Re Astral Resources NL
[2024] WASC 251
•11 JULY 2024
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE ASTRAL RESOURCES NL; EX PARTE ASTRAL RESOURCES NL [2024] WASC 251
CORAM: HILL J
HEARD: 2 JULY 2024
DELIVERED : 2 JULY 2024
PUBLISHED : 11 JULY 2024
FILE NO/S: COR 107 of 2024
MATTER: IN THE MATTER OF ASTRAL RESOURCES NL
EX PARTE
ASTRAL RESOURCES NL
Plaintiff
Catchwords:
Corporations - Application for orders under s 1322 of Corporations Act 2001 (Cth) - Failure of company to lodge cleansing notice or prospectus for share issue - Previous failure to issue cleansing notice for share issue - Orders made in respect of previous contravention - Where company secretary advised of intention to adopt new process for future share issues - Where inadvertent failure to issue cleansing notice or prospectus - Where immediate steps taken to rectify irregularity - Where no substantial injustice caused by proposed orders - Where no blatant or flagrant disregard of obligations - Turns on own facts
Legislation:
Corporations Act 2001 (Cth) s 707, s 708A, s 1322
Result:
Application granted
Category: B
Representation:
Counsel:
| Plaintiff | : | N Wallwork |
Solicitors:
| Plaintiff | : | Thomson Geer |
Case(s) referred to in decision(s):
Re Astral Resources NL [2023] WASC 260
Re Bellevue Gold Ltd [2021] WASC 80
Re Caeneus Minerals Ltd [2018] FCA 560
Re Classic Minerals Ltd [2018] FCA 2039
Re G8 Communications Ltd [2016] FCA 297; (2016) 112 ACSR 22
Re Golden Gate Petroleum Ltd [2010] FCA 40; (2010) 77 ACSR 17
Re Helios Energy Ltd [2017] FCA 840; (2017) 122 ACSR 174
Re Jaxsta Ltd; Ex parte Jaxsta Ltd [2018] WASC 390
Re Wave Capital Ltd [2003] FCA 969; (2003) 47 ACSR 4
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.)
On 27 June 2024, Mr Morton, the company secretary of Astral Resources Ltd (Astral), was undertaking work associated with the preparation of the Astral's annual reporting and end of financial year accounts. In the course of this work, Mr Morton realised he had failed to lodge a cleansing notice for the issue of 140 million shares on 9 April 2024.
On 1 July 2024, Astral filed an originating process seeking orders under s 1322(4)(a) and s 1322(4)(d) of the Corporations Act 2001 (Cth) (Act). The originating process has come before me for hearing on an urgent basis this afternoon.
Having read the affidavits that have been filed by the plaintiff, I am satisfied that Astral has provided a frank explanation as to the circumstances which led to the contravention. Based on the evidence before me, I am satisfied the failure by Astral to issue a cleansing notice was inadvertent and that it is appropriate to make the orders sought.
Factual background
In support of its application, Astral relied on three affidavits:
(a)an affidavit of Brendon Gregory Morton, its company secretary, filed 1 July 2024;
(b)an affidavit of Marc Joseph Ducler des Rauches, its managing director, filed 1 July 2024; and
(c)an affidavit of James Allison, a solicitor employed by the plaintiff's solicitors, filed 2 July 2024 shortly before the hearing.
Astral is a gold exploration and base metals company with projects in Western Australia, whose securities are listed on the Australian Securities Exchange (ASX). As at 27 June 2024, Astral had approximately 935 million shares on issue, more than 2,000 shareholders and a market capitalisation of approximately $77 million.
On 9 April 2024, Astral issued 140 million shares to institutional and sophisticated investors. This has been the subject of an announcement on 28 March 2024. On 9 April 2024, Mr Moreton, who was responsible for the disclosure obligations of the company, lodged an Appendix 2A form but failed to lodge the cleansing notice which he had prepared and saved onto the company's IT system.
This is not the first instance of a contravention of pt 6D.2 of the Act by Astral. In July 2023, Lundberg J made orders on a previous application by Astral following its failure to issue a cleansing notice in respect of a share issue on 8 May 2023.[1] At that time, Mr Morton advised the court of his intention to adopt a new process with respect to each future share issue undertaken by Astral. The process included the completion of a written checklist and the signing off on that checklist by Mr Morton, as well as a director of Astral. Mr Morton has successfully used the checklist for six share issues that have been undertaken since then, even if there has not been strict compliance with what the court was previously informed.
[1] Re Astral Resources NL [2023] WASC 260.
At the time of the share issue on 9 April 2024, Mr Morton was on annual leave and, as a result, lodged the Appendix 2A remotely. Due to what he says is an administrative oversight, he failed to complete the rest of the checklist process, which included the final step of lodging the cleansing notice and calling the managing director to confirm that all steps had been taken.
Mr Morton realised his mistake on 27 June 2024, and immediately spoke to Astral's managing director as well as to its external solicitors.
On 28 June 2024, prior to the opening of the market that day, Astral requested a trading halt from the ASX. On the same date, the plaintiff's solicitors informed the court of Astral's intention to lodge this application and requested a date and time for an urgent hearing. Astral's solicitors have written to the Australian Securities and Investment Commission (ASIC), informing them of the contravention and of Astral's intention to make this application.
On 1 July 2024, the plaintiff lodged a prospectus in relation to the share issue on 9 April 2024, as well as a replacement prospectus.
Mr Morton has obtained a report from its share registry to consider what, if any, of the shares issued on 9 April 2024 had subsequently been traded. Based on this report, he believes that a maximum of almost 34.5 million shares have been traded since that time.
Power under s 1322 of the Act to grant the relief sought
In considering an application under s 1322 of the Act, the essential principles are well known.[2]
[2] Re Helios Energy Ltd [2017] FCA 840; (2017) 122 ACSR 174 [20].
It is necessary for an applicant to satisfy the prescriptive requirements of s 1322(4) and the pre‑conditions in s 1322(6) of the Act.[3] Even where these are satisfied, the court retains a discretion as to whether or not to make the orders sought.
[3] Weinstock v Beck [2013] HCA 14; (2013) 251 CLR 396 [43], [53], [64].
The broad powers that are 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 such 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 in compliance with the law.[4]
[4] Re Wave Capital Ltd [2003] FCA 969; (2003) 47 ACSR 418 [29].
Limitations to this broad power will not readily be implied.[5] This is because the section is remedial in character and should be applied broadly.
[5] Weinstock v Beck [43], [55] - [56], [60], [64].
The court can make orders under s 1322(4)(a) of the Act on conditions and make such consequential and ancillary orders as it thinks fit.
Should an extension of time be granted for the lodgment of the prospectus?
Pursuant to pt 6D.2 of the Act, disclosure obligations are imposed on companies in relation to the issue and sale of securities. These obligations can be satisfied by lodging either a cleansing notice or a prospectus.[6] If disclosure has not been made by the issuer and the securities are on‑sold within a period of 12 months, the party to whom the securities are issued may be obliged to make a disclosure.[7]
[6] Corporations Act 2001 (Cth) s 708A(5), s 708A(11).
[7] Corporations Act 2001 (Cth) s 707(3). See also ReGolden Gate Petroleum Ltd [2010] FCA 40; (2010) 77 ACSR 17.
In this case, the plaintiff seeks an extension of the time period within which to lodge a prospectus until 1 July 2024. I accept that it is clear from the authorities that the period within which this prospectus is required to be lodged can be extended even if the period has expired.
The test that is applied by the court in consideration an application under s 1322(4)(d) of the Act was summarised by Vaughan J in Re Jaxsta Ltd; Ex parte Jaxsta Ltd at [41] ‑ [43] of that decision.[8]
[8] Re Jaxsta Ltd; Ex parte Jaxsta Ltd [2018] WASC 390.
In this case, for the following reasons, I am satisfied that it is appropriate to extend the time within which Austral can lodge a prospectus until 1 July 2024.
First, the extension that is sought by the company is for a period of approximately eight weeks. This is consistent with extensions that have previously been granted by the courts on similar applications.
Second, I am satisfied on the evidence before me that the issue of shares without a prospectus or cleansing notice was inadvertent and was promptly rectified once the company became aware of the error.
Third, unless an extension is granted, there will be adverse consequences for both Astral and its shareholders, as its shares will continue to be suspended from trading, denying its shareholders the opportunity to trade their shares.
Fourth, parties who have purchased shares on market since 9 April 2024 may have purchased some of the shares that were issued that day. Given these sales will have occurred without the required disclosure, it is arguable that these sales may be void or voidable, which creates potential title issues for those who are affected.
Fifth, the regularisation of the share issue is consistent with the conduct of commerce generally. Section 1322(4)(d) of the Act should be exercised in a way which does not unnecessarily stifle corporate and financial activity on technical grounds.
Sixth, I am satisfied that Astral has brought the application without delay. Once it became aware of the issue, it immediately took steps to seek relief from the court and commence proceedings within two business days.
Finally, ASIC neither supports nor opposes the application nor do any of the plaintiff's shareholders. Neither ASIC nor any shareholder has appeared at the hearing today to oppose the application or the orders that have been sought.
Pre-conditions in s 1322(6)(a) of the Act
In submissions filed by counsel for Astral, it was submitted that in this case each of the pre-conditions in s 1322(6)(a) was satisfied in this case. I accept this submission.
First, it is clear that the issue of a cleansing notice is a procedural step.
Secondly, on the evidence before the court, I am satisfied and find that the action of the plaintiff, and most particularly of Mr Moreton, in failing to lodge the cleansing notice as required by the Act, was honest and inadvertent.
I am also satisfied, given the matters I have already referred to, that it would be just and equitable to make the orders sought.[9]
No substantial injustice under s 1322(6)(c) of the Act
[9] The Court is granted a wide discretion under s 1322(6)(a)(iii) of the Act in exercising its powers under s 1322 of the Act: see Re Bellevue Gold Ltd [2021] WASC 80 [64] and the authorities cited therein.
In considering whether there are any substantial injustices under s 1322(6)(c) of the Act, I have considered the classes of persons who may be impacted by the making of these orders.
First, the people who were issued the shares on 9 April. The prejudice to these people is that unless orders are made, any sale of the securities in the next 12 months may be void, or voidable, for want of compliance with the statutory requirements.
Second, any people who have purchased shares that were originally issued on 9 April which have been sold and possibly resold. Any further sales of the shares will have also occurred without the requisite disclosure under pt 6D.2 of the Act.
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 proposed by the plaintiff.
In contrast, it is my view that if the orders that have been sought are not made, there is likely to be substantial injustice to Astral and its shareholders, as the offers and sales of shares may be void or voidable. Not only can this give rise to commercial uncertainty and expense for Astral, as it must remain involved in the problems that have been caused by void or voidable offers and sales of its shares. I also accept that there is general substantial injustice to the other shareholders of Astral, as they cannot trade their securities on an open market until the current suspension is lifted.
It is usual in cases such as this to provide an opportunity for shareholders or other parties to raise a complaint about the proposed orders. The usual timeframe is that there be liberty to apply within 28 days from the date of the orders. In this case, I accept that this is an appropriate timeframe. It is my view that there is no other discretionary reason that would justify the withholding of the relief that has been sought.
No other discretionary reason to withhold relief
There is no evidence before me that there has been any substantial misconduct, serious wrongdoing or flagrant disregard of the Act which would warrant refusal of the relief that has been sought by the plaintiff.
There is nothing on the evidence before me that suggests that any minority shareholder interest might be oppressed or that there is any other interest that might be affected by the relief that has been sought.
In exercising the 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.[10] In this case, within two days of discovering the issue, Astral had sought legal advice, notified its shareholders, procured a trading halt, notified ASIC of the issue and of the plaintiff's intention to seek curative relief, and commence these proceedings. I accept that in these circumstances, the plaintiff has acted diligently after being made aware of the issue.
Should declarations be made under s 1322(4)(a) of the Act
[10] Re G8 Communications Ltd [2016] FCA 297; (2016) 112 ACSR 22 [60].
In addition to the orders sought for an extension of time for the lodgement of the prospectus, the plaintiff also seeks two declarations under s 1322(4)(a) of the Act.
The first declaration sought is that any offer for sale or sale of the quoted securities between their issue and the date of the court orders is not invalid by reason of:
(a)the plaintiff's failure to issue a notice under s 708A(5)(e) or a prospectus under s 708A(11) of the Act to exempt the sellers from the obligation of disclosure under the Act; and
(b)the sellers' consequent failure to comply with s 707(3) of the Act.
The second declaration sought is that the prospectus lodged with the ASX on 1 July 2024 be deemed to take effect as if it had been given to the ASX and ASIC on the date of the issue of the shares.
The prescriptive requirements of s 1322(4)(a) of the Act are satisfied in each case in that:
(a)each of these proposed orders are framed in a declaratory form;
(b)the act, matter or thing is the offer and sale of securities; and
(c)the contravention is the offering of securities for sale or sales without proper disclosure in contravention of s 707(3) of the Act.[11]
[11] See Re Caeneus Minerals Ltd [2018] FCA 560 [39] ‑ [40]; Re Classic Minerals Ltd [2018] FCA 2039 [35] ‑ [36].
In respect of the second declaration that is sought, courts have made orders to this effect on a number of previous occasions. In my view, it is not in doubt that the court has power to make orders that are consequential or ancillary to an order extending the period for doing an act, matter, or thing under the Act.
In my view, it is appropriate in this case to make the orders sought by the plaintiff. First, the evidence before me is that some of the shares the subject of the share issue have been on-sold and it cannot be discounted that there have been subsequent resales. Accordingly, I consider it is appropriate to make the orders sought to remove any question as to the title of their shares.
Second, at the time the orders are sought to be made by the court, the prospectus has already been lodged. That is, the order does not concern a future act but a past act.
Third, in my view, the 'deeming order' is a corollary of the order seeking an extension of time.
Conclusion
For these reasons, I consider that it is appropriate to make orders in terms of 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
11 JULY 2024
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