Re ASRA Minerals Limited

[2024] WASC 425

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   RE ASRA MINERALS LIMITED; EX PARTE ASRA MINERALS LIMITED [2024] WASC 425

CORAM:   HILL J

HEARD:   22 OCTOBER 2024

DELIVERED          :   22 OCTOBER 2024

PUBLISHED           :   15 NOVEMBER 2024

FILE NO/S:   COR 159 of 2024

MATTER:   IN THE MATTER OF ASRA MINERALS LIMITED

EX PARTE

ASRA MINERALS LIMITED

Plaintiff

Catchwords:

Corporations - Application for orders under s 1322 of Corporations Act 2001 (Cth) - Failure of company to have shareholder nominate auditor prior to annual general meeting - Where immediate steps taken to rectify irregularity once identified - Where no substantial injustice caused by proposed orders - Where no blatant or flagrant disregard of obligations

Corporations - Application for orders under s 1322 of Corporations Act 2001 (Cth) - Application for declaratory relief to validate trading in shares issued without valid cleansing notices - Where immediate steps taken to rectify irregularity - Where no substantial injustice caused by proposed orders - Where no blatant or flagrant disregard of obligations

Legislation:

Corporations Act 2001 (Cth) s 302, s 320, s 327B, s 327C, s 328B, s 707, s 708A, s 1322

Result:

Application granted

Category:    B

Representation:

Counsel:

Plaintiff : B J Tomasi

Solicitors:

Plaintiff : Hamilton Locke

Cases referred to in decision:

Re Bellevue Gold Ltd [2021] WASC 80

Re G8 Communications Ltd [2016] FCA 297; (2016) 112 ACSR 22

Re Helios Energy Ltd [2017] FCA 840; (2017) 122 ACSR 174

Re Wave Capital Ltd [2003] FCA 969; (2003) 47 ACSR 418

Weinstock v Beck [2013] HCA 14; (2013) 251 CLR 396

HILL J:

(This judgment was delivered extemporaneously and has been edited from the transcript to include references, headings, and to correct matters of grammar and expression.)

1. On 17 October 2024, the plaintiff, Asra Minerals Limited (Company), filed an originating process seeking orders under s 1322(4) of the Corporations Act2001 (Cth) (Act) relating to contraventions in the appointment process of its auditor and, as a consequence, its compliance with the auditing, financial reporting and lodgment obligations under pt 2M.3 of the Act. These contraventions occurred as a result of a failure to have a shareholder nominate RSM Australia Partners (RSM) as auditor or have RSM's appointment as its auditor approved at its 2024 annual general meeting (AGM), which was held on 31 May 2024.

2. These contraventions have had a secondary impact on the Company; as it has raised the issue as to whether cleansing notices issued by the Company between 6 June 2024 and 5 September 2024 are also defective.  This issue arises because these cleansing notices state that as at the date of their issue, the Company is in compliance with the provisions of ch 2M in the Act.  Given this uncertainty, the Company has also applied for orders declaring that these notices were effective when given, and that any offer for sale or sale of the shares that have been undertaken in respect of their share issues are not invalid.

Factual background

1. In support of the application, the plaintiff has read five affidavits: an affidavit of Christopher Paul Hood, a lawyer employed by Hamilton Locke, the solicitors for the plaintiff; an affidavit of Leonard Math, the company secretary and a director of the plaintiff; an affidavit of Paul Summer, the director and chairman of the plaintiff, and two affidavits of Melissa Jane Catto, a lawyer employed by Hamilton Locke. 

2. The plaintiff, whose securities are listed on the Australian Securities Exchange (ASX) is a multi-commodity exploration company which focuses on gold, lithium and rare earth metals in the Goldfields region of Western Australia.[1]  As at 17 October 2024, the Company had a market capitalisation of approximately $10 million and has more than 2.25 billion shares on issue.[2]

   [1] Affidavit of Christopher Paul Hood filed 18 October 2024 [5].

   [2] Affidavit of Christopher Paul Hood filed 18 October 2024 [9].

3. On 19 July 2023, the Company announced that it had accepted the resignation of BDO Audit Pty Ltd (BDO) as auditor and appointed RSM as its auditor effective immediately until the date of the Company's next AGM.[3]  The change in auditor arose as a result of a decision by the board to move the location of the Company's operations and its auditors from Melbourne to Perth and the undertaking of a competitive tender process. 

   [3] Affidavit of Christopher Paul Hood filed 18 October 2024, 'CPH-2'.

4. The evidence before me is that following their appointment, RSM has reviewed the Company's half-year report for the periods ended 30 June 2023 and 30 June 2024 and audited the Company's full-year accounts for the year ended 31 December 2023.[4]  It is only the review of the Company's half-year report for the period ending 30 June 2024 that is the subject of this application because prior to 31 May 2024, RSM had been validly appointed by the directors as auditor to fill the casual vacancy. 

   [4] Affidavit of Christopher Paul Hood filed 18 October 2024, 'CPH-3', 'CPH-22'.

5. Ultimately, no resolution concerning the appointment of RSM was put to shareholders at the Company's AGM in May 2024.  The evidence of Mr Math, the company secretary, is that he inadvertently overlooked the resolution for three reasons.  First, there was approximately 10 months between RSM's appointment, and the 2024 AGM and the matter was simply not front of mind.  Second, at the time of the 2024 AGM, he was involved in reviewing agreements for a complex strategic acquisition as well as a capital raising.  Third, at this time, he was acting as the de facto chief financial officer and had an increased workload.[5]

   [5] Affidavit of Leonard Math filed 21 October 2024 [36].

6. On 16 October 2024, in the course of preparing a notice of meeting for a different company, Mr Math became aware that the Company had not sought nor obtained shareholder approval for the appointment of RSM as its auditor at the Company's 2024 AGM.  On discovering this issue, he contacted the plaintiff's solicitors to determine what was required to resolve the issue and has liaised with the Australian Securities and Investments Commission (ASIC) and the ASX, informed shareholders of the irregularity through an ASX announcement, recommended the Company go into a trading halt, and commenced these proceedings.[6]  Relevant shareholders have been informed about the impact of this matter on the share issues that have been undertaken and the steps being taken to rectify this irregularity.

   [6] Affidavit of Leonard Math filed 21 October 2024 [49(a)] - [49(b)], [49(e)] - [49(f)], [53].

7. On 17 October 2024, the Company requested that its securities be placed in a trading halt.[7]

   [7] Affidavit of Leonard Math filed 21 October 2024 [55].

Statutory regime

Financial reports and appointment of auditor

1. The statutory regime that governs financial reports and the appointment of auditors is set out in ch 2M of the Act, which is entitled 'Financial Reports and Audit'.  The process for the appointment and removal of auditors is contained in pt 2M.4 of the Act.

2. Section 327C of the Act deals with the circumstances where an auditor is appointed to fill a casual vacancy other than at an AGM. Pursuant to s 327C(1), where this occurs, the directors must, within one month of the vacancy occurring, appoint an auditor to fill the vacancy unless the company has already done so at a general meeting. Pursuant to s 327C(2), where this occurs, the auditors hold office until the company's next general meeting.

3. Pursuant to s 328B(1) of the Act, a company may appoint an auditor at its AGM, but only if a member of the company gives the company written notice of the nomination before the meeting was convened, or not less than 21 days before the meeting. Where a company purports to appoint an auditor in contravention of this subsection, then the appointment is of no effect and the company and each of its officers who are in default are guilty of an offence.

4. In relation to the reporting obligations of the Company, s 302 of the Act requires a company to have its financial reports for a financial half-year audited or reviewed in accordance with div 3 of pt 2M.3 of the Act, and s 320 of the Act requires a company to lodge its half-year reports with ASIC.

Fundraising disclosures

1. Part 6D.2 of the Act imposes fundraising disclosure obligations on corporations in relation to rights, issues and the issue and sale of quoted securities. 

2. Section 708A of the Act governs the issue of quoted securities, including shares. In certain circumstances, the disclosure obligations can be satisfied by lodging a cleansing notice or a prospectus. Where shares have not been listed for a period of 12 months before the day in which the shares were issued, it is necessary for disclosure to be by way of a prospectus.

3. Where disclosure has not been made, and the shares are on-sold within a period of 12 months, the party to whom the shares are issued may be obliged to make disclosure. 

4. The notice issued by a company is required to comply with s 708A(6) of the Act, which includes the requirement that the notice state that, at the date of the notice, the body has complied with the provisions of ch 2M of the Act.

Power under s 1322 of the Act to grant the relief sought

1. In their originating summons, the plaintiff seeks orders under s 1322 of the Act. In considering an application under this section, the essential principles are well‑known and can be summarised as follows:[8]

   (a)the prescriptive requirements of the wording in s 1322(4) and the pre‑conditions in s 1322(6) of the Act must be satisfied;[9]

   (b)where this is the case, the court retains a discretion under s 1322(4) as to whether or not it will make the orders sought;

   (c)the broad powers granted to the court under s 1322 of the Act reflect a legislative policy that the law should not inflict unnecessary liability or inconvenience or invalidate transactions because of non-compliance with its requirements, where the non-compliance is the product of honest error or inadvertence and where the court can avoid its effects without prejudice to third parties or to the public interest;[10]

   (d)limitations on the broad powers in s 1322 will not be readily implied.[11]  The section is remedial in character and should be applied broadly.

   [8] Re Helios Energy Ltd [2017] FCA 840; (2017) 122 ACSR 174 [20].

   [9] Weinstock v Beck [2013] HCA 14; (2013) 251 CLR 396 [43], [53], [64].

   [10] ReWaveCapitalLtd [2003] FCA 969; (2003) 47 ACSR 418 [29].

   [11] Weinstock v Beck [43], [55] - [56], [60], [64].

Should the orders sought by the plaintiff be made?

Application by an 'interested person'

1. I accept that, in this case, the plaintiff has standing as an interested person to seek the relief sought.[12]

Position of ASX and ASIC

[12] Re Wave Capital Ltd [29].

1. ASIC has informed the Company that it does not intend to appear at the hearing today and that it neither supports nor opposes the application.  Given the short time between service of the application and the hearing of it, ASIC has sought 28 days within which to bring any application to set aside the orders that are made by the court.[13]

   [13] Second affidavit of Melissa Jane Catto filed 22 October 2024, 'MJC-1'.

2. This proposal is not opposed by the plaintiff and is consistent with the orders that are sought in the originating process.  I am satisfied on the evidence that the ASX has been served with the application and all affidavits and submissions.[14]  At this stage, the Company is unaware of the position taken by the ASX.

Appointment of auditor

[14] Affidavit of Melissa Jane Catto filed 22 October 2024 [15] - [16].

1. On the evidence before me, I make the following findings of fact.

   (a)Following the resignation of BDO as auditor of the Company in June 2023, the directors complied with their obligations under s 327C(1) of the Act by appointing RSM as auditor with effect from 19 July 2023.

   (b)The directors of the Company were required, pursuant to s 327B(3) of the Act, to take all reasonable steps to comply with, or to secure compliance with s 327B(1) of the Act for an auditor to be appointed at its AGM in 2024 to fill the vacancy that had been created by BDO's resignation. This did not occur.

   (c)No resolution was put nor was a resolution passed at the 2024 AGM to appoint RSM as auditor of the Company.  As a consequence, RSM ceased to be the Company's auditor at the conclusion of the AGM. 

   (d)Following the 2024 AGM, the board of the Company did not comply with s 327B(1) of the Act to appoint an auditor.

   (e)Notwithstanding this, RSM carried out the review of the Company's half-year financial reports for the period ended 30 June 2024 in according with s 302 of the Act. These half-year financial reports have been lodged with ASIC.

2. In Re Bellevue Gold Ltd, I considered the legislative history, objects and purpose of ch 2M.4 of the Act.[15]  Those reasons reflect my views on the matter and it is not necessary for me to repeat what I said.

Orders sought

[15] Re Bellevue Gold Ltd [2021] WASC 80 [48] ‑ [54].

1. In this case, the plaintiff seeks declarations under s 1322(4)(a) of the Act that the appointment of RSM as auditor of the plaintiff from 31 May 2024 is not invalid by reason of:

   (a)the failure of the plaintiff to comply with s 327B(1)(b) of the Act by not having the appointment of RSM approved as auditor of the plaintiff at its 2024 AGM;

   (b)the failure of the plaintiff to comply with s 327C(1) and s 328B of the Act; and

   (c)its consequent failures to comply with the financial reporting and lodgment requirements of the Act.

2. In addition, the plaintiff seeks declarations that the cleansing notices given to the ASX on 6 June 2024, 7 June 2024, 8 August 2024, 23 August 2024, and 5 September 2024 (Cleansing Notices) were effective when given and that any offer for sale or sale of the securities that have been issued are not invalid by reason of:

   (a)any alleged failure of the Cleansing Notices of the Act to exempt the sellers from the obligation of disclosure under the Act; and

   (b)any consequent failure by the sellers to comply with s 707(3) of the Act.

3. The form of each of these proposed orders satisfied the prescriptive requirements of s 1322(4)(a) of the Act in that:

   (a)the proposed orders are framed in a declaratory form;

   (b)the act, matter or thing is identified; namely, the appointment of an auditor, or the offer and sale of securities; and

   (c)the alleged contraventions are clearly identified.

Pre-conditions in s 1322(6)(a) of the Act

1. In respect of the appointment of the auditor, while only one of the preconditions needs to be satisfied, the plaintiff submits that the pre-conditions in both s 1322(6)(a)(ii) and s 1322(6)(a)(iii) are satisfied.

2. I accept the evidence of Mr Math that the failure to appoint RSM as auditor was inadvertent and arose because of the period of time between RSM's appointment and the AGM, as well as his commitments at the time for the Company. This conclusion is supported by the steps that have been taken by the Company to rectify the irregularity as soon as it became aware of the issue. On this basis, I accept the precondition in s 1322(6)(a)(ii) of the Act is satisfied.

3. Section 1322(6)(a)(iii) of the Act gives the court a wide discretion to exercise the powers under s 1322 of the Act.[16]  I am satisfied on the evidence before me that, for the following reasons, it is also just and equitable to make the orders that are sought.

   [16] See Re Bellevue Gold Ltd [64] - [65], and the authorities cited therein.

4. First, the making of the orders sought by the plaintiff is consistent with the public policy of ch 2M of the Act; namely, to ensure that public companies appoint independent auditors who audit the companies' accounts and that accounts are lodged within the timeframe specified under the Act. 

5. Second, in this case, all parties - namely, RSM, the Company, and its shareholders - have proceeded on the basis that RSM has been validly appointed as auditor of the Company.  No issue or complaint has been raised in relation to the accounts or the conduct of the audit or the review that has been undertaken by RSM, or the audit and review that were taken under its appointment, which was initially valid.

6. Third, the granting of relief will remove any doubt about the Company's compliance with its financial reporting obligations and the potential impact that this may have on the Company's operations.

No substantial injustice under s 1322(6)(c) of the Act

1. I consider the classes of persons who may be impacted by the making of these orders; namely, the Company, its shareholders, and RSM. 

2. First, while the plaintiff and its directors and officers did not comply with the relevant provisions of the Act, at all material times, RSM has in fact acted as auditor of the Company.  It has undertaken the review of the half-year accounts and no issue has been raised by the shareholders or either regulator concerning those accounts or the work that has been performed.

3. Second, in relation to the Company, if validating orders are not made by the court, the appointment of RSM and the half-year financial report of the Company will remain uncertain.  This may impact the Company's ability to issue cleansing notices for any future capital raisings as the Company will be unable to certify compliance with ch 2M of the Act. 

4. Third, in relation to RSM, if orders are not made in the terms sought, the status of their appointment will remain uncertain.  This may raise questions in the future as to the fees that have been charged and whether the work that they have done is covered by their professional indemnity insurance. 

5. Finally, in relation to the plaintiff's shareholders, there is no evidence that any shareholder has raised an issue regarding the half-year financial report or the work that has been performed. 

6. Given these matters, I find there is no basis for inferring that substantial injustice has been or is likely to be caused to any person by the making of the orders. 

7. In contrast, I consider that if the orders sought are not made, there may be substantial injustice to the plaintiff for the following reasons.  First, there will be continued uncertainty attaching to the work that has been undertaken by RSM.  Second, there will be continued uncertainty as to the status of the plaintiff's compliance with its financial reporting and audit obligations. 

No discretionary reason to withhold relief

1. I accept and find that there is no evidence of any substantial misconduct, serious wrongdoing or flagrant disregard of the Act which would warrant refusal of the relief that has been sought.[17]

   [17] Re Wave Capital Ltd [29].

2. There is nothing in the evidence before me today that suggests that any minority interests might be oppressed or that any other interest might be affected by the orders sought.  I am satisfied that all shareholders, together with the ASX and ASIC, have been notified of the plaintiff's contravention of the Act and have been given notice of the hearing today.  No one has sought to be heard or to intervene in the hearing. 

3. In exercising the court's discretion to grant relief under s 1322(4) of the Act, a relevant factor is the promptness with which the plaintiff has sought to remedy the irregularity once it has been identified.[18]  In this case, the plaintiff has acted extremely promptly.  The issue was identified on 16 October 2024.  Since that date, the plaintiff has taken steps to determine what relief is required, has sought legal advice, commenced these proceedings and sought and obtained a hearing within five business days. 

Validation of issues of securities subject of a notice under s 708A(5) of the Act

[18] Re G8 Communications Ltd [2016] FCA 297; (2016) 112 ACSR 22 [60].

1. In relation to the validation of the issues of securities, counsel for the plaintiff submitted in the written submissions filed in support of the application that each of the preconditions in s 1322(6)(a) of the Act are satisfied.

1. Mr Math's evidence is that at the time he issued the Cleansing Notices, he did not turn his mind to and had no reason to suspect the Company was not compliant with the provisions of ch 2M of the Act.  He confirmed the issue of securities with the other directors of the Company and considered whether or not there had been any material or price sensitive information that had not been disclosed to shareholders.  The plaintiffs submitted, which I accept, that each of these non-compliances with s 708(5) of the Act was a procedural irregularity and that there has been no failure of the persons concerned; namely, the Company or its directors or officers to act honestly. 

2. On this basis, I am satisfied the preconditions in both s 1322(6)(a)(i) and (ii) of the Act are satisfied. I am also satisfied on the evidence before me that it would be just and equitable to make the orders sought.

3. Once again, it is necessary for me to consider whether there would be any substantial injustice if the orders sought by the plaintiff are made.  In considering this question, I have taken into account the interests and classes of persons who may be impacted by the making of these orders. 

4. First, the parties who have been issued these shares.  If the orders are not made, they will suffer substantial prejudice in the fact that any future sale of these shares may be void or voidable. 

5. Second, the shareholders of the Company.  The Company's failure to comply with the relevant provisions of the Act has caused the Company to enter into a trading halt.  If orders are not made by the court and the trading halt is not lifted, the shareholders will not have the benefit of a trading market for their securities. 

6. Third, I accept that if the orders sought by the plaintiff are not made, there may be substantial injustice to the Company, as they could be required to remain involved in problems caused by void or voidable offers of its securities. 

7. Given these matters, I find that there is no basis for inferring that substantial injustice has been or is likely to be caused to any person by the making of the proposed orders, and in fact, consider that there will be substantial injustice to these classes of parties if the orders are not made.

8. For the following reasons, I am satisfied that in the circumstances of this case, relief should be granted in the terms sought by the plaintiff, subject to the qualification that order 3(b) should be limited to the securities issued on 12 June 2024 and 2 September 2024.  This is for the following reasons.

9. First, the evidence before the court is that there have been sales of the securities issued on these dates, but not in respect of the shares issued on 5 June 2024, 8 August 2024, 23 August 2024, or 5 September 2024.  Second, I accept there is a question as to the validity of the Cleansing Notices, given the failure to comply with ch 2M.4 of the Act.  Third, the orders in respect of the securities issued on 12 June 2024 and 2 September 2024 address a past act of a sale, and do not concern a future act.  Finally, I am satisfied on the evidence before me that this conduct was inadvertent and was not done in blatant disregard of the Company's obligations.

10. It is usual in cases such as these to provide an opportunity for shareholders or other parties to raise any complaint about the proposed orders.  The usual timeframe is that there be liberty to apply within 28 days from the date of the order, which is the order sought by the plaintiff.  In my view, that is an appropriate timeframe.

Conclusion

1. In conclusion, it is my view that public policy will not be undermined by the granting of relief sought by the plaintiff.  For these reasons, I am satisfied that relief should be granted to the plaintiff broadly in accordance with the originating process.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

JN

Associate to the Honourable Justice Hill

15 NOVEMBER 2024