Re Cyprium Metals Ltd
[2022] WASC 241
•27 JULY 2022
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE CYPRIUM METALS LTD; EX PARTE CYPRIUM METALS LTD [2022] WASC 241
CORAM: STRK J
HEARD: 11 JULY 2022
DELIVERED : 11 JULY 2022
PUBLISHED : 27 JULY 2022
FILE NO/S: COR 124 of 2022
MATTER: IN THE MATTER OF RE CYPRIUM METALS LTD
EX PARTE
CYPRIUM METALS LTD
Plaintiff
Catchwords:
Corporations law - Securities - Application for an order extending the period for issuing a cleansing notice under s 708A of the Corporations Act 2001 (Cth) - Shares issued without a cleansing notice - Where trading of shares prior to issue of cleansing notice - Where failure is inadvertent and there is no blatant or flagrant disregard of obligations - Where statutory pre-conditions are met and there is no other discretary reason to withhold relief - Declarations made
Legislation:
Corporations Act 2001 (Cth), s 707, s 708A, s 1322
Result:
Application granted
Category: B
Representation:
Counsel:
| Plaintiff | : | M Holler & D 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
Ex Parte Archtis Ltd [2021] WASC 55
Ex Parte Imdex Ltd [2020] WASC 298
Metalicity Ltd [2020] WASC 387
Re BPM Minerals Ltd [2021] WASC 329
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 ICandy Interactive Ltd [2018] FCA 533; (2018) 125 ACSR 369
Re Jaxsta Ltd [2018] WASC 390
Re Matador Mining Ltd [2021] WASC 132
Re Pilbara Minerals Ltd [2021] WASC 330
Re Poseidon Nickel Ltd [2018] FCA 1063; (2018) 129 ACSR 57
Re Silver Lake Resources Ltd [2012] FCA 32; (2012) 87 ACSR 436
Re Sprint Energy Ltd [2012] FCA 1354
Re Sprintex Ltd [2022] WASC 188
Re Wave Capital Ltd [2003] FCA 969; (2003) 47 ACSR 418
Weinstock v Beck [2013] HCA 14; (2013) 251 CLR 396
Whitehawk Ltd [2020] WASC 388
TABLE OF CONTENTS
Introduction
Orders sought by the application
Evidence filed in support of the application
The factual background
2020 Placement
Failure to issue a cleansing notice
Identification of the issue
Notice to the ASX and ASIC
Notice to holders of the shares
Investigation of the trading of the shares
No excluded information
Capital raising
Investigation of all share issues since 1 January 2016
Part 6D.2 Corporations Act
The power to grant the relief sought
Disposition
Position of the ASX and ASIC
Application by an 'interested person'
Pre-conditions to the making of orders
Section 1322(6)(a) of the Corporations Act
Section 1322(6)(c) of the Corporations Act - no substantial injustice
No other discretionary reason to withhold relief
Proposed order 1 - extension of time under s 1322(4)(d) of the Corporations Act
Proposed orders 2 and 3 – declarations sought under s 1322(4)(a) of the Corporations Act
Conclusion
Sch A – Orders made on 11 July 2022
STRK J:
Introduction
The plaintiff, Cyprium Metals Limited, failed to issue a valid notice pursuant to s 708A(5)(e) of the Corporations Act 2001 (Cth) (also known as a cleansing notice) during the requisite period following the issue of 21,828,213 shares in Cyprium on 11 December 2020 (Share Issue).
The omission was identified on Friday, 1 July 2022, whereupon Cyprium on Monday, 4 July 2022, sought a trading halt and by an originating process brought this application seeking curative orders under s 1322 of the Corporations Act. Notice of the omission and of the hearing of this application was promptly given to shareholders who were issued shares on 11 December 2020, to the Australian and Securities and Investment Commission (ASIC), and to the Australian Securities Exchange (ASX).
Pursuant to s 1322(4) of the Corporations Act, Cyprium sought in respect of the Share Issue that the period of five business days referred to in s 708A(6)(a) of the Corporations Act be extended to 4 July 2022, and that such notice be deemed to be effective from 11 December 2020. Cyprium also by this application sought to validate any offers or sales of shares in respect of the Share Issue by a declaration that any on-sale of the relevant securities from the date of issue is not invalid by reason of any consequent contravention of the Corporations Act.
Counsel for Cyprium characterised the circumstances which gave rise to the application as a single instance of non-compliance caused only by Cyprium's error in failing to issue a cleansing notice.[1]
[1] Submissions par 4.
Upon considering the materials filed and hearing counsel for Cyprium on 11 July 2022, I was and am satisfied that Cyprium had provided a frank and detailed explanation as to the circumstances surrounding the Share Issue and the failure to issue a cleansing notice. 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 Cyprium's obligations.
In light of the urgency with which the application was brought, I made orders at the conclusion of the hearing on 11 July 2022 granting the relief sought and said that I would publish reasons for my decision. These are my reasons.
Orders sought by the application
By the originating process filed on 4 July 2022, Cyprium moved for orders in the following terms:
1.Pursuant to section 1322(4)(d) of the Corporations Act, in respect of the 21,828,213 ordinary fully paid shares in the Plaintiff, which were issued on 11 December 2020, the period of five business days referred to in section 708A(6)(a) of the Corporations Act be extended to 4 July 2022.
2.Pursuant to section 1322(4)(a) of the Corporations Act, it is declared that a notice under section 708A(5)(e) of the Corporations Act given to the Australian Securities Exchange Limited (ASX) in respect of the 21,828,213 ordinary fully paid shares in the Plaintiff, which were issued on 11 December 2020, within the period provided for in paragraph 1 above be deemed to take effect as if it had been given to the ASX on 11 December 2020.
3.Pursuant to section 1322(4)(a) of the Corporations Act, it is declared that any offer for sale or sale of the 21,828,213 ordinary fully paid shares in the Plaintiff, which were issued on 11 December 2020, during the period after their issue to the date of the Court orders is not invalid by reason of:
(a)any failure of a notice under section 708A(5)(e) of the Corporations Act to exempt the sellers from the obligation of disclosure under the Corporations Act; and
(b)the sellers' consequent failure to comply with section 707(3) of the Corporations Act.
4. A sealed copy of these orders is to be served on the ASIC as soon as reasonably practicable and upon service of these orders on ASIC. ASIC is to include these orders on its database.
5.A copy of these orders is to be given to each person to whom the shares in orders 1 to 3 were issued and as soon as reasonably practicable the plaintiff is to publish an announcement to ASX in which a copy of these orders is included.
6.For a period of 28 days from the date of publication of a copy of this order on the ASX website, any person who claims to have suffered substantial injustice or is likely to suffer substantial injustice by the making of this order has liberty to apply to vary or to discharge the order within that period.
7.There be no order as to costs.
8.Such other orders as this Honourable Court sees fit.
The applicant did not move for declarations or orders that the directors or other officers of Cyprium, nor the company itself be relieved of any liability that might flow from the failure to comply with the Corporations Act. Counsel submitted that curative orders in respect of the Share Issue were sought in order to ensure that:[2]
(a)there was no concern as to the validity of the issue, transfer or sale in any subsequent trade of the impugned shares; and
(b)the suspension of trading in shares in the company on the ASX was lifted.
[2] Submissions par 6.
Evidence filed in support of the application
Three affidavits were filed and read in support of the application.
The first was the affidavit of Barry John Cahill, executive director of Cyprium since 17 June 2019. In his affidavit sworn on 5 July 2022, Mr Cahill deposed among other things to the need for the application; to the searches he had undertaken for the purpose of determining whether there was any excluded information that must be set out in a cleansing notice as required by s 708A(6)(e) of the Corporations Act; and to being satisfied that on the date the Share Issue was completed, there was no excluded information and a cleansing notice could have been lodged for the Share Issue.
He further deposed to the basis of his belief that if the orders sought by this application were granted, no person would suffer substantial injustice; to his belief that it was in the interests of Cyprium's 3,244 shareholders that the curative orders be made; and to the prejudice that would flow if the curative orders were not made.
The second affidavit was that sworn on 5 July 2022 by Wayne Frank Apted, chief financial officer and company secretary of Cyprium since 17 June 2019. Mr Apted attached to his affidavit 15 documents marked WFA‑01 to WFA‑15.
Among other things, Mr Apted deposed to the incorporation of Cyprium on 21 November 1983; to Cyprium's admission to the Official List of the ASX in 1992; and to the change of name from ARC Exploration Limited to Cyprium on 17 June 2019.
Mr Apted deposed to his belief that based on the latest closing price of shares in Cyprium traded on the ASX (being Friday, 1 July 2022), and Cyprium's total issued share capital (being 564,819,214 shares), Cyprium has a market capitalisation of approximately $62,120,113.54.
Mr Apted further deposed to the number of shareholders in Cyprium (being 3,244); to his responsibilities in the performance of the company secretarial role for Cyprium; to his failure to lodge a cleansing notice under s 708A(5)(e) of the Corporations Act due to his inadvertent oversight and misunderstanding of the cleansing requirements, and the circumstances in which the error occurred; to the circumstances by which the failure to issue a cleansing notice was identified on Friday, 1 July 2022; to the sending of a request for a trading halt to the ASX on Monday, 4 July 2022; to the issue of a cleansing notice on 4 July 2022; to his review of previous issues of shares in Cyprium since 1 January 2016 and to not being aware of any other failure to issue a cleansing notice; to having undertaken a review of the trading history of the Share Issue by accessing the share register; to having identified that there had been trading in relation to some of the Share Issue; to being satisfied that on the date the Share Issue was completed, there was no excluded information and a cleansing notice could have been lodged for the Share Issue; to having put all recipients of the Share Issue on notice that a correct cleansing notice was not issued and to having informed them of Cyprium's intention to bring this application; to putting the ASX and ASIC on notice of the failure to lodge a cleansing notice and of this application; to the steps that would be taken to ensure shares are cleansed in the future; to the basis of his belief that if the orders sought by this application were granted, no person would suffer substantial injustice; to Cyprium being in the process of finalising a placement and pro‑rata non‑renounceable entitlement offer to raise up to $26,000,000, which timetable has been delayed pending the determination of this application; to his belief that it was in the interests of Cyprium's 3,244 shareholders and the capital raising participants that the curative orders be made, particularly in circumstances where the error was inadvertent, there had been on-sales of the shares the subject of the Share Issue, and the capital raising had been delayed; and to the prejudice that would flow from the curative orders not being made, that being that the ASX may not remove Cyprium's shares from suspension, which would be prejudicial to all of Cyprium's shareholders and to capital raising participants.
The third was the affidavit deposed to by Dominic Hird, a solicitor employed by the firm Steinepreis Paganin on 8 July 2022, to which he attached documents marked DJH‑01 to DJH‑09.
Among other things, Mr Hird deposed to alerting the ASX on 1 July 2022 to Cyprium's inadvertent failure to lodge a cleansing notice on 11 December 2020 following the Share Issue and Cyprium's intention to bring this application; to the service of documents filed in this proceeding on the ASX; to the receipt of correspondence from the ASX on 8 July 2022 in relation to this application; to alerting ASIC on 1 July 2022 to Cyprium's inadvertent failure to lodge a cleansing notice on 11 December 2020 following the Share Issue and Cyprium's intention to bring this application; to service of documents filed in this proceeding on ASIC; to the queries received from and the responses provided to ASIC between 6 and 8 July 2022; to receipt of a letter from ASIC on 8 July 2022 in relation to this application; to his belief that no substantive responses had been received to the letters sent on 11 December 2022 to recipients of the Share Issue and the basis for his belief; and that as at the time of swearing of his affidavit, he was not aware of any person that had indicated that they objected to the orders sought or intended to oppose the application.
The documents attached by Mr Hird to his affidavit included a copy of the announcements made to the ASX on 30 June 2022 and 6 July 2022 in relation to the capital raising and the timetable which had been delayed, pending the determination of this application.[3]
[3] Affidavit of DJ Hird, DJH-08.
At the hearing of the application, counsel also referred to and relied upon a written outline of submissions filed on 6 July 2022.
The factual background
Cyprium is an ASX listed Australian public company engaged in exploring and developing exploration leases and mining licences in Western Australia for the extraction, production and sale of copper and gold.[4]
[4] Affidavit of WF Apted par 11; submissions par 8.
Based on the latest closing price of shares in Cyprium traded on the ASX, being Friday, 1 July 2022, and Cyprium's total issued share capital, being 564,819,214 shares, Cyprium has a market capitalisation of approximately AU$62,120,113.54. As at the hearing of the application there were 3,244 shareholders in Cyprium.[5]
[5] Affidavit of WF Apted par 12; submissions par 9.
Mr Apted has been the chief financial officer and company secretary of Cyprium since June 2019, and was at all material times responsible for lodging, or arranging the lodgement of, various documents with ASIC and the ASX, including documentation pertaining to any issue of shares or other securities to ensure compliance with the ASX Listing Rules and the CorporationsAct. Except where additional (or external) assistance was required, Mr Apted deposed to having undertaken this work himself.[6]
[6] Affidavit of WF Apted pars 1, 13 - 15.
Mr Cahill, in his capacity as an executive director of Cyprium, deposed that Cyprium had engaged an experienced company secretary, upon whom Mr Cahill and the other directors of Cyprium rely for compliance matters such as the issuing of cleansing notices.[7]
[7] Affidavit of BJ Cahill par 8.
2020 Placement
On 22 October 2020, Cyprium's shares were placed into a trading halt pending the release of an announcement by Cyprium in relation to a proposed capital raising.[8]
[8] Affidavit of WF Apted par 19.
On 26 October 2020, Cyprium subsequently announced that it had secured $5,000,000 through an oversubscribed placement from sophisticated, professional and institutional investors of 33,333,333 shares at 15 cents per share (Placement). The Placement was to be issued in two tranches, comprised of:[9]
[9] Affidavit of WF Apted par 20.
(a)11,505,120 shares to be issued under Cyprium's existing ASX placement capacities at the time (5,899,172 shares under ASX Listing Rule 7.1, and 5,605,948 shares under ASX Listing Rule 7.lA) (Tranche 1); and
(b)21,828,213 shares, which were subject to approval by Cyprium's shareholders (Tranche 2).
Cyprium also announced an offer for eligible shareholders to participate in a share purchase plan to raise a further $1,000,000 at the same issue price of 15 cents per share.[10]
[10] Affidavit of WF Apted par 21.
On 30 October 2020, Mr Apted arranged for quotation of 11,505,120 shares, being Tranche 1 of the Placement through the lodgement of an Application for Quotation of Securities. He also lodged a cleansing notice under s 708A(5)(e) of the Corporations Act as was required.[11]
[11] Affidavit of WF Apted par 22.
On 2 November 2020, within the 24‑hour period before the share purchase plan was made, Mr Apted lodged a cleansing notice in accordance with ASIC Corporations (Share and Interest Purchase Plan) Instrument 2019/547.[12]
[12] Affidavit of WF Apted par 23.
On 20 November 2020, Mr Apted arranged for quotation of 6,666,649 shares issued under the share purchase plan.[13]
[13] Affidavit of WF Apted par 24.
On 3 December 2020, Cyprium held a general meeting to, among other matters, seek shareholder approval for the issue of the Tranche 2 shares under Listing Rule 7.1. Cyprium received shareholder approval to issue the Tranche 2 shares at the meeting.[14]
[14] Affidavit of WF Apted par 25, WFA-09.
On 11 December 2020, following receipt of shareholder approval for the issue of 21,828,213 shares, being Tranche 2 of the Placement, Mr Apted arranged for the quotation of the Tranche 2 Shares on the ASX through the lodgement of an Application for Quotation of Securities.[15]
[15] Affidavit of WF Apted par 26, WFA-10.
Failure to issue a cleansing notice
Mr Apted deposed that when he issued the Application for Quotation of Securities for the Tranche 2 shares, due to an inadvertent oversight and misunderstanding of the cleansing requirements, he failed to lodge a cleansing notice under s 708A(5)(e) of the Corporations Act as was required. Mr Apted proffered the explanation that at the time of issuing the Tranche 2 shares, he was under the misapprehension that a cleansing notice was not required for the Tranche 2 shares as a cleansing notice had already been issued for the Tranche 1 shares and shareholder approval had been granted for the issue of the Tranche 2 shares.[16]
[16] Affidavit of WF Apted pars 27 - 28.
Further, Mr Cahill deposed that after speaking with Mr Apted, Mr Cahill was of the view that this was a simple error or inadvertent mistake and was not representative of a broader concern around compliance that would require the board of Cyprium to consider and take action to address and correct.[17]
[17] Affidavit of BJ Cahill par 11.
Identification of the issue
The issue was identified on Friday, 1 July 2022 by Cyprium's solicitors, Steinepreis Paganin, in the course of conducting due diligence for Cyprium's upcoming entitlement offer.[18]
[18] Affidavit of WF Apted par 29. See also the affidavit of BJ Cahill par 9.
In order to regularise its affairs and to prevent further inadvertent contraventions by shareholders, on Monday, 4 July 2022, Cyprium sought a trading halt and brought this application seeking curative orders under s 1322 of the Corporations Act.[19] Also on 4 July 2022, Cyprium issued a cleansing notice for the Tranche 2 shares.[20]
[19] Affidavit of WF Apted par 32.
[20] Affidavit of WF Apted par 33, WFA‑12.
Notice to the ASX and ASIC
On behalf of Cyprium, Steinepreis Paganin informed the ASX and ASIC of Cyprium's failure to lodge a cleansing notice in relation to the Share Issue, and of Cyprium's intention to make this application.[21]
[21] Affidavit of WF Apted par 39, WFA-14 and WFA-15; affidavit of DJ Hird pars 4, 7, DJH-01 and DJH-04.
Notice to holders of the shares
By a letter dated 5 July 2022, shareholders who participated in the Share Issue were given notice of Cyprium's failure to lodge the requisite s 708A cleansing notice and of this application.[22]
[22] Affidavit of WF Apted par 38, WFA-13.
Mr Hird deposed, after communications with Mr Apted, that after checking with the company's share registry, neither Mr Apted nor the share registry had received any substantive response to the letters sent to recipients of the Share Issue.[23]
[23] Affidavit of DJ Hird par 12, DJH‑09.
Investigation of the trading of the shares
Mr Apted conducted a review of the trading history of the shares issued under Tranche 2 by accessing the share register, which is hosted electronically by Automic Registries.
Mr Apted identified that there had been trading in relation to some of the shares issued under Tranche 2 of the Placement.[24]
[24] Affidavit of WJ Apted par 36.
No excluded information
A review of the ASX announcements by Cyprium on and around the date of the Share Issue was undertaken, together with a review of internal documentation and correspondence for the purpose of determining whether there was any excluded information that must be set out in a cleansing notice, as required by s 708A(6)(e) of the Corporations Act. From their respective reviews, Mr Apted and Mr Cahill were satisfied that:
(a) on the date the issue of the Tranche 2 shares was completed, there was no excluded information; and
(b) a cleansing notice could have been lodged for the Tranche 2 shares.[25]
[25] Affidavit of WF Apted par 37; affidavit of BJ Cahill par 12.
Capital raising
Cyprium is in the process of finalising a placement and pro‑rata non‑renounceable entitlement offer to raise up to $26,000,000. The capital raising timetable had been adjusted so as to allow for the hearing and determination of this application.[26]
[26] Affidavit of DJ Hird par 11, DJH-08; affidavit of WF Apted par 45,
Investigation of all share issues since 1 January 2016
Upon identifying the failure to issue a cleansing notice in relation to the Share Issue, Cyprium undertook an investigation of all of the share issues made since 1 January 2016. Mr Apted deposed to having undertaken the review, and to not being aware of any other failure to issue a cleansing notice or effectively cleanse an issue of securities.[27]
[27] Affidavit of WF Apted par 34.
Counsel for Cyprium explained that the selection of 1 January 2016 as the appropriate date from which to review was based on s 1317K of the Corporations Act, which provides that proceedings for a declaration of contravention, a pecuniary penalty order or a compensation order may be started no later than six years after the contravention.[28] Counsel submitted that in light of s 1317K, a review from 1 January 2016 was a sufficient time period, given that any uncleansed share issues that may have been issued prior to 1 January 2016, which were traded within 12 months of their respective date of issue, could now not be subject to a pecuniary penalty order or a compensation order as the relevant time limit (six years) has passed.[29]
[28] Submissions par 17.
[29] Submissions par 18.
Part 6D.2 Corporations Act
Part 6D.2 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.[30] 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.[31] However, the sale offer does not need disclosure to investors under pt 6D.2 if the preconditions in s 708A(5) of the Corporations Act are met.
[30] Corporations Act s 708A(5).
[31] Corporations Act s 707(3). See also Re Golden Gate Petroleum Ltd [2010] FCA 40; (2010) 77 ACSR 17.
The power to grant the relief sought
The power of the court to make orders avoiding the effects of irregularities is set out in s 1322 of the Corporations Act. For present purposes s 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.
As counsel for Cyprium noted at par 33 of the written outline of submissions, orders under s 1322(4) to cure aspects of transactions have been variously made by courts in respect of the disclosure provisions in s 707, s 708AA and s 708A of the Corporations Act, which have included:
(a) validating orders and relief from liability when companies had inadvertently neglected to issue a cleansing notice under s 708A(5)(e) (see Re Silver Lake Resources Ltd [2012] FCA 32; (2012) 87 ACSR 436);
(b)validating orders and relief from liability when companies had issued cleansing notices, instead of and in the absence of a prospectus, when under s 708A(5)(a) this course of using a cleansing notice was not open to them by reason of their being less than three months of trading in that class of securities (see Re Golden Gate Petroleum Ltd); and
(c)validating orders and relief from liability when companies had issued cleansing notices, instead of and in the absence of a prospectus, when under s 708A(5)(b) this course of using a cleansing notice was not open to them by reason of suspensions from trading (see Re Sprint Energy Ltd [2012] FCA 1354).
The principles to be applied when considering an application under s 1322 of the Corporations Act are well established. As Hill J recently observed in Re Sprintex Ltd [2022] WASC 188 at [22], in considering an application under s 1322 of the Corporations Act, the essential principles are:[32]
[32] Hill J citing Re Helios Energy Ltd[2017] FCA 840; (2017) 122 ACSR 174 [20].
(a)the prescriptive requirements of the wording in s 1322(4) and the pre-conditions in s 1322(6) need to be satisfied;[33]
[33] Weinstock v Beck [2013] HCA 14;(2013) 251 CLR 396 [43], [53] and [64].
(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;[34]
[34] Re Wave Capital Ltd[2003] FCA 969; (2003) 47 ACSR 418 [29].
(d)limitations to the broad powers in s 1322 will not be readily implied.[35] Section 1322 is remedial in character and should be applied broadly;
[35] Weinstock v Beck[43], [55] - [56], [60], [64].
(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.[36]
[36] Corporations Act s 1322(5).
In the determination of this application, I adopted and applied the principles summarised above.
Disposition
Position of the ASX and ASIC
As to the position of the ASX, by a letter dated 8 July 2022, Cyprium was advised that:[37]
[37] Affidavit of DJ Hird par 6, DJH-03.
ASX's supervisory remit is to monitor and enforce compliance with the ASX listing rules. It does not extend to monitoring and enforcing compliance with the Corporations Act. This is a matter for the Australian Securities and Investments Commission.
In light of this, ASX is not in a position to comment on the matters above or to support (or oppose) the Company's application.
Accordingly, ASX does not intend to appear at the hearing of this matter listed for Monday, 11 July 2022 at 11:00am.
Prior to the hearing of the application, ASIC by letter dated 8 July 2022, indicated that it neither supported nor opposed the same and it did not intend to appear.[38]
[38] Affidavit of DJ Hird par 10, DJH-07.
Application by an 'interested person'
An application may be made under s 1322 of the Corporations Act by an interested person. I accepted that Cyprium was an interested person who may seek relief, as required by s 1322(4) of the Corporations Act.[39]
[39] Re Sprint Energy Ltd [40]; Re Caeneus Minerals Ltd [2018] FCA 560 [38]; Re Classic Minerals Ltd [2018] FCA 2039 [34].
Pre-conditions to the making of orders
Section 1322(6)(a) of the Corporations Act
Counsel for Cyprium submitted that the pre‑conditions in s 1322(6)(a) had been satisfied.[40]
[40] Submissions pars 43 - 45.
First, as to subsection (i), counsel submitted that the issuing of a cleansing notice has regularly been held by the courts to be essentially of a procedural nature. I accepted the same.
Secondly, as to subsection (ii), counsel submitted that in this case, there had been no failure of the persons concerned or the company to act honestly.
I note that in Re ICandy Interactive Ltd [2018] FCA 533; (2018) 125 ACSR 369 [54] - [104],[41] Banks‑Smith J undertook a comprehensive review of the relevant principles. Relevantly, Banks‑Smith J considered that:
[41] As noted by Hill J in Ex Parte Imdex Ltd [2020] WASC 298 [40].
(a)when determining whether someone has acted honestly for the purposes of section 1322, the courts look to absence of evidence of dishonesty and prompt action to remedy the error;[42]
[42] Re ICandy Interactive Ltd [54], [106] - [107].
(b)the concept of acting honestly can embrace:[43]
[43] Re ICandy Interactive Ltd [55].
(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;
(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.[44]
[44] Re ICandy Interactive Ltd [60] - [104].
I adopted and applied the above in determining this application.
Counsel for Cyprium submitted that the evidence established that there was a genuine misunderstanding on the part of the company secretary, Mr Apted, who promptly took action to rectify the non-compliance once it was identified. It was submitted that additionally, this is not a case where there had been a failure of Cyprium's directors to take an active interest in the company's compliance with the Corporations Act, or to perform properly define the roles of the officers of the company. Mr Cahill, in his capacity as an executive director, deposed that the board of Cyprium relied on Mr Apted, in his capacity as the company secretary, to carry out compliance work of a routine nature,[45] and to his belief that the failure to issue a cleansing notice was not a matter of Mr Apted being unaware of his duties, but rather an inadvertent misunderstanding that led to a failure to lodge a cleansing notice.[46]
[45] Submissions par 44; affidavit of BJ Cahill par 8.
[46] Submissions par 44; affidavit of BJ Cahill par 11.
I accepted that in this case, the error occurred through inadvertence rather than any deliberate disregard by Cyprium or its officers of the obligations under ch 6D of the Corporations Act. I also accepted that this was not a case where there had been a failure of the directors to take an active interest in Cyprium's compliance with the Corporations Act, or to properly define the roles of company officers.
Thirdly, as to subsection (iii), counsel submitted that it would be just and equitable to make the orders sought. While it was not necessary for Cyprium to satisfy both subsections (ii) and (iii), I accepted that it was just and equitable to make the orders sought in all of the circumstances deposed. While I came to this conclusion having weighed all of the circumstances, I was particularly cognisant that there was evidence of the shares the subject of the Share Issue having been on-sold and it could not be discounted that there had been resales of these shares, which weighed heavily in the balance.
For these reasons, I found the preconditions to the making of orders prescribed in s 1322(6)(a) to have been satisfied.
Section 1322(6)(c) of the Corporations Act - no substantial injustice
As no order was pressed pursuant to s 1322(4)(c), the need to consider the precondition prescribed by 1322(6)(b) did not arise in this case. However, s 1322(6)(c) of the Corporations Act was enlivened, as it is enlivened in every case where relief is sought pursuant to s 1322. Section 1322(6)(c) provides that the court cannot make an order unless it is satisfied that no substantial injustice has been or is likely to be caused to any person.
Counsel for Cyprium submitted that in Metalicity Ltd [2020] WASC 387at [46] ‑ [51], Whitehawk Ltd [2020] WASC 388 at [45] ‑ [50], and in Ex Parte Imdex Ltd at [42] ‑ [47], this court identified the classes of persons who may be impacted by the making of orders akin to those sought in this case, and found that there was no basis for inferring that substantial injustice had been or was likely to be caused to any person by the making of the proposed orders. Counsel for Cyprium respectfully adopted the court's comments in the three decisions of Hill J, and sought that a similar approach be adopted in this case.
In considering whether the precondition prescribed by s 1322(6)(c) had been met in this case, I proceeded by first seeking to identify the classes of persons who may be impacted by the making of the orders sought. From the evidence filed, I discerned that they would include those persons who were issued the Tranche 2 shares. The prejudice to them was that if they were to seek to offer to sell or sell the shares, such offers or sales may be void or voidable for want of compliance with the statutory requirements.[47]
[47] Re Poseidon Nickel Ltd [2018] FCA 1063; (2018) 129 ACSR 57, 67 [63].
Those impacted would also include any person who purchased Tranche 2 shares from on‑sellers who traded their shares on the open market of the ASX since their issue. Any such further sales will have occurred without the requisite disclosure under the Corporations Act, pt 6D.2.
I considered that these classes of persons would benefit from the making of the orders sought. Further, on the evidence filed, I found there to be no basis for inferring that substantial injustice had been or was likely to be caused to any person by the making of the proposed orders.
I also proceeded on the basis that if the orders sought were not made, there may be substantial injustice to Cyprium as the offers of and sales of shares may be void or voidable which could give rise to commercial uncertainty and expense for Cyprium, as it must remain involved in problems caused by void or voidable offers and sales of its shares. I also accepted that there may be substantial injustice to the other ordinary shareholders of Cyprium, as they may not be able to trade their shares on an open market if the ASX were not to lift the current suspension from trading.
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 order. I accepted that this was an appropriate timeframe in this case.
With the comfort afforded by proposed order 6, for the reasons set out above I found the precondition to the making of orders prescribed in s 1322(1)(c) to have been satisfied. I was satisfied that that no substantial injustice had been or was likely to be caused to any person.
No other discretionary reason to withhold relief
I also considered whether there was 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.[48]
[48] Re Wave Capital Ltd [29].
The evidence established that the non-compliance was inadvertent, and limited to a single instance. There was 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. Other than the failure to lodge a cleansing notice for the Share Issue, Cyprium has a demonstrated record of complying with the requirement to issue cleansing notices, having done so on 30 October 2020 and 2 November 2020.[49]
[49] Submissions par 50; affidavit of WF Apted pars 22 - 23.
Further, I was and am satisfied that there was nothing in the evidence before me to suggest that any minority shareholder interest might be oppressed or any other interest might be affected by the grant of the relief sought. I was and am satisfied that all shareholders impacted by the contravention as well as the ASX and ASIC were given notice of this hearing. No shareholder or regulator sought to intervene or gave notice that they wished to be heard on the application.
In exercising the discretion to grant relief under s 1322(4), a relevant factor is the promptness with which applicant has sought to remedy the irregularity once it had been identified.[50] In this case, Cyprium discovered the cleansing notices had not been issued on Friday, 1 July 2022; took legal advice; promptly entered into a trading halt on Monday, 4 July 2022; and commenced this proceeding on the same day.
[50] Re G8 Communications Ltd [2016] FCA 297; (2016) 112 ACSR 22, 34 [60].
In this case, I accepted that Cyprium acted diligently after discovering a cleansing notice should have been lodged in respect of the Share Issue, and there was no discretionary reason to withhold relief.
Proposed order 1 - extension of time under s 1322(4)(d) of the Corporations Act
The test under s 1322(4)(d) of the Corporations Act was described by Vaughan J in Re Jaxsta Ltd [2018] WASC 390 [41] ‑ [43] as follows:[51]
[51] The two-stage test has been consistently applied in this court. See for example Re Pilbara Minerals Ltd [2021] WASC 330 [26]; Re BPM Minerals Ltd [2021] WASC 329 [21]; and Re Matador Mining Ltd [2021] WASC 132 [66] - [67].
[41]… 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.
[42]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.'
[43]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)
I adopted and applied the same test in the determination of this application. I also proceeded on the basis that the period to be extended may be extended even if it had expired.
On behalf of Cyprium, counsel submitted that it would be appropriate to make an order extending the relevant period having regard to the following.[52]
[52] Submissions pars 36 - 39.
First, Cyprium acted promptly to inform investors of its failure to issue a cleansing notice, to place shares in the company into a trading halt and to bring this application to remedy the irregularity. This prompt response was a relevant factor for the court to consider in exercising the discretion to grant relief under s 1322(4): see Re G8 Communications Ltd [2016] FCA 297; (2016) 112 ACSR 22, 34 [60]; see also Ex Parte Archtis Ltd [2021] WASC 55 [51].
Secondly, in the absence of an extension, there would be adverse consequences for Cyprium and shareholders.
In this regard, counsel referred to the capital raising and noted that Cyprium was ready to settle a $16,000,000 placement and to commence an entitlement offer to raise a further $10,000,000, subject to the court making the proposed orders.[53] Unless orders were made by the court, it was submitted that Cyprium's shares would continue to be suspended from trading, which would deny the shareholders of Cyprium the opportunity to trade their shares. It was submitted that this would be prejudicial to all of Cyprium's shareholders and to the participants in the capital raising. In addition, it was submitted that Cyprium would potentially lose its ability to lodge a cleansing notice under s 708A(5)(b), which would then require the preparation of a prospectus (which would be more costly) for a future issue of shares.
[53] Affidavit of WF Apted par 45.
Thirdly, the shareholders who purchased shares on market since 11 December 2020 may have purchased shares from the Share Issue. Given that any such sales would have occurred without disclosure, it was submitted that this potentially meant that these transactions were void or voidable, creating title issues for these parties.
Fourthly, it was noted that each of the recipients of the Share Issue had been notified of the error.[54]
[54] Affidavit of WF Apted par 38.
I weighed in the balance the four matters raised by counsel (summarised above). In addition, I had regard to the following:
(a)the cleansing notice was not lodged due to inadvertence. The error did not come about by reason of the officers' reckless disregard towards the requirements of the Corporations Act. The evidence filed in support of the application made plain that upon a review of share issues since 1 January 2016, this was the only error of this type, and as soon as Mr Apted became aware of the error from his communications with Steinepreis Paganin, it was agreed to proceed with this application to rectify the position. Further, steps had since been taken to ensure that the potential for there to be future non-compliance was mitigated;[55]
[55] Affidavit of WF Apted pars 40 - 43; ts 7 (11 July 2022).
(b)in facilitating the transaction as originally contemplated, the making of the orders sought would be consistent with the conduct of commerce generally.[56] I proceeded on the basis that s 1322(4)(d) should be exercised in a way which did not unnecessarily stifle corporate and financial activity on technical grounds;[57]
[56] See Re Jaxsta Ltd [50].
[57] Blaze Asset Pty Ltd v Target Energy Ltd [2009] FCA 698; (2009) 177 FCR 488 [33]; as applied in Whitehawk Ltd [37].
(c)the additional orders sought by Cyprium provided for notice to be given to all persons affected and the ability for them to apply to raise any matters with the court (proposed order 6); and
(d)neither ASIC nor the ASX opposed the application, and no shareholder of Cyprium sought to be heard.
I was satisfied that no substantial prejudice has been or was likely to be caused to any person by the making of the order. Having regard to all of the matters summarised above, and in circumstances where the pre‑condition to the making of such an order had been satisfied, I was and am satisfied that it is appropriate to grant the extension of time within which to lodge the cleansing notices until 4 July 2022 as sought in the originating process.
Proposed orders 2 and 3 – declarations sought under s 1322(4)(a) of the Corporations Act
By this application, Cyprium sought two declarations.
First, a declaration pursuant to s 1322(4)(a) of the Corporations Act that a notice under s 708A(5)(e) of the Corporations Act given to the ASX on 4 July 2022 in respect of the 21,828,213 ordinary fully paid shares in Cyprium which were issued on 11 December 2020, be deemed to take effect as if it had been given to the ASX on 11 December 2020.
Secondly, a declaration that any offer for sale or sale of the 21,828,213 ordinary fully paid shares in Cyprium, which were issued on 11 December 2020, during the period after their issue to the date of the court order is not invalid by reason of:
(a) any failure of a notice under s 708A(5)(e) of the Corporations Act to exempt the sellers from the obligation of disclosure under the Corporations Act; and
(b) the sellers' consequent failure to comply with s 707(3) of the Corporations Act.
I note that both proposed validation orders were framed in declaratory form. Further, I note the wording of the proposed order 2 was amended by counsel at the hearing, for the sake of clarity.[58]
[58] Ts 2 (11 July 2022).
The 'act, matter or thing' was the lodgement of the notice on 4 July 2022 and the offers and sales of securities from 11 December 2020, respectively.
The relevant contravention was the offering of securities for sale or sales without proper disclosure in contravention of s 707(3) of the Corporations Act.[59]
[59] Re Caeneus Minerals Ltd [39] - [40]; Re Classic Minerals Ltd [35] - [36].
As to the first declaration sought, counsel for Cyprium observed that in Ex Parte Imdex Ltd, Hill J granted an order in the same form as proposed order 2 of the originating summons.[60] It is convenient to set out her Honour's observations at [54] ‑ [58] below:
[60] Submissions par 40 - 41.
[54]In respect of the first order, courts have on a number of previous occasions made similar orders. [Her Honour citing 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.] 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.
[55]The question as to whether the court should make such a deeming order was discussed by Colvin J in Re Spectur Limited as follows:
Spectur also sought orders to the effect that when cleansing notices are issued in accordance with the orders extending time that the notices be deemed to take effect as if they had been given within the period of five business days specified in s 708A(6)(a). The effect of such an order would be to go further than extend the period after the time for compliance had passed (which is a possibility that is expressly contemplated by s 1322(4)(d)). It would give the cleansing notice retrospective operation.
The Court has power to make orders that are consequential upon or ancillary to an order extending the period for doing an act, matter or thing under the Corporations Act. There may be circumstances in which a period may be extended to a date which has already passed by the time of the application so as to bring an act that has occurred outside a period specified by the Corporations Act within the specified period. In such a case, there may be an ancillary order to the effect that the act which had already occurred was to take effect as if performed when time had been extended. However, the proposed order would go further and give a future act retrospective effect. In particular, it would seek to authorise the service of cleansing notices with retrospective effect. It is an order which would make the extension of the period of time unnecessary. As indicated in the course of submissions in support of the application I am not presently persuaded that such an order would be within the scope of s 1322(4)(d) or the power to make consequential or ancillary orders. In those circumstances, counsel for Spectur did not press for the making of those additional orders.
[56]In that case, at the time of the hearing, there was no evidence that there had been any trading in the shares nor had a cleansing notice been lodged. I accept that in such a case, there was no utility in making any orders for declarations of validity nor a deeming order.
[57]In Re Micro-X Ltd, Moshinsky J expressed the view that 'deeming orders' were a corollary of the orders seeking an extension of time.
[58]In my view, for the following reasons, I consider it is appropriate in this case to make the ancillary orders sought by the plaintiff, including the 'deemed order'. First, the evidence before me is that the shares the subject of the July share issue have been sold and it cannot be discounted that there have been resales 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, the cleansing notice had already been lodged. For that reason, the order did not concern a future act but a past act. Third, I agree with Moshinsky J that where shares are on-sold, the 'deeming order' is a corollary of the orders seeking an extension of time. (Footnotes omitted.)
Counsel for Cyprium submitted that as the circumstances of the present case are practically the same as that which were before Hill J in Ex Parte Imdex Ltd, Cyprium respectfully adopted the court's reasoning therein and applied for a deeming order in the form of proposed order 2 of the originating process.
In the circumstances of this case, I was and am satisfied that the prescriptive requirements of the wording in s 1322(4) of the Corporations Act were met.
Further, in respect of proposed order 2, for the following reasons, I considered that it is appropriate in this case to make the ancillary orders sought by Cyprium, including the 'deemed order':
(a)the evidence before me was that shares the subject of the Share Issue had been sold and it could not be discounted that there had been resales of the shares. In the circumstances, I considered that it was appropriate to make the orders sought to remove any question as to title in the shares of Cyprium;
(b)at the time the application came on for hearing, the cleansing notice had already been lodged. For that reason, the order did not concern a future act but a past act; and
(c)I also agreed with Moshinsky J that where shares are on-sold, the 'deeming order' is a corollary of the orders seeking an extension of time.
In respect of the proposed order 3, for the reasons set out above in respect of the extension of time, I also considered that it was appropriate to make the order sought.
Conclusion
I did not consider that public policy would be undermined by the making of the orders. I was satisfied on the evidence that Cyprium's conduct did not involve blatant disregard of the provisions of the Corporations Act.
In the circumstances of this case I was and am satisfied that the relief sought should be granted. At the conclusion of the hearing on 11 July 2022 I made orders substantially in the form sought in the originating process. The final form of the orders made are reproduced at Schedule A to these reasons.
As to costs, counsel for Cyprium referred to the view expressed by Hill J Metalicity Ltd at [62], to the effect that where the court is satisfied that there has been no failure of the persons concerned or the company to act honestly under s 1322(6)(a)(ii) of the Corporations Act, it would only be in the most unusual circumstances that an order for costs would be made against the officers of the company. Counsel for Cyprium submitted that in the circumstances of his case, it would be appropriate for there be no order as to costs.
The circumstances which gave rise to the application concern a single instance of non‑compliance where there was no failure to act honestly and no deliberate disregard by Cyprium or its officers of the obligations under ch 6D of the Corporations Act. In such circumstances, I accepted that it was appropriate for there to be no order as to costs, reflected in order 7 of my extracted orders.
Sch A – Orders made on 11 July 2022
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
LP
Associate to the Honourable Justice Strk
27 JULY 2022
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