FE Limited, in the matter of FE Limited
[2017] FCA 1642
•21 December 2017
FEDERAL COURT OF AUSTRALIA
FE Limited, in the matter of FE Limited [2017] FCA 1642
File number(s): WAD 601 of 2017 Judge(s): SIOPIS J Date of judgment: 21 December 2017 Catchwords: CORPORATIONS – a company issued shares to which s 707(3) and s 727(1) of the Corporations Act 2001 (Cth) applied — the company did not comply with s 708A(11) of the Corporations Act by issuing cleansing prospectus — on-market trading in shares occurred without compliance with disclosure requirements of s 707(3) and s 727(1) of the Corporations Act — whether a declaration should be made validating trading in shares – whether an order should be made relieving sellers of shares from civil liability. Legislation: Corporations Act 2001 (Cth) ss 707(3), 708A(5), 708A(11), 727(1), 1322(4)(a), 1322(4)(c), 1322(6), 1322(6)(c) Date of hearing: 21 December 2017 Registry: Western Australia Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 27 Counsel for the Plaintiff: Mr T Coyle Solicitor for the Plaintiff: Steinepreis Paganin ORDERS
WAD 601 of 2017 IN THE MATTER OF FE LIMITED (ACN 112 731 638)
FE LIMITED (ACN 112 731 638)
Plaintiff
JUDGE:
SIOPIS J
DATE OF ORDER:
21 DECEMBER 2017
THE COURT ORDERS THAT:
1.Pursuant to s 1322(4)(a) of the Corporations Act 2001 (Cth) (Corporations Act), it is declared that any offer for sale or sale of the quoted securities being 10,000,000 ordinary shares in the plaintiff during the period after their issue on 6 November 2017 to 24 November 2017 is not invalid by reason of the sellers’ failure to comply with s 707(3) and s 727(1) of the Corporations Act.
2.Pursuant to s 1322(4)(c) of the Corporations Act, any sellers of securities referred to in paragraph 1 above are relieved from any civil liability arising out of a contravention of s 707(3) and s 727(1) of the Corporations Act.
3.A sealed copy of these orders is to be served on the Australian Securities and Investments Commission (ASIC) as soon as reasonably practicable and upon service of these orders on ASIC, ASIC is to include these orders on its database.
4.A copy of these orders is to be given to each person to whom the securities referred to in paragraph 1 above were issued and, as soon as reasonably practicable, the plaintiff is to publish an announcement to the ASX in which a copy of these orders is included.
5.The plaintiff make a request forthwith of the ASX for the class of securities “FEL” be reinstated.
6.For a period of 28 days from the date of reinstatement by the ASX of the class of securities “FEL” and the publication of these orders on the ASX website, any person who claims to have suffered substantial injustice or is likely to suffer substantial injustice by the making of any or all of these orders has liberty to apply to vary or to discharge them within that period.
7.There be no order as to costs.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
SIOPIS J:
The plaintiff, FE Limited (the company), is a minerals exploration company listed on the Australian Securities Exchange (ASX).
By this application, the company seeks declarations that any offer for sale or sale of 10 million shares in the company during the period from the date of their issue on 6 November 2017 to 24 November 2017, is not invalid by reason of the company’s failure to make disclosure in contravention of ss 707(3) and 727(1) of the Corporations Act 2001 (Cth). The company also seeks orders relieving the sellers of those shares from civil liability.
Section 1322(4)(a) of the Corporations Act gives the Court power to declare that any act purporting to have been done under the Act is not invalid by reason of any contravention of a provision of the Act. Section 1322(4)(c) permits the Court to make orders relieving a person from any civil liability arising from any such contravention.
The background to the case is that on 3 November 2017 the company obtained approval at a general meeting of its shareholders to acquire an interest in a project in Central Africa called the Kasombo project. On 6 November 2017, the company made a placement of 25 million shares to the vendor of the Kasombo acquisition and on the same day the company also issued 10 million shares to two companies which were the nominees of the facilitator of the Kasombo acquisition.
The 25 million vendor shares were subject to an escrow arrangement and so they were not able to be traded for 12 months. However, the 10 million facilitator shares that were issued were not subject to escrow.
One of the nominees of the facilitator is a company, Gaks Investment Holdings Pty Ltd (Gaks). It was issued 2 million facilitator shares on 6 November 2017. Prior to 21 November 2017, Gaks traded 1 million of those shares. The other 8 million facilitator shares were issued to 1620 Capital Pty Ltd (1620 Capital), but those shares were not traded because of events which I will come to.
The issue by the company of the facilitator shares contravened s 707(3) and s 727(1) of the Corporations Act because the company failed to issue a cleansing notice under s 708A(5) of the Corporations Act or a cleansing prospectus pursuant to s 708A(11) prior to, or shortly after, the issue of the facilitator shares. In fact, the company was not qualified to issue a cleansing notice because its shares had been suspended for more than five days in the preceding 12 month period.
The company relied on an affidavit of Ms Eloise von Puttkammer, the company secretary of the company. Ms von Puttkammer deposed that she and one of her fellow colleagues, Ms Catherine Grant-Edwards, were caught up in trying to meet deadlines in relation to the issue of the placement shares and also that she had an appointment at a hospital on 6 November 2017 which was causing her some distress. Ms von Puttkammer went on to depose that she did not return to the office until 8 November 2017 and overlooked the necessity to issue a cleansing notice or cleansing prospectus so as to permit secondary trading in the facilitator shares.
Ms von Puttkammer deposed that on 17 November 2017 it occurred to her for the first time, when she was following up on other matters related to the share placement, that she had overlooked the need to issue a cleansing notice or cleansing prospectus in respect of the facilitator shares.
Ms von Puttkammer went on to depose that she immediately sought legal advice from Mr Daniel Tydde of Steinepreis Paganin; and that, thereafter, she and Mr Tydde contacted the ASX and sought the immediate suspension of trading in the shares of the company.
On 21 November 2017, the company went into a trading halt. As I understand it, that is the position which still prevails.
On 23 November 2017, the company caused the remaining facilitator shares to be subject to an escrow lock that captured the 8 million shares which had been issued to 1620 Capital and 1 million of the 2 million shares that had been issued to Gaks.
On 24 November 2017, the company issued a cleansing prospectus pursuant to s 708A(11) of the Corporations Act.
The evidence is that 1 million of the shares that had been issued to Gaks were traded on the ASX on 15, 16, and 20 November 2017. It is by reason of the trading of those shares by Gaks in breach of s 707(3) and s 727(1) of the Corporations Act that relief is now sought.
Before the Court can make an order under s 1322(4) of the Corporations Act, there are a number of preconditions in s 1322(6) to be met. Subsection 1322(6) provides:
The Court must not make an order under this section unless it is satisfied:
(a)in the case of an order referred to in paragraph (4)(a):
(i)that the act, matter or thing, or the proceeding, referred to in that paragraph is essentially of a procedural nature;
(ii)that the person or persons concerned in or party to the contravention or failure acted honestly; or
(iii)that it is just and equitable that the order be made; and
(b)in the case of an order referred to in paragraph (4)(c) – that the person subject to the civil liability concerned acted honestly; and
(c)in every case – that no substantial injustice has been or is likely to be caused to any person.
In this case, I am, for the following reasons, satisfied that it is just and equitable that the orders pursuant to s 1322(4)(a) of the Corporations Act be made.
First, there is no evidence to suggest that the two nominee companies that were issued with the shares, but in particular, Gaks, had any knowledge that the shares had been issued without a cleansing notice or a cleansing prospectus; or that they were limited in any way from trading the shares. The consequence of the Court not granting the relief would be that the persons who had bought the shares from Gaks would be in possession of shares which were void or invalid. Such an outcome would defeat the expectation of persons purchasing shares on the market.
Secondly, the company did not issue a cleansing prospectus because of an oversight by the company secretary.
Turning to s 1322(6)(c) of the Corporations Act, there is no evidence which would suggest that any person has suffered, or is likely to suffer, a substantial injustice if the Court made the orders sought by the company. To the contrary, the making of the orders would permit the company’s shares to be re-listed. This would permit ordinary shareholders in the company to be able to trade those shares freely on the market.
I might also observe that one of the orders which the company seeks is that there be a 28 day period from the reinstatement of the shares and the publication of these orders on the Australian Securities and Investments Commission (ASIC) website which would permit any person who claims to have suffered a substantial injustice, or to be likely to suffer such a substantial injustice, from the making of these orders to apply to discharge or vary them.
I am also not aware of any discretionary reason why the declaration pursuant to s 1322(4)(a) should not be made. Once the company secretary recognised her oversight, she acted promptly and the ASX was approached by the company and its lawyers. Further, the company took other steps such as the implementation of the escrow lock to minimise any further trading.
Orders made pursuant to s 1322(4)(c) will relieve Gaks from any civil liability and also any on-sellers who may have disposed of the facilitator shares which they purchased from Gaks.
In my view, one can infer that each of those parties acted honestly in disposing of the shares and in ignorance of the fact that the shares each had acquired had not been subject to proper disclosure requirements or exceptions therefrom. Further, as mentioned, there will be a 28 day period within which any person who claims to have suffered, or is likely to suffer, a substantial injustice may apply to discharge or vary the orders.
In those circumstances, I am content to make the orders sought in order 2.
I also observe that the company’s counsel has handed to me two letters today. One letter is from the ASX and the other from ASIC. Each letter says that each of the ASX and ASIC was served with the originating process and affidavit of Ms von Puttkammer. The letter from ASIC also refers specifically to having been served with the company’s submissions and the minute of proposed orders. Counsel informed me that the ASX was also served with the company’s submissions and the minute of proposed orders.
Neither the ASX nor ASIC opposes the making of the orders sought.
For the foregoing reasons, I am content to make orders in terms of the company’s minute of proposed orders.
I certify that the preceding twenty‑seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis. Associate:
Dated: 10 April 2018
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