Re Astral Resources Nl
[2023] WASC 260
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE ASTRAL RESOURCES NL; EX PARTE ASTRAL RESOURCES NL [2023] WASC 260
CORAM: LUNDBERG J
HEARD: 11 JULY 2023
DELIVERED : 14 JULY 2023
FILE NO/S: COR 112 of 2023
MATTER: IN THE MATTER OF ASTRAL RESOURCES NL
EX PARTE
ASTRAL RESOURCES NL
Plaintiff
Catchwords:
Corporations Law - Securities - Single failure to issue a cleansing notice in accordance with s 708A(5) and s 708A(6) of the Corporations Act 2001 (Cth) - Inadvertence on the part of the company secretary - Application for relief pursuant to s 1322(4) of the Corporations Act 2001 (Cth) to validate share issue through a cleansing prospectus - Orders to validate trading in securities - Plaintiff acted honestly - Whether substantial injustice caused - Application granted
Legislation:
Corporations Act 2001 (Cth), s 707(3), s 708A(1), s 708A(5), s 708A(6), s 708A(11), s 1322(4) and s 1322(6)
Result:
Application granted
Category: B
Representation:
Counsel:
| Plaintiff | : | Mr N J Wallwork |
Solicitors:
| Plaintiff | : | Thomson Geer - Perth |
Case(s) referred to in decision(s):
Metalicity Ltd [2020] WASC 387
Re Azure Minerals Limited [2013] FCA 63
Re Charter Hall Limited [2007] FCA 1316
Re European Lithium Limited [2017] FCA 894
Re G8 Communications Ltd [2016] FCA 297; (2016) 112 ACSR 22
Re Golden Gate Petroleum [2010] FCA 40
Re Great Boulder Resources Ltd; Ex parte Great Boulder Resources Ltd [2023] WASC 258
Re ICandy Interactive Limited [2018] FCA 533
Re Memphasys Limited; Ex parte Memhasys Limited [2022] WASC 269
Re Murray River Organics Ltd [2019] FCA 931
Re Poseidon Nickel Ltd [2018] FCA 1063; (2018) 129 ACSR 57
Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd (No 2) [2018] WASC 357
Sprint Energy Limited; in the matter of Sprint Energy Limited [2012] FCA 1354
Table of Contents
A. Overview
B. The Application
Notice to ASIC
C. Disposition - Preliminary matters
D. Disposition - Order 1 (deeming order)
Preliminary
Act, matter or thing
Section 1322(6)(a)
Section 1322(6)(c) - no substantial injustice
E. Disposition - Order 2 (offers and sales of shares not invalid)
Preliminary
Act, matter or thing
Section 1322(6)(a)
Section 1322(6)(c) - no substantial injustice
F. Residual discretion
G. Orders
ATTACHMENT A
LUNDBERG J:
A. Overview
These reasons relate to an urgent application filed by the plaintiff company on 10 July 2023 (Application),[1] which was heard on the afternoon the following day. The application sought orders under s 1322(4) of the Corporations Act 2001 (Cth) (Act)[2] arising from a failure by the plaintiff to comply with its disclosure obligations in respect of an issue of shares.
[1] Originating process dated 10 July 2023.
[2] Unless otherwise indicated, all references to statutory provisions are to provisions of the Corporations Act 2001 (Cth).
The specific failure which was the catalyst for the Application was a failure by the plaintiff to issue a cleansing notice pursuant to s 708A(5) at the time the share issue took place on 8 May 2023 (Share Issue), as required by s 707(1). In essence, the plaintiff's company secretary deposes that he simply forgot to issue the notice. No more, no less.
The plaintiff identified this irregularity around two months later. Upon doing so, the plaintiff moved very swiftly to undertake and implement a range of remedial steps, all within the space of two business days. While prevention in these circumstances is fundamentally better than resort to curative steps, the remedial actions undertaken by the plaintiff demonstrate the proper approach to be taken by listed entities where a failure to comply with the pt 6D.2 disclosure obligations is identified. It is appropriate I adumbrate these at the outset of these reasons:
(a)the plaintiff immediately sought a trading halt and a voluntary suspension of trading upon expiration of the trading halt, prior to the market opening the following day;
(b)the plaintiff reviewed historical issues of securities to ensure there were no further instances of disclosure non-compliance;
(c)the plaintiff reviewed its share register to determine whether any of the issued shares had been on-sold, and found that some had been;
(d)the plaintiff lodged a cleansing prospectus with the ASX on 10 July 2023;
(e)the plaintiff informed ASIC of the failure and notified ASIC of its intention to seek curative relief under s 1322;
(f)the plaintiff took steps to draft and adopt a written protocol for the issue of securities to ensure compliance with the company's disclosure obligations (plainly, this is an improvement relative to the plaintiff's historical reliance on a mental checklist); and
(g)the plaintiff then filed this application seeking curative orders under s 1322, and sought arrangements to have the application urgently listed in the Corporations List.
The plaintiff initially applied for an extension of time pursuant to s 1322(4)(d), in respect of the period of time in s 708A(11)(b)(i). That order was not pressed at the hearing. Rather, counsel for the plaintiff sought a deeming order pursuant to s 1322(4)(a), to deem that the cleansing prospectus lodged on 10 July 2023 take effect as if it were given to ASIC and the ASX on the date of the Share Issue, and also sought orders pursuant to s 1322(4)(a) to declare that any on-sales of the shares were not invalid by reason of any contravention of s 708A(5)(e) or s 707(3). The plaintiff did not seek any orders to relieve any on-sellers of these shares from any civil liability arising out of any contravention of s 707(3) and s 727(1).
The orders sought by the plaintiff were relatively orthodox. At the conclusion of the hearing, I indicated I was satisfied that orders should be made, largely in accordance with the plaintiff's revised minute of proposed orders dated 11 July 2023 and indicated that I would publish reasons.
These reasons will be mercifully shorter than otherwise might have been the case given that yesterday I published my decision in Re Great Boulder Resources Ltd; Ex parte Great Boulder Resources Ltd [2023] WASC 258, which was heard immediately prior to the present matter on 11 July 2023. That decision sets out the legislative framework and relevant principles. I will wholly adopt that framework and those principles in these reasons without repeating them, other than to emphasise the following guiding propositions.
First, s 1322 is remedial in character and should be applied broadly. Second, the broad powers within s 1322(4) 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.
B. The Application
Mr N J Wallwork appeared as counsel for the plaintiff at the hearing. Counsel relied upon a detailed outline of submissions dated 10 July 2023 and formally read three affidavits in support of the orders sought. The affidavits were as follows:
(a)the affidavit of Brendon Gregory Morton sworn on 10 July 2023 (Morton Affidavit) - Mr Morton is the plaintiff's company secretary;
(b)the affidavit of Marc Joseph Ducler Des Rauches sworn on 10 July 2023 (Des Rauches Affidavit) - Mr Des Rauches is the managing director of the plaintiff; and
(c)the affidavit of Jessica Sara Chapman affirmed on 11 July 2023 (Chapman Affidavit) - Ms Chapman is a solicitor at the law firm which represents the plaintiff.
The following factual summary is uncontentious and relatively brief. It is drawn from the Morton Affidavit and the Des Rauches Affidavit.
The plaintiff is a gold exploration and base metals company, with projects located in Western Australia. The plaintiff has been listed on the ASX since 1986.
Mr Morton is the plaintiff's company secretary. He is responsible for compliance matters, including the plaintiff's disclosure obligations. Mr Des Rauches typically relies on the company secretary in relation to routine compliance matters, including to ensure that the plaintiff complies with its disclosure obligations. Relying on an experienced and professional company secretary to undertake compliance activity and satisfy disclosure obligations is quite common in my experience.
On 8 May 2023, the plaintiff issued 46,111,113 fully paid ordinary shares to institutional and sophisticated investors following a successful capital raising by Morgans Corporate Limited. As the investors were institutional or sophisticated investors, disclosure was not specifically required to be made by the plaintiff in respect of the issue. This of course does not satisfy the disclosure obligations applicable to any on‑sales of such shares, as required by pt 6D.2.
On 9 May 2023, Mr Morton lodged an Appendix 2A with ASX but failed to issue a cleansing notice pursuant to s 708A(5) at the same time (as required by pt 6D.2). Mr Morton has sworn in his affidavit that he simply forgot to issue the cleansing notice. The fact he had no written checklist to guide him in such matters likely contributed to the error. He first appreciated the omission had occurred during the course of preparing a disclosure document for a further share issue around two months later, on 6 July 2023.
As I have already noted, the plaintiff moved swiftly to address the failure, including by issuing a cleansing notice on 10 July 2023 and promptly bringing this application seeking curative orders under s 1322.
There is evidence before the court to indicate that at least some of the shares which were the subject of the Share Issue on 8 May 2023 have subsequently been traded.[3]
Notice to ASIC
[3] Morton Affidavit, [37] – [38], BGM8.
There was no appearance at the hearing on behalf of ASIC. ASIC had been given advance, albeit very short, notice of the hearing. ASIC stated in its communication to the plaintiff's solicitors that it neither supported nor opposed the relief sought and did not intend to appear at the hearing of matter.[4]
[4] Chapman Affidavit, JSC2.
I was satisfied on the affidavit material that ASIC had been given proper notice of the Application.
C. Disposition - Preliminary matters
Given the final form of orders sought by the plaintiff at the hearing, it was ultimately necessary for the plaintiff to satisfy the court of the following matters:
(a)that the plaintiff had standing to seek the relief;
(b)that the deeming order (Order 1) sought pursuant to s 1322(4)(a) was in relation to an 'act, matter or thing', that one of the three criteria in s 1322(6)(a) was satisfied, and that no substantial injustice has been or is likely to be caused to any person (being the limitation imposed by s 1322(6)(c));
(c)that the order preserving the validity of the offers of shares (Order 2) sought pursuant to s 1322(4)(a) was in relation to an 'act, matter or thing', that one of the three criteria in s 1322(6)(a) was satisfied, and that no substantial injustice has been or is likely to be caused to any person; and
(d)that there were no other reasons to withhold the relief, in the exercise of the court's residual discretion: Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd (No 2) [2018] WASC 357 [35] (Vaughan J); and Re Murray River Organics Ltd [2019] FCA 931 [39].
As to the first of these matters, I accept the plaintiff is an interested person with sufficient standing to seek the relief in the originating process, as required by s 1322(4). In my view, the plaintiff is the natural party to seek the type of relief in question, as the relief is centrally focused on the issued securities of the plaintiff company and the validity of offers for, or sales of, a significant parcel of those securities.
The plaintiff has standing even though it is seeking relief for the benefit of its shareholders and others, and not as to any potential liability on its part or that of its directors: Re ICandy Interactive Limited [2018] FCA 533 [46] (Banks-Smith J); and Sprint Energy Limited; in the matter of Sprint Energy Limited [2012] FCA 1354 [40] (McKerracher J).
I have addressed Order 1, Order 2 and the residual discretion below.
D. Disposition - Order 1 (deeming order)
Preliminary
By this order, the plaintiff sought a declaration in relation to the cleansing prospectus lodged by the plaintiff with ASIC and the ASX on 10 July 2023. That was intended to be a cleansing prospectus under s 708A(11), taking effect in respect of the earlier Share Issue. The plaintiff sought a declaration that the cleansing prospectus be deemed to take effect as if it had been given to ASIC and the ASX on 8 May 2023.
The broad policy underlying s 708A(11) appears to be that no further disclosure will be required where investors have the benefit of information comparable to or otherwise available in a prospectus: Re Golden Gate Petroleum [2010] FCA 40[36] (McKerracher J). As to the cleansing prospectus exemption in s 708A(11), this provision recognises that investors may receive relevant information through a prospectus, although not issued pursuant to the specific placement, but that nonetheless relate to the same class of securities as the placement: Re Golden Gate Petroleum [27] (McKerracher J).
This order is intended to remove any uncertainty as to the validity of the title to the shares so as to enable them to be offered for further sale. As Colvin J explained in Re Poseidon Nickel Ltd [2018] FCA 1063; (2018) 129 ACSR 57 [62], if such an order was not granted then the integrity of future dealings in the shares by current holders might be called into question. Relief was sought under s 1322(4)(a) to effectively deem that the cleansing prospectus took effect on 8 May 2023 such that the dealing by which the current shareholder acquired their shares is not invalid.
I accept that a deeming order such as that sought by the plaintiff is often viewed as a corollary to an extension of time order in circumstances where the relevant shares have been on-sold. I identified the authorities on this issue in Re Great Boulder Resources [55].
However, in the absence of an extension of time order, it is necessary that the plaintiff demonstrate that the deeming order is itself justified by the power in s 1322(4)(a). As explained below, I was satisfied the power in that provision was appropriately engaged and should be exercised.
Act, matter or thing
The first requirement to satisfy in relation to s 1322(4)(a) is that the order is in relation to an 'act, matter or thing'. It is established that the sale or offer for sale of securities in contravention of s 707(3) are each an 'act, matter or thing' for which relief can be granted under s 1322(4): Re European Lithium Limited [2017] FCA 894 [40] (Barker J); and Re Sprint Energy Limited [41] (McKerracher J). This requirement was therefore satisfied.
Section 1322(6)(a)
As to the preconditions in s 1322(6), it is of course necessary that the court be satisfied that only one of the three criteria in s 1322(6)(a) is satisfied. The plaintiff submitted that all three criteria could be satisfied in the present circumstances. It is sufficient for present purposes to say that I was comfortably satisfied that the requirements in s 1322(6)(a)(ii) and s 1322(6)(a)(iii) were made out by the plaintiff here.[5] The evidence supports a finding that the persons involved in the failure, particularly Mr Morton, acted honestly and it is in any event just and equitable that the deeming order be made. My reasons for reaching these conclusions are broadly as follows:
[5] I therefore need not express a view on the application of s 1322(6)(a)(i) ('essentially of a procedural nature') in the present circumstances.
(a)First, I accept the sworn evidence of Mr Morton that he simply overlooked the requirement to lodge the cleansing notice. There is no reason to doubt his sworn statements in this respect, and there is no evidence of any wilful conduct or bad faith on his part. This was simply inadvertence.
(b)Second, the factual background demonstrates that, upon discovering the irregularity, the plaintiff acted promptly to place the shares in the company into a trading halt, to issue a cleansing prospectus and to bring this application to remedy the irregularity. The failure was discovered on 6 July 2023 and this application was made within two business days, on 10 July 2023. I accept that the plaintiff's prompt response is a relevant factor for the court to consider in exercising the discretion to grant relief under s 1322(4): Re G8 Communications Ltd [2016] FCA 297; (2016) 112 ACSR 22, 34 [60] (Barker J).
(c)Third, in the absence of the order, there are adverse consequences for the plaintiff and its shareholders (which is relevant to the just and equitable precondition). Unless orders are made by the court, the plaintiff's shares will continue to be suspended from trading which will deny the shareholders of the plaintiff the opportunity to trade their shares.
(d)Fourth, the shareholders who have purchased shares in the plaintiff on market may have purchased some of the impugned shares. Given that any such sales will have occurred without disclosure, there is at least some potential that these transactions are void or voidable creating title issues for these parties.
(e)Fourth, there is no evidence that any shareholder suffered any loss or has been prejudiced.
(f)Fifth, steps have since been taken to ensure that the potential for there to be future non-compliance is mitigated. The plaintiff has explained that it has now adopted a protocol which the plaintiff will follow in relation to the issue and cleansing of securities as an additional compliance measure going forward.
(g)Sixth, the making of the orders sought would be consistent with the conduct of commerce generally, a consideration identified in several authorities including in Re Memphasys Limited; Ex parte Memhasys Limited [2022] WASC 269 [87] (Strk J). As there explained, this remedial provision of the Act should be exercised in a way which does not unnecessarily stifle corporate and financial activity on technical grounds.
Section 1322(6)(c) - no substantial injustice
The final precondition to the exercise of the power in s 1322(4)(a) is satisfaction of s 1322(6)(c). I was satisfied on the material adduced by the plaintiff that no substantial injustice has been or is likely to be caused to any person.
The concept of 'substantial injustice' contemplates a measure of real injustice as opposed to insubstantial or theoretical injustice: Re Azure Minerals Limited [2013] FCA 63 [20]. A degree of prejudice to a person may be outweighed if the overwhelming weight of justice is in favour of making the order.
The company secretary has deposed that he is not aware of any circumstance which suggests that substantial injustice has been or is likely to be caused to any person.[6] There is no direct evidence before the court to suggest that substantial injustice has been or is likely to be caused to any person.
[6] Morton Affidavit, [43] – [44].
The plaintiff correctly submits that, to further evaluate this issue, it is relevant to assess whether a company could have given a cleansing notice (in the sense of being eligible to do so) and, in this regard, whether there was any 'excluded information' (as that term is defined in s 708A(7)) which should have been disclosed with the cleansing notice by virtue of s 708(6)(e): Re Azure Minerals Limited [13]; and Re Charter Hall Limited [2007] FCA 1316 [4]-[5]. The evident basis for this approach is to ensure that there was no information that a buyer or seller of the shares ought to have had, or would have improved their position if it had been obtained.
The plaintiff submits, and I accept, that it was in a position to give cleansing notices to the ASX when it made the Share Issue and there was no 'excluded information' which should have been published with the cleansing notice.[7] This is a strong pointer to the absence of substantial injustice in this circumstance.
[7] Morton Affidavit, [39]; and Des Rauches Affidavit, [19].
Further, in weighing the issue of prejudice, I recognise that the order sought is in the interests of the shareholders of the plaintiff who have received shares through the Share Issue, and who have on-sold their shares. Those shareholders face the risk that they may otherwise be exposed to claims against them in respect of the validation of their shares. Putting the issue more broadly, it remains important that shares in listed entities can be freely traded by all investors upon their quotation, without the prospect of infringing s 707(3).
Finally, on the question of substantial injustice, it is typical for the court to make an ancillary order permitting any interested person who may suffer substantial injustice to apply within a set period of time to vary or dissolve the s 1322(4) order. I made such an order here - see Order 6 in Attachment A. The making of such an order operates to ameliorate any prejudice which might otherwise be suffered by a particular entity or person.
E. Disposition - Order 2 (offers and sales of shares not invalid)
Preliminary
To an extent, Order 2 is complementary to Order 1. By this order, the plaintiff sought a declaration in relation to any offer for sale or sale of the shares which had been issued on 8 May 2023. This order focuses on the protecting the validity of on-sales of the shares after 8 May 2023. This type of order is designed to provide an assurance of continuity of title and to protect past holders from claims that earlier on-selling was invalid by reason of any failure to comply: Re Poseidon Nickel Ltd [63] (Colvin J).
The plaintiff sought a declaration in terms that any such offer for sale or sale (during the period after the issue to the date of the court's orders) be declared as not invalid by reason of:
(a)any failure of a notice under s 708A(5) or any failure of a prospectus under s 708A(11) to exempt the sellers from their disclosure obligations under the Act; and
(b)the sellers' consequent failure to comply with s 707(3).
Act, matter or thing
I have already addressed the requirement in s 1322(4)(a) that the order is in relation to an 'act, matter or thing'. I am satisfied this requirement has been demonstrated by the plaintiff.
Section 1322(6)(a)
I was comfortably satisfied that the requirements in s 1322(6)(a)(ii) and (iii) were made out by the plaintiff here. The evidence supports a finding that the persons involved in the failure, particularly Mr Morton, acted honestly and it is in any event just and equitable that the deeming order be made. I refer to the matters set out above at [28] of these reasons.
Section 1322(6)(c) - no substantial injustice
The final precondition to the exercise of the power in s 1322(4)(a) is satisfaction of s 1322(6)(c). I have earlier referred to the absence of any substantial injustice, whether actual or in prospect, in the present circumstances. I refer to the matters set out above at [29] - [35] of these reasons.
The plaintiff also drew attention to the approach adopted by Hill J in this regard, in Metalicity Ltd [2020] WASC 387 [46]-[51], among other authorities. In that case, the court identified the classes of persons who may be impacted by the making of orders under s 1322 in order to assess the question of substantial injustice. Her Honour identified two classes of persons: those people who were initially issued the impugned shares and those people who purchased shares from on-sellers who may have on-sold them by trading on the open market of the ASX. The prejudice to the former class is that 'if they seek to offer to sell or sell the impugned shares, such offers or sales may be void or voidable for want of compliance with the statutory requirements' (at [47]). The prejudice to the latter class is that further sales of the shares will have occurred without the necessary disclosure under pt 6D.2 (at [48]). Her Honour concluded on the evidence there was 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.
A similar approach is appropriate here.
On my assessment, a sound basis has been demonstrated for the conclusion that no substantial injustice has arisen and none is likely to arise by making an order that effectively validates any offers for sale or sales of these shares in the period following the Share Issue on 8 May 2023. This is roughly a two month period. The order sought does not go so far as to relieve any persons from civil liability - it operates to validate past transactions. If the proposed order is not made, risks may materialise as to the validity of the offers of and sales of these shares, giving rise to commercial uncertainty and expense for the company. Further, absent the order, there may be prejudice to all shareholders through the current suspension from trading. The order which is sought protects the validity of any on-sales of shares after 8 May 2023, and will enable the suspension to be lifted, consistently with the broadly important notion that shares in listed entities may be freely traded by all investors upon their quotation, without the prospect of infringing s 707(3).
F. Residual discretion
I was satisfied there were no circumstances present in this case that would otherwise justify refusing to make the orders sought, having found the preconditions to s 1322(4) were satisfied.
In particular, I did not consider public policy would be undermined by the making of the orders and there was no suggestion here that the plaintiff's conduct involved any blatant disregard of the provisions of the Act. This was a case of inadvertence. I was satisfied that the plaintiff moved promptly to correct the failure once it became apparent, and the plaintiff has no history of non-compliance. Further, there was no opposition to the relief from ASIC. Accordingly, I was satisfied in the circumstances of this case that the relief should be granted.
G. Orders
The orders made on 11 July 2023 are set out in Attachment A to these reasons.
ATTACHMENT A
ORDERS MADE ON 11 JULY 2023
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
IHN
Associate to the Honourable Justice Lundberg
14 JULY 2023
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