Ashurst Restructuring Roundup

Communicating with Scheme Creditors: Beware of Zealous Advocacy

A-Cap Energy Limited [2023] FCA 1356 ("A-Cap") and Symbio Holdings Limited [2024] FCA 40  ("Symbio")

The main communication with scheme creditors is the explanatory statement approved at the first court hearing.

However, there can be other communications which are proposed to be sent to creditors.

In the case of other communications which are known at the time of the first hearing, they can include:

• an executive summary of the explanatory statement; and
• a set of scripted answers which can be provided to creditors

The terms of those communications should be brought to the attention of the court at the first court hearing.

What about communications after the first court hearing?

Where the "intended communication is inconsistent with or qualifies the explanatory statement the court has approved" consideration will need to be given to applying for orders approving both the terms and the manner of publishing the communication if a supplementary explanatory statement is not required; see Vita Group Ltd [2023] FCA 400 (at [32]) and Symbio (at [20]).

Prudence would dictate applying to court to approve the communication. The decision in Origin Energy Limited (No.2) [2023] NSWSC 1351 (at [11]) suggests that it is at least highly desirable to seek the court's approval prior to the publication of any supplementary material.

There may be other communications either of a purely administrative nature or communications which encourage creditors to vote on the scheme proposal.

If scheme creditors are being encouraged to vote in favour of the scheme, then:

• the communication should be sent to all scheme creditors because "communications targeted to selected class members have the potential to promote the views of part rather than the whole of the class members and, thereby, unfairly influence or skew the votes cast at the scheme meeting … [and] such communications have the potential to undermine the integrity of the voting process."; A-Cap at [35];
• the communication should "prominently direct recipients to read the scheme booklet before making any voting decision."; A-Cap at [36]; and
• whilst "a degree of advocacy is permissible in communications … such advocacy [must be] fair and honest."; A-Cap at [36].

A failure to follow these guidelines may result in the scheme not being approved on the basis that that failure "undermines the integrity of the voting process or result in [a creditor] being influenced by unfair, unbalanced or misleading information"; A-Cap at [39].

Whilst A-Cap Energy involved a members' scheme of arrangement, the principles from that case will also be generally instructive for creditors' schemes.

Author: Richard Fisher, AM.