Re Australian Potash Ltd
[2021] WASC 109
•15 APRIL 2021
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE AUSTRALIAN POTASH LTD; EX PARTE AUSTRALIAN POTASH LTD [2021] WASC 109
CORAM: HILL J
HEARD: 26 MARCH 2021
DELIVERED : 26 MARCH 2021
PUBLISHED : 15 APRIL 2021
FILE NO/S: COR 49 of 2021
MATTER: IN THE MATTER OF AUSTRALIAN POTASH LTD
EX PARTE
AUSTRALIAN POTASH LTD
Plaintiff
Catchwords:
Corporations law - Securities - Application for extension of time to lodge cleansing notice - Application for orders that shares issued without a valid cleansing notice are not invalid - One instance of securities being issued without a valid cleansing notice - Where no blatant or flagrant disregard of obligations - Where no substantial injustice if orders made - Application granted
Legislation:
Corporations Act 2001 (Cth), s 707, s 708A, s 708AA, s 1322
Result:
Application granted
Category: B
Representation:
Counsel:
| Plaintiff | : | M F Holler & D J Hird |
Solicitors:
| Plaintiff | : | Steinepreis Paganin |
Case(s) referred to in decision(s):
Blaze Asset Pty Ltd v Target Energy Ltd [2009] FCA 698; (2009) 177 FCR 488
Re Austpac Resources NL [2010] NSWSC 1438
Re Beadell Resources Ltd [2013] FCA 13
Re Caeneus Minerals Ltd [2018] FCA 560
Re Charter Hall Ltd [2007] FCA 1316
Re Classic Minerals Ltd [2018] FCA 2039
Re Diversified United Investment Ltd [2008] FCA 720
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 ICandy Interactive Ltd [2018] FCA 533; (2018) 125 ACSR 369
Re Imdex Ltd [2020] WASC 298
Re Jaxsta Ltd; Ex parte Jaxsta Ltd [2018] WASC 390
Re Micro-X Limited [2019] FCA 1154
Re Poseidon Nickel Ltd [2018] FCA 1063; (2018) 129 ACSR 57
Re RCR Tomlinson Ltd [2009] FCA 1130
Re Wave Capital Ltd [2003] FCA 969; (2003) 47 ACSR 418
Weinstock v Beck (2013) 251 CLR 396
Whitehawk Ltd [2020] WASC 388
HILL J:
On 23 March 2021, the plaintiff, Australian Potash Limited (Australian Potash), filed an originating process seeking orders under s 1322 of the Corporations Act 2001 (Cth) (Act) relating to contraventions of s 707(3) and s 727(1) of the Act. The contravention occurred as a result of the issue of a cleansing notice under s 708AA of the Act, which concerns shares issued pursuant to a rights issue, rather than under s 708A of the Act.
The plaintiff has provided a frank and detailed explanation as to the circumstances surrounding the error. On the basis of the evidence before me, I was and am satisfied that the failure was caused by inadvertence rather than any deliberate disregard of the plaintiff's obligations.
In light of the urgency with which the application was brought, I made orders at the conclusion of the hearing on 26 March 2021 granting the relief sought and said that I would subsequently publish reasons for my decision. These are the reasons for my decision.
Part 6D.2 Corporations Act
Part 6D.2 of the Act imposes disclosure obligations on corporations in relation to rights issues and the issue and sale of quoted securities.
Section 708AA of the Act governs offers under a rights issue and s 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 (s 708AA(2) and s 708A(5)). The cleansing notice exception can only be relied upon if the preconditions in these sections are met.
If disclosure has not been made by the issuer and the shares are on-sold within 12 months, the party to whom the shares are issued may be obliged to make disclosure.[1]
[1] Corporations Act, s 707(3). See also ReGolden Gate Petroleum Ltd [2010] FCA 40; (2010) 77 ACSR 17.
Factual Background
Australian Potash is a public company whose securities are listed on the Australian Securities Exchange (ASX). As at 22 March 2021, the plaintiff had a market capitalisation of $94,067,226, a total issued share capital of 553,346,809 shares, and 1,773 shareholders.[2]
[2] Affidavit of Sophie Jane Raven filed 23 March 2021 [12].
Australian Potash is a mineral exploration company focused on the exploration and development of exploration leases and mining licenses in Western Australia for the extraction, production and sale of sulphate of potash.[3]
[3] Affidavit of Sophie Jane Raven filed 23 March 2021 [11].
On 3 November 2020, the plaintiff announced that it had raised $7 million through a placement of 63,063,064 ordinary fully paid shares at an issue price of 11.1 cents per share (Placement Shares).[4]
[4] Affidavit of Sophie Jane Raven filed 23 March 2021 [19], 'SR-04'.
On 11 November 2020, the plaintiff issued the Placement Shares and applied for the quotation of the Placement Shares on the ASX.[5] On the same date, Ms Raven, the company secretary of Australian Potash, lodged a cleansing notice with the ASX. The cleansing notice stated that 'the Company is providing this notice under pararagraph 2(f) of section 708AA of the Corporations Act'.[6]
[5] Affidavit of Sophie Jane Raven filed 23 March 2021 [20], 'SR-05'.
[6] Affidavit of Sophie Jane Raven filed 23 March 2021 [21], 'SR-06'.
On 19 March 2020, during a conversation with the plaintiff's external legal counsel, Ms Raven was advised that there was an error in the cleansing notice lodged on 11 November 2020. The error was the statement that the cleansing notice was issued for the purpose of s 708AA(2)(f) of the Act; it should have stated it was issued under s 708A(5)(e) of the Act.[7]
[7] Affidavit of Sophie Jane Raven filed 23 March 2021 [24].
Ms Raven was responsible for preparation of the cleansing notice. In preparing the notice, among the other duties she was required to undertake in relation to the issue of the Placement Shares, she re-used a cleansing notice she prepared earlier in the year for a rights issue undertaken by the plaintiff.[8]
[8] Affidavit of Sophie Jane Raven filed 23 March 2021 [22].
On Sunday 21 March 2021, Ms Raven contacted Mr Shackleton, the managing director of Australian Potash, to inform him of the error in the cleansing notice.[9] Mr Shackleton then contacted the plaintiff's external legal advisors and sought advice.[10]
[9] Affidavit of Sophie Jane Raven filed 23 March 2021 [25].
[10] Affidavit of Matthew William Shackleton filed 24 March 2021 [9] – [12].
On 22 March 2021, the plaintiff's solicitors wrote to the ASX and ASIC to inform them of the plaintiff's non-compliance with the Act and the plaintiff's intention to commence proceedings in this court.[11] The originating process was filed on 23 March 2021 and was listed for hearing before me on an urgent basis on 26 March 2021.
[11] Affidavit of Toby Albert Hicks filed 25 March 2021 [4] – [5], [7] – [8], 'TH-01', 'TH-02', 'TH-04', 'TH-05'.
On 23 March 2021, the plaintiff sought and obtained a trading halt.[12] On the same date, the plaintiff notified the recipients of the Placement Shares of the plaintiff's failure to issue a compliant cleansing notice and informed them of the intention to apply to this court for curative orders.[13]
[12] Affidavit of Sophie Jane Raven filed 23 March 2021 [26], 'SR-07'.
[13] Affidavit of Sophie Jane Raven filed 23 March 2021 [31], 'SR-13'.
On 23 March 2021, the plaintiff issued a cleansing notice pursuant to s 708A(6) of the Act in respect of the Placement Shares.[14]
[14] Affidavit of Sophie Jane Raven filed 23 March 2021 [27], 'SR-08'.
The plaintiff has conducted a review of its previous share issues. In respect of each of these share issues, cleansing notices have been issued.[15] The plaintiff has also conducted a review of the trading history of the Placement Shares which disclosed there had been sales of some of the shares that were issued.[16]
[15] Affidavit of Sophie Jane Raven filed 23 March 2021 [28].
[16] Affidavit of Sophie Jane Raven filed 23 March 2021 [29], 'SR-09', 'SR-10', 'SR-11', 'SR-12'.
The power under Corporations Act s 1322 to grant the relief sought
Section 1322 relevantly provides:
(4) Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes:
(a) an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation;
(b)an order directing the rectification of any register kept by ASIC under this Act;
(c)an order relieving a person in whole or in part from any civil liability in respect of a contravention or failure of a kind referred to in paragraph (a);
(d)an order extending the period for doing any act, matter or thing or instituting or taking any proceeding under this Act or in relation to a corporation (including an order extending a period where the period concerned ended before the application for the order was made) or abridging the period for doing such an act, matter or thing or instituting or taking such a proceeding;
and may make such consequential or ancillary orders as the Court thinks fit.
...
(6) 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 considering an application under s 1322 of the Act, the essential principles are:[17]
(a)the prescriptive requirements of the wording in s 1322(4) and the pre-conditions in s 1322(6) need to be satisfied;[18]
(b)the court retains a discretion whether to make the orders sought;
(c)the broad powers 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;[19]
(d)implied limitations to the broad powers in s 1322 will not be readily implied.[20] Section 1322 is remedial in character and should be applied broadly;
(e)the court can make orders under s 1322(4)(a) on conditions and also make such consequential and ancillary orders as it thinks fit; and
(f)an order can be made under s 1322(4)(a) notwithstanding that the contravention or failure concerned resulted in the commission of an offence.[21]
[17] Re Helios Energy Ltd [2017] FCA 840; (2017) 122 ACSR 174.
[18] Weinstock v Beck (2013) 251 CLR 396 [43], [53] and [64].
[19] Re Wave Capital Ltd [2003] FCA 969; (2003) 47 ACSR 418, 426 [29].
[20] Weinstock v Beck [43], [55] - [56] and [64].
[21] Corporations Act, s 1322(5).
Disposition
Application by an 'interested party'
I accept that the plaintiff is an interested party who may seek relief, as required by s 1322(4).[22]
Position of ASX and ASIC
[22] Re Caeneus Minerals Ltd [2018] FCA 560 [38]; Re Classic Minerals Ltd [2018] FCA 2039 [34].
The ASX indicated that it was not in a position to comment on the matter and did not intend to appear at the hearing.[23] ASIC indicated that it neither supports nor opposes the application and did not intend to appear at the hearing of the matter.[24]
Extension of time under s 1322(4)(d)
[23] Affidavit of Toby Albert Hicks filed 25 March 2021 [6], 'TH-03'.
[24] Affidavit of Toby Albert Hicks filed 25 March 2021 [9], 'TH-06'.
The test under s 1322(4)(d) was set out by Vaughan J in Re Jaxsta Ltd; Ex parte Jaxsta Ltd:[25]
As to s 1322(4)(d), I derived more guidance from the two-stage process embraced by Barker J in Blaze Asset Pty Ltd v Target Energy Ltd.
There Barker J stated:
'[T]he exercise of the power under s 1322(4) [referring to s 1322(4)(d)] involves in effect a two stage process. First, the Court needs to determine whether, having regard to the circumstances of the case and the general objects of the [Corporations Act 2001 (Cth)], it is appropriate to make an order extending a relevant period, or abridging a relevant period. Secondly, if those circumstances are made out, then the Court must address the question whether any substantial prejudice has been or is likely to be caused to any person by the making of such an order.'
Also, the power under s 1322(4)(d) must be exercised having regard to the general objects and purposes of the relevant statutory provision within the Corporations Act 2001 (Cth) - here the statutory purpose evinced by s 723(3). The court's order must not undermine the reasons for the requirements of the Act. The power must be exercised having regard to the interests of all parties affected and the public interest in ensuring compliance with the Act. (footnotes omitted)
[25] Re Jaxsta Ltd; Ex parte Jaxsta Ltd [2018] WASC 390 [41] - [43].
The period to be extended may be extended even if it has expired. In this case, the period expired on 18 November 2020.
For the following reasons, I was and am satisfied that, in the circumstances of this case, it is appropriate to grant the extension of time within which to lodge the cleansing notice until 23 March 2021 as sought by the plaintiff in their originating process.
First, the extension sought is for a relatively short period, being four months and 12 days. Courts have previously issued extensions for the lodgement of cleansing notices for similar periods.[26]
[26] Re Austpac Resources NL [2010] NSWSC 1438; Whitehawk Ltd [2020] WASC 388.
Second, the error in the cleansing notice was due to inadvertence and was promptly rectified upon its discovery by the plaintiff. Ms Raven's evidence is that she mistakenly re‑used a cleansing notice previously issued by the plaintiff without checking which section of the Act was relevant.[27] As soon as she became aware of the error, she immediately took steps to inform the plaintiff's managing director who sought the advice of external counsel to rectify the position.
[27] Affidavit of Sophie Jane Raven filed 23 March 2021 [22].
Third, in the absence of an extension, there are adverse consequences for the plaintiff and its shareholders. Unless orders are made by the court, the plaintiff's shares will continue to be suspended from trading which will deny the shareholders the opportunity to trade their shares. In addition, the company will potentially lose its ability to lodge a cleansing notice under s 708A(5)(b) of the Act, which will require the preparation of a prospectus for future issues of shares.
Fourth, shareholders who have purchased shares on market since 11 November 2020 may have purchased some of the shares the subject of the November share issue. Given that any such sales will have occurred without disclosure, this potentially means that these transactions are void or voidable creating title issues for these parties.
Fifth, in facilitating the transaction as originally contemplated, the making of the orders sought is consistent with the conduct of commerce generally.[28] 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.[29]
[28] See Re Jaxsta Ltd; Ex parte Jaxsta Ltd [50].
[29] Blaze Asset Pty Ltd v Target Energy Ltd [2009] FCA 698; (2009) 177 FCR 488 [33].
Sixth, the plaintiff brought the application without delay. Australian Potash first realised the error in the cleansing notice on 19 March 2021, approached the court on 23 March 2021, and the matter came on for hearing on 26 March 2021.
Seventh, the additional orders sought by the plaintiff provide for notice to be given to all persons affected and the ability for them to apply to raise any matters with the court.
Eighth, neither ASIC or the ASX oppose the application, nor do any shareholders of the plaintiff.
No substantial injustice (s 1322(6)(c))
I have considered the classes of persons who may be impacted by the making of these orders.
First, the people who were issued the impugned shares. The prejudice to them is that the sale of the impugned shares may be void or voidable for want of compliance with the statutory requirements.[30]
[30] Re Poseidon Nickel Ltd [2018] FCA 1063; (2018) 129 ACSR 57, 67 [63].
Second, any people who purchased shares from on-sellers may have on-sold the shares themselves by trading on the open market of the ASX since they were issued. Any further sales of shares will have occurred without the requisite disclosure under the Act, pt 6D.2.
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.
I accept that if the orders sought are not made, there may be substantial injustice to the plaintiff as the offers of and sales of shares may be void or voidable. This could give rise to commercial uncertainty and expense for the company as it must remain involved in problems caused by void or voidable offers and sales of its shares. I also accept that there may be substantial injustice to the other ordinary shareholders of the plaintiff, as they may not be able to trade their shares on an open market if the ASX does not lift the current suspension from trading.
It is usual in cases such as these 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 order. I accept that this is an appropriate timeframe in this case.
No other discretionary reason to withhold relief
I accept and find that there is no evidence of any substantial misconduct, serious wrongdoing or flagrant disregard of the corporate law or the company's constitution so as to warrant refusal of the relief sought.[31]
[31] Re Wave Capital Ltd [29].
There is nothing in the evidence before me that suggests that any minority shareholder interest might be oppressed or any other interest might be affected. I am satisfied that all shareholders impacted by the contravention as well as the ASX and ASIC have been notified of the plaintiff's contravention of the Act and given notice of this hearing. No shareholder or either regulator has sought to intervene in the hearing or given notice that they want to be heard on the application.
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.[32] In this case, the plaintiff was informed by its solicitors that the cleansing notice was defective on 19 March 2021. Four days after receiving this advice, on 23 March 2021, the plaintiff commenced these proceedings and sought a trading halt. I accept that the plaintiff acted diligently after being informed of the issue.
Orders under s 1322(4)(a)
[32] Re G8 Communications Ltd [2016] FCA 297; (2016) 112 ACSR 22, 34 [60].
The company also seeks two separate declarations under s 1322(4)(a) of the Act. First, a declaration that the cleansing notice be deemed to take effect as it if had been given to the ASX on 11 November 2020 and second, that any offer for sale or sale of the Placement Shares from 11 November 2020 until 23 March 2021 is not invalid by reason of the failure to give a cleansing notice under s 708A(5)(e) of the Act or the consequent failure to comply with s 707(3) of the Act.
I note that:
(a)the proposed validation orders are framed in a declaratory form;
(b)the act, matter or thing, are the lodgement of the notice and any subsequent offer or sales 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.[33]
Pre-conditions in s 1322(6)(a)
[33] Re Caeneus Minerals Ltd [39] - [40]; Re Classic Minerals Ltd, [35] - [36].
The plaintiff submitted that each of the pre-conditions in s 1322(6)(a) of the Act was satisfied, although only one must be satisfied.[34]
[34] Weinstock v Beck [43], [55] – [56], [64].
Turning first to the pre-condition in s 1322(6)(a)(ii), in Re ICandy Interactive Ltd, Banks‑Smith J undertook a comprehensive review of the relevant principles in respect of whether there is no failure of the persons concerned or the company to act honestly.[35] Relevantly, Banks Smith J considered that:
[35] Re ICandy Interactive Ltd [2018] FCA 533; (2018) 125 ACSR 369 [54] - [104].
(a)when determining whether someone has acted honestly for the purposes of s 1322, the courts look to absence of evidence of dishonesty and prompt action to remedy the error;[36]
(b)the concept of acting honestly can embrace:[37]
(i)inadvertence or failure to turn one's mind to an issue;
(ii)active but incorrect consideration of a legal issue;
(iii)failure to consider an issue at all; or
(iv)failure to understand or appreciate the significance of non-compliance; and
(c)when testing for honesty, the authorities reveal that the courts look at the company itself, the directors, the company secretary and others as may be concerned.[38]
[36] Re ICandy Interactive Ltd [54], [106] - [107].
[37] Re ICandy Interactive Ltd [55].
[38] Re ICandy Interactive Ltd [60] - [104].
In this case, an error occurred in the plaintiff failing to lodge a cleansing notice for the Placement Shares that complied with s 708A(6) of the Act. I accept that this error was inadvertent, through the use of a previous cleansing notice under the different section of the Act, rather than any deliberate disregard by the plaintiff or its officers of the obligations under ch 6D of the Act.
I also accept that this is not a case where there has been a failure of the plaintiff's directors to take an active interest in the company's compliance with the Act or to properly define roles of company officers. I accept that the plaintiff's directors had delegated this responsibility to the company secretary.
Given this finding, it is unnecessary to consider the other pre‑conditions.
Orders sought by plaintiff
In respect of the second order sought by the plaintiff in its minute of proposed orders, courts have on a number of previous occasions made similar orders.[39] 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 Re Imdex Ltd, I discussed whether deeming orders should be made and the circumstances in which deeming orders should be made.[40] I do not propose to repeat those comments. Those comments represent my views on the matter.
[39] Re Charter Hall Ltd [2007] FCA 1316; Re Diversified United Investment Ltd [2008] FCA 720; Re RCR Tomlinson Ltd [2009] FCA 1130; Re Austpac Resources NL [2010] NSWSC 1438; Re Beadell Resources Ltd [2013] FCA 13 and Re Micro-X Limited [2019] FCA 1154.
[40] Re Imdex Ltd [2020] WASC 298 [55] - [58].
In this case, for the following reasons, I consider 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 have been sold and it cannot be discounted that there have been re-sales of these shares. In these circumstances, I consider that it is appropriate to make the orders sought to remove any question as to title in the shares of the plaintiff. Second, at the time the application came on for hearing, a compliant cleansing notice had been lodged. For that reason, the order did not concern a future act but a past act. Third, where shares are on-sold, the 'deeming order' is a corollary of the orders seeking an extension of time.
Conclusion
For these reasons, I was and am satisfied that in the circumstances of this case, relief should be granted in the terms sought by the plaintiff. Accordingly, at the conclusion of the hearing, I made orders in the form annexed to these reasons as 'Annexure A'.
ANNEXURE A
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
HW
Research Associate to the Honourable Justice Hill
15 APRIL 2021
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