affected", in that each such existing share would come to carry a smaller proportion of total available voting rights. In other words, the existing voting right would be diluted and proportionately diminished.

30 That argument did not prevail. The reason for its rejection is summed up in the concurring judgment of Romer LJ (at 81 - 82):

"The position then [that is, after the new issue of preference shares] will be precisely the same as the position now - namely, that the holder of preference stock will have on a poll one vote for every 1 of preference stock held by him. It is quite true that the block vote, if one may so describe the total voting power of the class, will, or may, have less force behind it, because it will pro tanto be watered down by reason of the increased total voting power of the members of the company; but no particular weight is attached to the vote, by the constitution of the company, as distinct from the right to exercise the vote, and certainly no right is conferred on the preference stockholders to preserve anything in the nature of an equilibrium between their class and the ordinary stockholders or any other class."

31 Re John Smith's Tadcaster Brewery Co Ltd also concerned rights of preference shareholders. It was proposed to issue a large number of ordinary shares to existing ordinary shareholders on the footing that the new shares would be paid up out of the company's retained profits. A modification of rights article provided that "all or any of the rights or privileges attached to any class of shares" could not be "affected, modified, dealt with or abrogated" without the sanction of a resolution passed at a separate meeting of the members of the class. It was again held by the English Court of Appeal that the voting rights of the preference shareholders would not be "affected", in the relevant sense, merely because a greater number of members would have similar voting rights. The increase in capital augmenting the total pool of available votes did not require the sanction of the preference shareholders.

32 These company law cases were decided on the basis that a shareholder has no "right", by virtue of his or her shareholding, to maintain a particular proportion of the totality of a benefit enjoyed by the members in common. In the two particular cases, the benefit concerned was that arising from the right to vote - the collective benefit of members represented by the ability to decide matters within the province of meetings of members. The right of an individual member was seen as the right to cast the particular number of votes attached by the constitution to the member's shares and thereby to exercise the relevant proportion of the total voting power of all shares for the time being on issue. Likewise, the right of a member in respect of dividends would be regarded as the right to such proportion of the profits to be released as the member's shareholding bore to the totality of the shareholdings existing for the time being. In the absence of some very special provision, a member of a company does not possess, in the form of a "right" of membership (or attaching to shares), some right to prevent an increase in the denominator of the fraction that determines his or her participation in voting by or distribution of profits to the members as a whole; in other words, a right to see his or her proportionate participation maintained in undiminished or undiluted form.

33 This thinking tells strongly against the proposition that, in company law, a "right" of a member is "affected" just because new members are introduced so as to become co-participants in voting and profit distributions; or because new shares are issued at prices different from those that applied upon the issue of existing members' shares. In those situations, there is dilution of the positions of existing members such that the voting or dividend participation of each comes to represent a smaller fraction of an enlarged whole. But that involves, at most, what Evershed MR, in White v Bristol Aeroplane (at 74), characterised as "an affecting of the enjoyment of the rights, or of the stockholders' capacity to turn them to account".

34 Against this background, I return to the question whether the members of the managed investment scheme of which the applicant is the responsible entity have, as implied by paragraph [34] of the judgment in the Premium case (see paragraph [23] above), a right to prevent the issue of new units otherwise than at the market-based price so prescribed or such other price as the constitution comes to prescribe as a result of modification by special resolution of members under s 601GC(1)(a).

35 The provision prescribing the price at which units may be issued is a provision that qualifies the power of the responsible entity to issue new units. Proper and valid exercise of the power entails issue at the prescribed price and at no other price. The responsible entity has discretion whether to accept an application for units but no discretion as to the issue price. To say that modification of the constitution to change the prescribed issue price affects the "rights" of existing members is therefore to accept the proposition that members have a "right" to see the scheme administered and operated in accordance with the constitution. For the reason stated at paragraph [27] above, that, in my opinion, is not a "right" of members in the relevant sense.

36 The absence of any such "right" to have the scheme administered and operated in accordance with the constitution and the distinction drawn in the company cases between something that "affects" members' "rights" as such and something that affects enjoyment or value of members' rights or their capacity to turn them to account leads me to the conclusion that, despite what was said in the Premium case, it is open to the applicant, as responsible entity, to form, on reasonable grounds, the opinion that no "right" of members will be affected by the proposed addition to the constitution of the provision allowing a single issue of units at the particular asset value price and not at the market-based price prescribed by the existing provisions. In fact, the applicant, with the benefit of legal advice given to it, has already formed that opinion. It is recorded in minutes of a meeting of its directors held on 27 September 2011. The corollary is that "members' rights" will not be "adversely affected" by the modification of the constitution; and the responsible entity has, on reasonable grounds (that is, that no "right" is affected) so decided.

37 That, while satisfying the condition that makes the c 601GC(1)(b) power available, is not sufficient to enable the court to advise the applicant that it is justified in exercising the power by making the modification in question. The availability of the power is one thing. Whether it may properly be exercised is another.

38 The s 601GC(1)(b) power is a power conferred by statute on an entity declared by statute to be a trustee. Section 601FC(2) expressly states that the responsible entity of a registered managed investment scheme "holds scheme property on trust for scheme members". Since the scheme's constitution is the instrument by which rights of members in respect of scheme property (being trust property) are defined and secured and the responsible entity is required by s 601FB(1) to operate the scheme and to perform the functions conferred on it by the constitution and the Act itself, the s 601GC(1)(b) power, like all other powers of the responsible entity, must be taken to be subject to the constraints that apply to the powers of trustees generally.

39 It must follow, in my opinion, that the responsible entity's power under s 601GC(1)(b) co-exists with the irreducible duty of a trustee to perform the trust honestly and in good faith, for the benefit of the beneficiaries: Armitage v Nurse [1998] Ch 241 at 253 - 254; Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146 at [149].

40 In considering the question of benefit to beneficiaries, company law analogies are again relevant. It is contrary to the duties of directors, as fiduciaries, to favour one shareholder, or group of shareholders, by exercising the undoubted power to allot shares for the purpose of diluting the voting power attached to issued shares held by other shareholders: Whitehouse v Carlton Hotel Pty Ltd [1987] HCA 11; (1987) 162 CLR 285. In addition, it is the prima facie duty of directors to obtain the best price for the issue of new shares. In Shearer (Inspector of Taxes) v Bercain Ltd [1980] 3 All ER 295, Walton J said:

"It is, in normal circumstances, the duty of the company to issue its shares at the highest premium it can command for them, but for good reason it may issue them for any less amount, obviously not less than par."

41 In saying this, Walton J approved the following extract from the speech of Lord Wright in Lowry (Inspector of Taxes) v Consolidated African Selection Trust Ltd [1940] AC 648:

"If the share stands at a premium, the directors prima facie owe a duty to the company to obtain for it the full value that they are able to get. It is true that it is within their powers under the Companies Acts to issue it for par, even in such a case, but their duty to the company is not to do so unless for good reason."

42 The references to "par" in these extracts are, of course, no longer meaningful in Australia following the abolition of par value shares by the Company Law Review Act 1998 (Cth) with effect from 1 July 1998. But that in no way alters the basic principles and their applicability.

43 A responsible entity considering whether to exercise the s 601GC(1)(b) power to modify the constitution of a managed investment scheme must think beyond the question whether the power exists. It is also necessary to conclude that the exercise of the power of modification in the particular way proposed will benefit the members of the scheme, they being the beneficiaries for whom the responsible entity holds trust property.

44 One can think of circumstances where that conclusion simply could not be reached: for example, where the modification entailed the addition of a provision positively requiring the responsible entity to give away virtually the whole of the scheme property to charity or to issue a vast number of new units to a particular person for a purely token consideration. In each of those cases, the responsible entity would proceed in two stages: first, it would decide whether the proposed modification adversely affected members' rights; then, if that question were answered in the negative, the responsible entity would turn its mind to the question whether the proposed modification would be for the benefit of the beneficiaries.

45 In the hypothetical cases mentioned, the responsible entity might well conclude that that members' "rights" as such would not be adversely affected by the modification. The members would continue to have the same "rights" in undiminished and unaltered form - but in one case in respect of a trust fund depleted virtually to zero and in the other in a context where new members enjoyed rights in respect of the trust fund (including rights to distributions) equivalent to those of existing members without having given any value to obtain those rights. Each of the hypothetical cases involves a form of dilution, in that the value of each existing member's interest is reduced by the effect of the modification of the constitution.

46 These matters of dilution and loss of value would be of crucial relevance to an assessment by the responsible entity whether exercise of the power made available by s 601GC(1)(b) would be for the benefit of the beneficiaries and therefore consistent with the general law duty of the responsible entity as a trustee. On the face of things, the responsible entity could not form a positive opinion on that matter in either of the hypothetical cases mentioned.

47 In the present case, there is material before the court that shows that the applicant has made an assessment of benefit to the beneficiaries. Against the possibility that it might be found that the addition of provisions allowing the issue of new units at the "Aggregation Issue Price" entailed affectation of members' "rights", the applicant's directors turned their minds to the question whether any such affectation would be adverse. Their conclusions are recorded in the minutes of the meeting of directors held on 27 September 2011. In answering the question in the negative, the directors said:

"Even if, contrary to the Board's conclusion in paragraph 5, the CRT Constitution does confer rights on CRT unitholders under clause 5 of the CRT Constitution, the proposed placement of CRT Units at a particular fixed price for the purposes of the Aggregation Transaction was likely to be made a premium to the market price of CER Stapled Securities (at least based upon the prevailing CER market price). In this context, the Board noted the view of the independent expert referred to in paragraph 4 above."

48 The paragraph 4 referred to at the end of this extract appeared earlier in the minutes as follows:

"Also noted that the draft Independent Expert's report indicated that the implied value of CER securities was in range of 41-43 cents by virtue of the proposed Aggregation Transaction and that the prevailing CER market price was approximately 28 cents."

49 The draft report here mentioned is in evidence. It has been prepared by Grant Samuel & Associates Pty Ltd. Mr Cooper, a director of that company, has sworn an affidavit in which he testifies to holding to the opinions stated in the draft. One of those opinions is that the value of the stapled securities of which units of the managed investment scheme are a component will be in the range 41 cents to 48 cents per unit after completion of the overall restructure transaction, compared with a weighted average price of 32 cents in August 2011. Another opinion is that, from the perspective of holders of such securities, the benefits of the overall transaction are significant and clearly outweigh the disadvantages. Since units of the managed investment scheme are a component of the stapled securities and every beneficiary of the trust is a holder of stapled securities, the favourable opinions thus expressed relate to the welfare of the beneficiaries.

50 Against this background, the applicant, as responsible entity, is entitled to approach the question of benefit to the beneficiaries (and the particular issue of dilution) on the following basis:

1. Even if the provisions allowing the issue of new units at the "Aggregation Issue Price" are inserted into the constitution, there can be no issue of units under those provisions except as part of the overall restructure transaction.

2. A qualified expert is of the opinion that the value of existing stapled securities (and therefore of existing units) will be higher after completion of that transaction than the average market value in August 2011.

3. The qualified expert is also of the opinion that the benefits of the overall transaction are significant and clearly outweigh the disadvantages.

4. The "Aggregation issue Price" of units is likely to be higher than the market price, so that full and appropriate value will be received for the issue of those units.

5. In the light of these factors, the creation of the mechanism for the issue of units at the "Aggregation Issue Price" will be of benefit to the beneficiaries because that issue will not dilute the existing financial stake of each beneficiary and will see appropriate value introduced in return for the issue.

51 In fact, the directors of the applicant have engaged in that very process of reasoning in reaching the conclusion stated in the minutes of their meeting of 27 September 2011 set out at paragraph [47] above. While the question they there addressed went to an assumed "right" of members, the analysis and conclusion are equally applicable to the matter of benefit to members. The applicant, through its directors, has come to a positive conclusion on the benefit question on the basis of consideration of relevant matters.

52 Finally, I need to deal with a submission of ASIC based on the fact that documents released by the responsible entity (and others involved in the overall restructure transaction) have been on the basis that the relevant modification of the scheme constitution will be approached through s 601GC(1)(a), that is, that the matter will be submitted to a meeting of scheme members who will thereby be given an opportunity to vote for or against a special resolution effecting the modification; also that the relevant scheme and implementation documents are subject to conditions referring to modification of the constitution by s 601GC(1)(a) resolution.

53 ASIC points out that resort to the s 601GC(1)(b) power would represent a significant departure from the course that investors have been led to expect. The response of the applicant is that all that has ever been announced is a proposal and that proposals are of their nature changeable; also that the formal documents contemplating a meeting under s 601GC(1)(a) contain provisions for waiver and modification that would accommodate the particular change of course that is in contemplation.

54 I did not understand ASIC to submit that the applicant is affected by any form of estoppel or that the contemplated change of course will entail any form of statutory misconduct that ASIC may seek to enjoin. Of course, should ASIC consider that any such course is available to it, the mere fact that the court has given judicial advice to the responsible entity will in not inhibit its ability to make an appropriate application for relief.

55 I do not think that the fact of the earlier announcements concerning proposed use of s 601GC(1)(a) represents any form of impediment to the applicants instead using s 601GC(1)(b).

56 For the reasons stated, the court is satisfied, first, that the proposed modification of the scheme constitution by inserting the provisions for the issue of units at the "Aggregation Issue Price" will not affect (whether adversely or otherwise) "members' rights", second, that the applicant, as responsible entity, is accordingly correct in its view that the modification will not "adversely affect" members' rights and, third, that the applicant, as a trustee, having considered whether the modification will benefit the members as beneficiaries, has, on reasonable grounds, come to the view that it will.

57 The court will therefore give judicial advice that the applicant, as responsible entity of the Centro Retail Trust, would be justified in modifying the constitution of the Centro Retail Trust under s 601GC(1)(b) of the Corporations Act 2001 (Cth) in accordance with the proposed amending deed at tab 5 of exhibit MDB1 to the second affidavit of Michael Dean Benett sworn on 29 September 2011 and the proposed amended constitution at tab 4 of that exhibit.

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Decision last updated: 06 October 2011