Re BPM Minerals Ltd
[2021] WASC 329
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE BPM MINERALS LTD; EX PARTE BPM MINERALS LTD [2021] WASC 329
CORAM: HILL J
HEARD: 30 JULY 2021
DELIVERED : 30 JULY 2021
PUBLISHED : 29 SEPTEMBER 2021
FILE NO/S: COR 125 of 2021
MATTER: IN THE MATTER OF BPM MINERALS LTD
EX PARTE
BPM MINERALS LTD
Plaintiff
Catchwords:
Corporations law - Securities - Application for extension of time to lodge cleansing notice - Application for declaratory relief to validate trading in shares issued without a valid cleansing notice or prospectus - 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 1322
Result:
Application granted
Category: B
Representation:
Counsel:
| Plaintiff | : | M F Holler |
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 [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
HILL J:
On 27 July 2021, the plaintiff, BPM Minerals Limited (BPM), filed an originating process seeking orders under s 1322 of the Corporations Act 2001 (Cth) (Act) relating to contraventions of s 707(3) of the Act. The contraventions occurred as a result of share sales following one instance of shares being issued on 15 July 2021 without a valid cleansing notice pursuant to s 708A(5)(e) of the Act. BPM seeks orders to extend the timeframe under which a cleansing notice may be lodged pursuant to s 708A of the Act, to deem such notice to be effective from 15 July 2021 and to validate any offers or sales of shares in respect of the share issue.
BPM has provided a frank and detailed explanation as to the circumstances surrounding this share issue. 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 30 July 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 of the Corporations Act
Part 6D.2 of the Act imposes disclosure obligations in relation to the issue and sale of shares. In certain circumstances, these obligations can be satisfied by lodging what is commonly referred to as a cleansing notice or a prospectus.[1] 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.[2]
[1] Corporations Act 2001 (Cth), s 708A(5).
[2] Corporations Act, s 707(3). See also ReGolden Gate Petroleum Ltd [2010] FCA 40; (2010) 77 ACSR 17.
Factual background
In support of its application, the plaintiff relied on three affidavits: an affidavit of Kelly Ann Moore, the company secretary of the plaintiff, filed 27 July 2021; an affidavit of Emmanuel Correia, a non-executive director of the plaintiff, filed 28 July 2021; and an affidavit of Dominic Hird, a solicitor at Steinepreis Paganin, the plaintiff's solicitors, filed 29 July 2021.
The plaintiff is an Australian public company whose securities are listed on the Australian Securities Exchange (ASX).[3] BPM is a mineral exploration company, exploring and developing exploration leases and mining licenses in Western Australia for the extraction, production and sale of gold and nickel.[4] As at 26 July 2021, the plaintiff had 37,511,500 fully paid ordinary shares on issue, 1,542 shareholders and a market capitalisation of approximately $12.5 million.[5]
[3] Affidavit of Kelly Ann Moore filed 27 July 2021 [8].
[4] Affidavit of Kelly Ann Moore filed 27 July 2021 [11].
[5] Affidavit of Kelly Ann Moore filed 27 July 2021 [12].
On 17 May 2021, the plaintiff placed its shares into a trading halt pending the release of an ASX announcement by BPM in relation to a proposed capital raising.[6]
[6] Affidavit of Kelly Ann Moore filed 27 July 2021 [18], '4'.
On 19 May 2021, BPM announced to the ASX that it had received firm commitments for 7,500,000 shares to raise $1,500,000 (Placement) and that the plaintiff had entered into a binding heads of agreement to acquire all of the shares in Recharge Resources Pty Ltd, for which BPM agreed to issue various parties a total of 4,312,000 shares (Acquisition).[7]
[7] Affidavit of Kelly Ann Moore filed 27 July 2021 [19], '5'.
On 15 July 2021, following shareholder approval to the issue of 2,100,000 shares as part of the second tranche of the Placement, Ms Moore arranged for the quotation of the Placement shares on the ASX.[8] On that same date, Ms Moore arranged for the quotation of the Acquisition shares on the ASX.[9]
[8] Affidavit of Kelly Ann Moore filed 27 July 2021 [20], '6'.
[9] Affidavit of Kelly Ann Moore filed 27 July 2021 [21], '7'.
Ms Moore's evidence is that in her rush to issue the relevant Application for Quotation of Securities for the shares, she inadvertently failed to lodge a cleansing notice as required by s 708A(5)(e) of the Act.[10]
[10] Affidavit of Kelly Ann Moore filed 27 July 2021 [22].
On 26 July 2021, Ms Moore identified the failure to lodge a cleansing notice following her review of share issue documentation for another entity.[11]
[11] Affidavit of Kelly Ann Moore filed 27 July 2021 [23].
On the same date, immediately upon becoming aware of her failure to issue a cleansing notice, Ms Moore contacted Mr Correia, a non‑executive director of BPM, and informed him of the error. Ms Moore then contacted BPM's solicitors to obtain advice.[12]
[12] Affidavit of Kelly Ann Moore filed 27 July 2021 [24] - [26].
On 26 July 2021, the plaintiff:
(a)by its solicitors, wrote to the ASX and ASIC to notify them of the error and the plaintiff's intention to commence this application;[13] and
(b)notified all recipients of the share issue of the error and the plaintiff's intention to commence this application.[14]
[13] Affidavit of Kelly Ann Moore filed 27 July 2021 [33], '12', '13'.
[14] Affidavit of Kelly Ann Moore filed 27 July 2021 [32], '11'.
On 27 July 2021, the plaintiff's shares were placed into a trading halt.[15] On the same date, BPM issued a cleansing notice pursuant to s 708A(6) of the Act for the shares issued on 15 July 2021.[16]
[15] Affidavit of Kelly Ann Moore filed 27 July 2021 [27], '8'.
[16] Affidavit of Kelly Ann Moore filed 27 July 2021 [28], '9'.
The plaintiff has conducted a review of its previous share issues and is not aware of any other failures to lodge cleansing notices or instances where it has lodged an invalid cleansing notice.[17] Ms Moore has also conducted a review of the trading history of the Shares and has identified there has been trading in relation to some of the Placement shares.[18]
[17] Affidavit of Kelly Ann Moore filed 27 July 2021 [29].
[18] Affidavit of Kelly Ann Moore filed 27 July 2021 [30].
Both Mr Correia and Ms Moore have considered whether a cleansing notice could have been lodged at the time the Placement shares were issued and are satisfied it could have been.[19]
[19] Affidavit of Emmanuel Correia filed 28 July 2021 [12]; Affidavit of Kelly Ann Moore filed 27 July 2021 [31].
The power under s 1322 of the Act 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:[20]
(a)the prescriptive requirements of the wording in s 1322(4) and the pre-conditions in s 1322(6) need to be satisfied;[21]
(b)the court retains a discretion under s 1322(4) as to whether it makes 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;[22]
(d)limitations to the broad powers in s 1322 will not be readily implied.[23] 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.[24]
[20] Re Helios Energy Ltd [2017] FCA 840; (2017) 122 ACSR 174 [20].
[21] Weinstock v Beck (2013) 251 CLR 396 [43], [53] and [64].
[22] Re Wave Capital Ltd [2003] FCA 969; (2003) 47 ACSR 418, 426 [29].
[23] Weinstock v Beck [43], [55] - [56], [60], [64].
[24] Corporations Act, s 1322(5).
Disposition
Application by an 'interested person'
I accept that the plaintiff is an interested person who may seek relief, as required by s 1322(4) of the Act.[25]
Position of ASX and ASIC
[25] Re Wave Capital Ltd [24].
The ASX indicated that it was not in a position to comment on the matter and did not intend to appear at the hearing.[26] ASIC indicated that it neither supports nor opposes the application and did not intend to appear at the hearing of the matter.[27]
Extension of time under s 1322(4)(d) of the Act
[26] Affidavit of Dominic Hird filed 29 July 2021 [6], '4'.
[27] Affidavit of Dominic Hird filed 29 July 2021 [9], '7'.
The test under s 1322(4)(d) of the Act was set out by Vaughan J in Re Jaxsta Ltd:[28]
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)
[28] Re Jaxsta Ltd [2018] WASC 390 [41] - [43].
The period to be extended may be extended even if it has expired. In this case, the relevant period expired on 22 July 2021.
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 27 July 2021 as sought by the plaintiff in their originating process.
First, the extension sought is for a short period, being only 5 days.
Second, I accept and find that the failure to lodge a cleansing notice was inadvertent and the plaintiff acted promptly to inform shareholders of the failure to issue the cleansing notice, to place its shares into a trading halt and to commence this application to remedy the irregularity.
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 15 July 2021 may have purchased some of the Placement shares. Given that any such purchases 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.[29] 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.[30]
[29] Re Jaxsta Ltd [50].
[30] Blaze Asset Pty Ltd v Target Energy Ltd [2009] FCA 698; (2009) 177 FCR 488 [33].
Sixth, the plaintiff brought the application without delay. BPM first realised the error on 26 July 2021, approached the court on 27 July 2021, and the matter came on for hearing on 30 July 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 BPM.
Pre-conditions in s 1322(6)(a) of the Act
BPM submitted that each of the pre-conditions in s 1322(6)(a) of the Act was satisfied.
I turn first to the pre-condition in s 1322(6)(a)(ii) that there is no failure of the persons concerned or the company to act honestly. 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.[31] Relevantly, Banks-Smith J considered that:
[31] 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;[32]
(b)the concept of acting honestly can embrace:[33]
(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.[34]
[32] Re ICandy Interactive Ltd [54], [106] - [107].
[33]Re ICandy Interactive Ltd [55].
[34] Re ICandy Interactive Ltd [60] - [104].
In this case, an error has occurred in the company failing to lodge a cleansing notice. In respect of the 15 July 2021 share issue, I find that the actions of BPM in failing to lodge the cleansing notice as required by s 708A(5)(e) of the Act were honest and inadvertent.
I also accept that this is not a case where there has been a failure of the directors of BPM to take an active interest in the company's compliance with the Act or to properly define roles of company officers. I accept that BPM's directors relied on the company secretary for compliance matters, such as the issue of cleansing notices.[35]
No substantial injustice (s 1322(6)(c) of the Act)
[35] Affidavit of Emmanuel Correia filed 28 July 2021 [8], [11].
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. The prejudice to them is that the sale of the shares may be void or voidable.[36]
[36] 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 may have occurred without the requisite disclosure under pt 6D.2 of the Act.
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 orders. I accept that this is an appropriate timeframe in this case.
No 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.[37]
[37] 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.[38] In this case, the plaintiff discovered the failure to lodge the cleansing notice on 26 July 2021 and immediately sought legal advice. The next day, on 27 July 2021, the plaintiff commenced these proceedings and sought a trading halt. I accept that the plaintiff acted diligently after being made aware of the issue.
Orders under s 1322(4)(a) of the Act
[38] Re G8 Communications Ltd [2016] FCA 297; (2016) 112 ACSR 22, 34 [60].
The plaintiff also seeks two separate declarations under s 1322(4)(a) of the Act. First, in respect of the share issue, a declaration that the cleansing notice be deemed to take effect as if it had been given to the ASX on 15 July 2021 and second, that any offer for sale or sale of the quoted securities issued on 15 July 2021 is not invalid, by reason of the failure of the plaintiff to issue a cleansing notice pursuant to s 708A(5)(e) of the Act and the sellers' 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 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.[39]
[39] See Re Caeneus Minerals Ltd [2018] FCA 560 [39] - [40]; Re Classic Minerals Ltd [2018] FCA 2039 [35] - [36].
In respect of the first order, courts have on a number of previous occasions made similar orders.[40] 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.[41] I do not propose to repeat those comments. Those comments represent my views on the matter.
Ancillary orders
[40] 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; Re Micro-X Limited [2019] FCA 1154.
[41] Re Imdex Ltd [2020] WASC 298 [55] - [58].
In this case, for the following reasons, I consider it is appropriate to make the ancillary orders sought by the plaintiff, including the 'deeming order'. First, the evidence before me is that some of the shares the subject of the 15 July 2021 share issue have been sold and it cannot be discounted that there have been re-sales of these shares.[42] 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 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. Fourth, I am satisfied that the conduct of the plaintiff in failing to lodge the cleansing notice required under the Act was inadvertent and not in blatant disregard of its obligations under the Act. I do not consider that public policy will be undermined by granting the plaintiff the relief sought.
[42] Affidavit of Kelly Anne Moore filed 27 July 2021 [30].
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 on 30 July 2021, 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
29 SEPTEMBER 2021
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