Re Classic Minerals Ltd

Case [2018] FCA 2039

FEDERAL COURT OF AUSTRALIA

Classic Minerals Limited, in the matter of Classic Minerals Limited [2018] FCA 2039

File number: WAD 478 of 2018
Judge: BANKS-SMITH J
Date of judgment: 12 December 2018
Date of publication of reasons: 17 December 2018
Catchwords: CORPORATIONS - application for orders under s 1322 of the Corporations Act 2001 (Cth) - shares issued on 26 occasions without proper disclosure - where cleansing notices not issued - where no blatant disregard of obligations - whether orders should be made relieving shareholders of liability
Legislation: Corporations Act 2001 (Cth) ss 707, 708A, 727, 1322
Cases cited:

Golden Gate Petroleum Ltd, in the matter of Golden Gate Petroleum Ltd [2010] FCA 40; (2010) 77 ACSR 17

ICandy Interactive Limited, in the matter of ICandy Interactive Limited [2018] FCA 533; (2018) 125 ACSR 369

Silver Lake Resources Limited, in the matter of Silver Lake Resources Limited [2012] FCA 32; (2012) 87 ACSR 436

Sprint Energy Limited, in the matter of Sprint Energy Limited [2012] FCA 1354

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

Weinstock v Beck [2013] HCA 14; (2013) 251 CLR 396
Date of hearing: 12 December 2018
Registry: Western Australia
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Category: Catchwords
Number of paragraphs: 52
Counsel for the Plaintiff: Mr IR Gillon
Solicitor for the Plaintiff: Lawton Gillon

ORDERS

WAD 478 of 2018

IN THE MATTER OF CLASSIC MINERALS LIMITED (ACN 119 484 016)

CLASSIC MINERALS LIMITED (ACN 119 484 016)

Plaintiff

JUDGE:

BANKS-SMITH J

DATE OF ORDER:

12 DECEMBER 2018

THE COURT ORDERS THAT:

1.Pursuant to s 1322(4)(a) of the Corporations Act 2001 (Cth) it is declared in respect of the shares listed in Annexure 'A' that any offer for sale or sale of the shares during the period from the date of issue until 9 October 2018 is not invalid by reason of:

(a)the seller's failure to issue a notice under s 708A of the Corporations Act, or a prospectus as the case may be before selling the shares; and

(b)any consequent failure to comply with s 707(3) and s 727(1) of the Corporations Act.

2.Any holder as at the date of these orders of shares listed in Annexure 'A' who is still the holder at the time of application may apply at any time in the next 12 months for a different order.

3.Pursuant to s 1322(4)(c) of the Corporations Act any sellers of the shares listed in Annexure 'A' are relieved from any civil liability arising out of any contravention of s 707(3) and s 727(1) of the Corporations Act.

4.These orders are to be served by the plaintiff on the Australian Securities and Investments Commission as soon as reasonably practicable.  The Australian Securities and Investments Commission shall include these orders on its database.

5.As soon as reasonably practicable a copy of these orders be sent to the last known address or email address of each person…

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AGLC
Re Classic Minerals Ltd [2018] FCA 2039
Case
[2018] FCA 2039
Decision Date

CaseChat Overview and Summary

In the case of Re Classic Minerals Ltd, the issue before the court was the company's failure to provide proper disclosure when issuing shares on multiple occasions, specifically without including a cleansing notice as required by section 708A(5)(e) of the Corporations Act 2001 (Cth). The court was required to determine whether orders should be made to relieve the shareholders from any civil liability arising from these failures. The primary focus of the court was on whether the failures were due to a blatant disregard of the obligations or if there were other mitigating factors that could justify the relief sought under section 1322 of the Corporations Act.

The court found that while there were indeed instances where the company failed to issue the necessary cleansing notices, there was no evidence of blatant disregard for the statutory obligations. The company had taken significant steps to address the compliance issues, including a thorough review and the lodging of a prospectus. The court also noted the reliance of the company’s officers on the advice of experienced professionals and their subsequent misunderstanding of the legal requirements. The court considered these factors in determining that the relief sought was appropriate, given the company's efforts to rectify the situation and the lack of evidence of deliberate non-compliance.

In light of the findings, the court made several orders under section 1322(4) of the Corporations Act. These included declarations that certain share sales were not invalid due to the lack of a cleansing notice or prospectus, relief from civil liability for sellers of the shares, and provisions for the service and publication of these orders. The court also provided a mechanism for any shareholders to apply for different orders if they were still holding the shares at the time of the application and allowed for potential applications to vary or discharge the orders within a specified period. These orders aimed to balance the need for compliance with the realities of human error and misunderstanding in complex regulatory environments.

Orders

Orders of the court

1. Pursuant to s 1322(4)(a) of the Corporations Act 2001 (Cth) it is declared in respect of the shares listed in Annexure 'A' that any offer for sale or sale of the shares during the period from the date of issue until 9 October 2018 is not invalid by reason of:

(a) the seller's failure to issue a notice under s 708A of the Corporations Act, or a prospectus as the case may be before selling the shares; and

(b) any consequent failure to comply with s 707(3) and s 727(1) of the Corporations Act.

2. Any holder as at the date of these orders of shares listed in Annexure 'A' who is still the holder at the time of application may apply at any time in the next 12 months for a different order.

3. Pursuant to s 1322(4)(c) of the Corporations Act any sellers of the shares listed in Annexure 'A' are relieved from any civil liability arising out of any contravention of s 707(3) and s 727(1) of the Corporations Act.

4. These orders are to be served by the plaintiff on the Australian Securities and Investments Commission as soon as reasonably practicable. The Australian Securities and Investments Commission shall include these orders on its database.

5. As soon as reasonably practicable a copy of these orders be sent to the last known address or email address of each person to whom the shares listed in Annexure 'A' were issued.

6. As soon as reasonably practicable and prior to the reinstatement of the class of securities CLZ on the Australian Securities Exchange the plaintiff is to publish on the ASX Markets Announcement Platform an announcement with a link to these orders and the reasons for decision in this proceeding.

7. In addition to the liberty to apply under order 2, for a period of 28 days from the date of reinstatement of the class of securities CLZ any person who claims to have suffered substantial injustice or is likely to suffer substantial injustice by the making of any or all of these orders has liberty to apply to vary or to discharge these orders.

ANNEXURE 'A'

Number of Shares

Period

1,000,000

21 June 2016 to 9 October 2018

3,500,000

4 August 2016 to 9 October 2018

6,000,000

29 September 2016 to 9 October 2018

33,500,000

8 November 2016 to 9 October 2018

4,000,000

12 December 2016 to 9 October 2018

2,500,000

10 January 2017 to 9 October 2018

2,000,000

10 February 2017 to 9 October 2018

3,000,000

5 May 2017 to 9 October 2018

30,604,372

22 May 2017 to 9 October 2018

68,380,952

30 June 2017 to 9 October 2018

90,626,515

20 July 2017 to 9 October 2018

92,199,999

8 September 2017 to 9 October 2018

25,300,000

27 October 2017 to 9 October 2018

4,852,142

8 November 2017 to 9 October 2018

89,064,093

30 November 2017 to 9 October 2018

109,000,000

29 December 2017 to 9 October 2018

53,125,000

9 March 2018 to 9 October 2018

223,000,000

28 March 2018 to 9 October 2018

22,771,300

11 April 2018 to 9 October 2018

255,548,810

24 April 2018 to 9 October 2018

95,438,147

1 May 2018 to 9 October 2018

194,493,813

16 May 2018 to 9 October 2018

261,816,666

28 June 2018 to 9 October 2018

422,613,796

18 July 2018 to 9 October 2018

53,016,997

4 August 2018 to 9 October 2018

33,333,333

21 September 2018 to 9 October 2018

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

When the matter came before me for final hearing, further affidavits had been filed and it was obvious that the company had gone to considerable effort to address those matters.Facts The company relies on affidavits filed by Madhukar Bhalla, Justin Doutch, John Lester and Jeffrey Nurse. Each is or was an officer of the company during the relevant time. The current company secretary, Mr Bhalla, and previous company secretary, Mr Nurse, deposed to the circumstances that led to the compliance issues arising. Mr Bhalla was appointed as company secretary on 19 October 2018. He stated that he recently undertook a review with other executives and became aware that there were a number of instances where the company had issued securities and notified the Australian Securities Exchange (ASX) by the requisite Appendix 3B document, but where the Appendix 3B should have been issued with a cleansing notice pursuant to s 708A(5)(e) of the Corporations Act. Mr Bhalla checked and collated the 26 instances of failure to provide a cleansing notice which are the subject of the application. Trading in the shares was suspended on 28 September 2018. The company then arranged for a prospectus to be lodged on 9 October 2018. Prior to Mr Bhalla's appointment, the position of company secretary was held by Mr Nurse. Mr Nurse was initially appointed as joint company secretary with Kent Hunter who had been company secretary since September 2010. Mr Hunter resigned as company secretary on 30 November 2016. Attempts to contact Mr Hunter in order to provide an affidavit in these proceedings were unsuccessful. Mr Nurse stated that Mr Hunter is a chartered accountant with many years of experience in providing company secretarial, ASX compliance and regulatory requirement services. Mr Nurse said that he understood the requirement that an issue of securities by an ASX listed company requires that an Appendix 3B and cleansing statement be lodged, and that in order to qualify to lodge a cleansing statement, the securities of the company must have been trading continuously for 12 months. However, in March 2016 the company's securities were suspended and he made enquiries of people, including Mr Hunter, about what was required of the company when issuing securities. He said that he was told to lodge only the Appendix 3B and he adopted that course for subsequent share issues. Mr Nurse stated that after that time he believed his procedure for the lodgement of Appendix 3Bs was correct and none of his supervisors informed him otherwise. Mr Nurse also said that the company lodged a cleansing prospectus on 19 April 2017 and that at that time he was under the impression that once a cleansing prospectus had been lodged, the company was not required to lodge a subsequent cleansing prospectus for 12 months. He said he now understands that position to be incorrect. Mr Doutch, a former director of the company during the relevant time, stated that he is aware of the disclosure requirements in Pt 6D.2 but that he relied on the experience of Mr Hunter and Mr Nurse and assumed that the company was complying with its regulatory requirements. Mr Doutch stated that he was not aware that in about June 2016 the company had ceased lodging cleansing statements with its Appendix 3B documents.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

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