Business_Law

DUET Group (DUET) is an ASX-listed owner of energy utility assets in Australia and the United States. DUET is managed jointly by AMP Capital Investors Limited and Macquarie Capital Group Limited. DUET consists of three registered managed investment schemes and an Australian public company: Diversified Utility and Energy Trust No.1 (DUET1), Diversified Utility and Energy Trust No.2 (DUET2), Diversified Utility and Energy Trust No.3 (DUET3) and DUET Investment Holdings Limited (DIHL). These four entities are stapled together and trade on the Australian Securities Exchange (ASX) as one DUET Group security (DUE.ASX). The responsible entity of DUET1 is AMPCI Macquarie Infrastructure Management No.1 Limited. The responsible entity of DUET2 is AMPCI Macquarie Infrastructure Management No.2 Limited. The responsible entity of DUET3 is AMPCI Macquarie Infrastructure Management No.2 Limited. DIHL is advised by AMPCI Macquarie Infrastructure Management No.1 in its personal capacity. The responsible entities are jointly owned (50:50) by AMP Capital Holdings Limited (AMPCH) and Macquarie. DUET's management team has expert knowledge of, and experience in, the energy utility sector, and the responsible entities have access to the combined infrastructure expertise and investment management resources of the Macquarie Group and the AMP Capital Group DUET is managed jointly (50:50) by AMPCH and the Macquarie Group (Macquarie). DUET’s management team has expert knowledge of, and experience in, the energy utility sector, and the responsible entities will have access to the combined infrastructure expertise and investment management resources of Macquarie and AMP Capital Group. Each of the responsible entities and DIHL has an experienced board of directors, a majority of whom are independent from DUET, the AMP Capital Group and Macquarie. Legal framework and management arrangements The DUET Group (DUET) is a Macquarie Group (Macquarie) and AMP Capital Investors Limited (AMPCI) branded externally managed vehicle comprising three Australian trusts - Diversified Utility and Energy Trust No.1 (DUET1), Diversified Utility and Energy Trust No.2 (DUET2) and Diversified Utility and Energy Trust No.3 (DUET3) (collectively the trusts) - and an Australian company - DUET Investment Holdings Limited (DIHL). The securities of the trusts and the company are stapled and listed on the ASX and must trade, and otherwise be dealt with, together.  Macquarie's expertise in managing funds and their businesses and sourcing new value-adding opportunities is a key attraction for investors in its managed vehicles. Investors are principally seeking to harness Macquarie's expertise in sourcing, investing in and managing businesses (made available through the management arrangements), as well as the expertise of appropriately qualified external directors. External management delivers to investors a global team dedicated to sourcing, analysing and executing investment opportunities and business management specialists who can drive improved performance across the businesses globally. A variety of investment vehicles can be used, through which funds are pooled to be invested in assets. Stapled groups have developed due to differing regulatory regimes for different vehicles and the broad objective of managed funds to maximise distributions from underlying businesses to investors. For example, an appropriate structure for holding Australian investments may not be appropriate for the purposes of holding foreign investments. In the case of Australian trusts, a responsible entity/manager owned by the sponsors with sponsor-appointed directors has been a common structural feature since the inception of these types of investment vehicles. DUET's management arrangements are designed to promote consistency of management across all the entities in DUET The managers, which are owned 50% by AMP Capital Holdings Limited (AMPCH) and 50% by Macquarie Capital Group Limited (MCGL), are AMPCI Macquarie Infrastructure Management No.1 Limited (RE1) for DUET1 and DIHL and AMPCI Macquarie Infrastructure Management No.2 Limited (RE2) for DUET2 and DUET3. The three trusts are ASIC-registered managed investment schemes and their combined trustees/managers, RE1 and RE2, each are known as the responsible entity. RE1's and RE2's management roles are defined by the trust constitutions, the Corporations Act and the general law. There is no separate management agreement. DIHL has a separate Management Services Agreement with RE1 (MSA). There is a stapling deed in place between all entities and RE1 and RE2 setting out co-operation arrangements for the operation of the stapled structure. The management arrangements are broadly consistent across the four entities. The following is a high level summary of the DUET management arrangements addressing the disclosure recommended in Guidance Note 26 to the ASX Listing Rules.  We recommend that you also read the MSA and the trust constitutions, all of which you can find below. Investment mandate | The principal investment policy is to seek to invest in and manage energy utility assets in OECD countries,  principally in Australia and New Zealand. The principal investment policy may be varied from time to time upon giving reasonable notice to security holders. | DUET 2004 PDS – section 1.3DUET Triple Staple 2006 Information Circular – section 3DUET Quadruple Staple 2007 Information Circular – section 3MSA clauses 1 and 3 | Services | Company ManagerThe manager under the terms of the MSA is responsible to the company for: * ------------------------------------------------- Investment and divestment evaluation and recommendations * ------------------------------------------------- Implementation of investment/divestment instructions given by the board  * ------------------------------------------------- Asset management * ------------------------------------------------- Asset valuations * ------------------------------------------------- Capital and financial management recommendations * ------------------------------------------------- Financial reporting * ------------------------------------------------- Board reporting * ------------------------------------------------- Investor communications and meetings * ------------------------------------------------- General fund administration including company secretarial services (subject to outsourcing of registry services to Computershare Investor Services Pty Limited ABN 48 078 279 277 and trust custodial services to Trust Company Limited ABN 59 004 027 749 and Perpetual Trustee Company Limited ABN 42 000 001 007 * ------------------------------------------------- Monitoring of fund operational risk, insurances and compliance * ------------------------------------------------- Litigation management * ------------------------------------------------- Provision of suitably qualified personnel to perform the CEO and CFO roles for the fund. | MSA clause 3DUET Quadruple Staple 2007 Information Circular – section 10.1.4 |   | Responsible EntityThe responsible entity has all the powers of a natural person including contracting, borrowing and investment and carries out all management functions for the trusts subject to outsourcing registry and custodial services as described above. | Trust constitutions clause 12Corporations Act s601FB, s601FC | Term | No fixed term for the trusts or the company.  The term will continue until the manager is removed or retires, or security holders vote to wind up the stapled entities as provided for in the trust constitutions or by law. | Trust constitutions clause 21MSA clause 11 | Extension or renewal | There are no extension or renewal provisions in the MSA. |   | Termination | The trusts and company may terminate the appointment of the responsible entities and manager, without cause, by security holder vote.For each trust and the company the resolution must be passed by at least 50% of votes cast at meeting by security holders entitled to vote.  Managers and associates may vote their securities on the resolution.The manager of the company can also be removed for cause being where the manager is in liquidation, ceases to carry on business, lacks the appropriate licence or authorisation or commits a material breach which cannot be remedied.The manager of the company can only be removed if either or both of the responsible entities of DUET1 or DUET2 have been removed.In the case of the trusts, ASIC or a court may replace the responsible entities where there are solvency issues or members are likely to suffer a loss because the responsible entity has breached the Corporations Act.Pursuant to the Corporations Act the responsible entity of the trust can retire if it first convenes a unitholders meeting to explain its reason for retirement and to enable unitholders to vote on a resolution to choose a new responsible entity.The manager of the company may resign by giving written notice.Where removal events have occurred in the case of the company, its directors retain discretion as to whether to terminate the manager.  As the directors must act in the interest of security holders, it is considered unlikely that they would not terminate the MSA in the situation where security holders have voted to remove the responsible entities and the manager. | Trust constitutions clause 13Corporations Act s601FL, s601FM, s601FN, s253E, s915BMSA clause 11 |   | Base fees and performance fees accrued to the date of termination are payable. There are no other termination fees payable. | Trust constitutions clause 20 MSA clause 8 | Fees | Base fee Payable quarterly.Base Fee = 1% per annum of Net Investment Value.Net Investment Value is the Market Value of DUET securities plus the amount of any external borrowings and the amount firmly committed to future investments less the amount invested in cash or cash equivalents.Market Value is the volume weighted average market capitalisation over the last 20 ASX trading days of each quarter.Performance feePayable at 30 June and 31 December if earned.Payable in the event that the DUET accumulation index (the Return) outperforms the S&P/ASX 200 Industrials Accumulation Index (the Benchmark Return) for the period having made up for underperformance in previous periods.Performance fee = 20% of the amount (if any) by which the Return exceeds the Benchmark Return for that period.Any underperformance deficit from prior periods must be made up before future performance fees can be earned.The responsible entity and the manager may nominate another person to apply the performance fee in subscription for DUET securities.  The price of the DUET securities is the volume weighted average trading price  of the DUET securities traded on ASX during the last 20 ASX trading days of the relevant period.Other services provided by Macquarie and AMP companiesAdditional fees will be payable for other services such as financial advisory, underwriting, broking and hedging provided on a transactional basis by Macquarie and AMP companies and as approved under the DUET related party protocol. | Trust constitutions clause 20MSA clause 8 | Expenses | The responsible entity and the manager are entitled to be reimbursed for expenses incurred in relation to the proper performance of their duties.Expense reimbursement does not include manager administration costs such as premises, staff and facilities. | Trust constitutions clause 20Corporations Act s601GA(2)MSA clause 9 | Exclusivity | The manager is engaged by the company on an exclusive basis, although the manager itself may act for other parties.  The responsible entities may act for other parties with the approval of Macquarie and AMPCH and can outsource their general management responsibilities to other Macquarie or non-Macquarie managers (but remain liable for their actions).  | MSA clause 4Trust constitutions clauses 12 and 17Corporations Act s601FB |   | Macquarie and AMPCH have agreed to use their best efforts to refer investment opportunities in energy utility assets in Australia and New Zealand which meet DUET’s investment mandate to the responsible entities.  DUET has no obligation to accept any investment opportunities. If DUET does not wish to proceed with any investment opportunity offered under the above arrangements then it may be offered to other Macquarie Capital specialist funds or clients. | 2004 IPO PDS section 8.6 | Discretions | The board of the responsible entity of the trusts makes all significant investment/divestment and operational decisions.The manager mandate for the company is non discretionary. All significant investment/divestment and operational decisions are made by the board of the company based on manager recommendations.The performance of management generally is oversighted by the independent directors on the responsible entity and company boards. | Trust constitutions clause 12MSA clause 4 | Related party protocols | The trusts and the company have adopted a detailed related party protocol covering transactions with and services provided by Macquarie companies and managed vehicles.All related party transactions or services must be on arms length terms and approved by the DUET independent directors only.Asset acquisition or sale transactions with related parties for 5% or greater of fund value must generally be supported by an independent valuation.Mandates for the provision of services are subject to third party independent review unless the independent directors determine otherwise on the basis of appropriate market information or practice.Third party independent review is mostly carried out by the corporate advisory divisions of large accounting firms.  In the case of the provision of services, the reviewers have regard to market evidence gathered from their own enquires, including information requested from Macquarie. For asset sales or acquisitions, the reviewer carries out its own valuation if required.Swap and foreign exchange transactions with Macquarie companies solely for hedging purposes are given standing approval if certain conditions are met.Significant volume securities transactions with a Macquarie broker require independent director approval. | DUET Related Party PolicyMSA clause 7Part 5C.7 and 2E of the Corporations Act which governs related party transactions by trusts and companies | Change of control | DUET co-invests from time to time with other Macquarie companies or managed vehicles. Co-investment arrangements may include pre-emption and tag-along or drag-along rights in favour of each other including rights which are triggered on removal of the Macquarie or DUET manager typical of those agreed with third party co-investors.   Refer to the asset description in relation to Duquesne in the 2008 Annual Report.In addition loan facilities for DUET and its businesses may provide for acceleration of loan payments if DUET is no longer managed by a Macquarie or AMP company. Removal of manager trigger events are typically put in place because counterparties (both equity and debt providers) require ongoing Macquarie involvement in the management of the fund or particular businesses.The DUET independent directors obtain separate legal advice as necessary and the arrangements are approved by the independent directors and disclosed to security holders. |   | Variation to management arrangements | Any variations adverse to security holders rights or in respect of changes to fee structures to increase fees would involve trust constitution amendments and therefore effectively require approval by 75% by value of votes cast at meeting by security holders entitled to vote.There are however no specific requirements in the MSA for variations to the agreement to be approved by security holders but given the stapled structure it is unlikely that any changes would result in material inconsistency with the trusts’ provisions particularly as regards investment policy, manager termination or fees. | Trust constitutions clause 23Corporations Act s601GC | Director Appointment Rights | The responsible entities of the trusts have combined director appointment rights for 100% of the board of the company.  Macquarie and AMPCH each appoint one director to the board of the responsible entities of the trusts and are each able to nominate one independent director to the board of the responsible entities as they are Macquarie and AMPCH joint venture vehicles. The third independent director on the board of the responsible entities is appointed by the other two independent directors. | | Corporate Governance The DUET Group (DUET) is a Macquarie Group (Macquarie) and AMP Capital Investors Limited (AMPCI) branded externally managed vehicle comprising three Australian trusts - Diversified Utility and Energy Trust No.1 (DUET1), Diversified Utility and Energy Trust No.2 (DUET2) and Diversified Utility and Energy Trust No.3 (DUET3) (collectively the trusts) - and an Australian company - DUET Investment Holdings Limited (DIHL). The securities of the trusts and the company are stapled and listed on the ASX and must trade, and otherwise be dealt with, together.  Macquarie's expertise in managing funds and their businesses and sourcing new value-adding opportunities is a key attraction for investors in its managed vehicles. Investors are principally seeking to harness Macquarie's expertise in sourcing, investing in and managing businesses (made available through the management arrangements), as well as the expertise of appropriately qualified external directors. External management delivers to investors a global team dedicated to sourcing, analysing and executing investment opportunities and business management specialists who can drive improved performance across the businesses globally. DUET 's approach to corporate governance The DUET boards are committed to DUET's achievement of superior financial performance and long-term prosperity, while meeting stakeholders' expectations of sound corporate governance practices. This statement outlines DUET's main corporate governance practices as at 30 June 2008. Unless otherwise stated, they reflect the practices in place throughout the financial year ending on that date. The boards determine the corporate governance arrangements for DUET. As with all its business activities, DUET is proactive in respect of corporate governance and puts in place those arrangements which it considers are in the best interests of DUET and its investors and consistent with its responsibilities to other stakeholders. It actively reviews Australian and international developments in corporate governance. DUET is part of the stable of Macquarie managed vehicles and is jointly managed with the AMP Group but operates within the Macquarie Capital Funds division. Accordingly, in setting the corporate governance framework the DUET boards have also undertaken to comply with the Macquarie Funds Management Policy (Macquarie Fund Policy). This policy has been devised by Macquarie to safeguard the interests of investors in the managed vehicles, which at times may conflict with those of Macquarie as manager of the vehicles. The key elements of the Macquarie Fund Policy are: * ------------------------------------------------- Conflicts of interest arising between Macquarie managed vehicles and its related parties should be managed appropriately and, in particular: * ------------------------------------------------- Related party transactions should be identified clearly and conducted on arm's length terms * ------------------------------------------------- Related party transactions should be tested by reference to whether they meet market standards * ------------------------------------------------- Decisions about transactions between Macquarie managed vehicles and Macquarie or its affiliates should be made by parties independent of Macquarie. * ------------------------------------------------- The boards of both the corporate vehicles and the management company/responsible entity of the trusts of listed Macquarie managed vehicles which are stapled groups will comprise at least 50% independent directors and at least one of the boards in each stapled group will have a majority of independents.   * ------------------------------------------------- The funds management business should be resourced appropriately. In particular: * ------------------------------------------------- There is a separate Macquarie Capital Funds (MacCap Funds) division and staff in this area should be dedicated to the funds management business * ------------------------------------------------- All recommendations to the boards of Macquarie managed vehicles should be reviewed or prepared by MacCap Funds staff * ------------------------------------------------- Each listed Macquarie managed vehicle that invests in operating businesses should have its own managing director or chief executive officer * ------------------------------------------------- Chinese walls operate to separate Macquarie's investment advisory and equity capital markets business from MacCap Funds. DUET as a Macquarie co-managed vehicle has also applied these principles to transactions with entities in the Macquarie and AMP Group. ASX Corporate Governance Principles The ASX Corporate Governance Council (the Council) has Corporate Governance Principles and Recommendations (the Principles) which are designed to maximise corporate performance and accountability in the interests of shareholders and the broader economy. The Principles encompass matters such as board composition, committees and compliance procedures. The Principles can be viewed at www.asx.com.au. The Principles are not prescriptive; however listed entities (including DUET) are required to disclose the extent of their compliance with the Principles, and to explain why they have not adopted a Principle if they consider it inappropriate in their particular circumstances. On 2 August 2007 the Council issued revised Principles. While the revised Principles take effect for financial years commencing after 1 January 2008, DUET has elected to report early against the revised Principles. DUET's corporate governance statement is in the form of a report against the Principles. DUET's corporate governance policies largely conform to the Principles. Any deviation is because of DUET's externally managed structure and the requirements of the Macquarie Fund Policy. We have noted the differences in our reporting. * ------------------------------------------------- Principle 1: Lay solid foundations for management and oversight * ------------------------------------------------- Principle 2: Structure the board to add value * ------------------------------------------------- Principle 3: Promote ethical and responsible decision making * ------------------------------------------------- Principle 4: Safeguard integrity in financial reporting * ------------------------------------------------- Principle 5: Make timely and balanced disclosure * ------------------------------------------------- Principle 6: Respect the rights of shareholders * ------------------------------------------------- Principle 7: Recognise and manage risk * ------------------------------------------------- Principle 8: Remunerate fairly and responsibly * DUET is comprised of three trusts and a company: Diversifi ed Utility and Energy Trust * No.1 (“DUET1”), Diversifi ed Utility and Energy Trust No.2 (“DUET2”), Diversifi ed Utility * and Energy Trust No.3 (“DUET3”) and DUET Investment Holdings Limited (“DIHL”). * Securities in the four entities are “stapled” together. This means that the securities * cannot be separated from each other and can only be traded together. A summarised * structure of DUET and its investments is illustrated below.. The DUET Group is comprised of three trusts and a company: Diversified Utility and Energy Trust No. 1 (DUET1), Diversified Utility and Energy Trust No. 2 (DUET2), Diversified Utility and Energy Trust No.3 (DUET3) and DUET Investment Holdings Limited (DIHL); securities in the four entities are “stapled” together, collectively referred to as the DUET securities. This means that the securities cannot be separated from each other and can only be traded together. A summarised structure of DUET and its investments is illustrated below.