Re Dubber Corporation Ltd
[2024] WASC 384
•21 OCTOBER 2024
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE DUBBER CORPORATION LTD; EX PARTE DUBBER CORPORATION LTD [2024] WASC 384
CORAM: HILL J
HEARD: 10 OCTOBER 2024
DELIVERED : 10 OCTOBER 2024
PUBLISHED : 21 OCTOBER 2024
FILE NO/S: COR 152 of 2024
MATTER: IN THE MATTER OF DUBBER CORPORATION LTD (ACN 089 145 424)
EX PARTE
DUBBER CORPORATION LTD (ACN 089 145 424)
Plaintiff
Catchwords:
Corporations - Application for orders under s 1322 of Corporations Act 2001 (Cth) - Resignation of auditor - Failure of company to have shareholder nominate auditor prior to annual general meeting - Failure of company to resolve to appoint auditor at annual general meeting - Where no substantial injustice likely to be caused in making orders - Where no blatant or flagrant disregard of obligations - Turns on own facts
Legislation:
Corporations Act2001 (Cth) s 301, s 302, s 314, s 327B, s 327C, s 328A, s 328B, s 1322
Result:
Application granted
Category: B
Representation:
Counsel:
| Plaintiff | : | S J Penrose |
Solicitors:
| Plaintiff | : | Thomson Geer - Perth |
Cases referred to in decision:
Re Bellevue Gold Ltd [2021] WASC 80
Re G8 Communications Ltd [2016] FCA 297; (2016) 112 ACSR 22
Re Helios Energy Ltd [2017] FCA 840; (2017) 122 ACSR 174
Re Wave Capital Ltd [2003] FCA 969; (2003) 47 ACSR 418
Weinstock v Beck [2013] HCA 14; (2013) 251 CLR 396
HILL J:
(This judgment was delivered extemporaneously and has been edited from the transcript to include references, headings and to correct matters of grammar and expression.)
On 8 October 2024, the plaintiff, Dubber Corporation Ltd (Company), filed an originating process seeking orders under s 1322(4) of the Corporations Act2001 (Cth) (Act) relating to contraventions in the appointment process of its auditor and, as a consequence, its compliance with the auditing, financial reporting and lodgment obligations that arise under the Act.
These contraventions occurred as a result of a failure to have a shareholder nominate Ernst & Young (EY) as auditor or have EY's appointment as its auditor from 29 November 2023 approved at its 2023 annual general meeting (AGM).
Factual background
In support of the application, the plaintiff read six affidavits: an affidavit of Steven Papadopoulos, a solicitor engaged by the plaintiff to provide it with legal services; three affidavits of Sophie Ellen Durrant, a law graduate employed by Thomson Geer, the plaintiff's external solicitors; a confidential affidavit of Peter Edward Pawlowitsch, a director of the plaintiff, and an affidavit of David James Franks, the current company secretary of the plaintiff.
The plaintiff is a software and telecommunications company, whose securities are listed on the Australian Securities Exchange (ASX). As at 8 October 2024, the Company had a market capitalisation of approximately $26.9 million.[1]
[1] Affidavit of David James Franks filed 9 October 2024 [5].
Until November 2022, the Company's auditors were BDO Audit (WA) Pty Ltd (BDO). In November 2022, BDO informed the Company of its resignation as auditor. Their resignation followed a tender process that had been undertaken by the Company, which commenced in July 2022. On 30 November 2022, the Company announced that EY had been appointed to replace BDO until the date of its next AGM.[2]
[2] Affidavit of David James Franks filed 9 October 2024 [8] - [9].
Ultimately, no resolution concerning the appointment of EY as auditor was put to shareholders at the Company's AGM in November 2023. The evidence of Mr Papadopoulos is that this was a mistake or inadvertent and arose from the delay between the change of auditor and the holding of its 2023 AGM, coupled with the changes that had occurred over this time period to each of the company secretary, chief financial officer and to the chair of directors.[3]
[3] Affidavit of Steven Victor Papadopoulos filed 8 October 2024 [7].
Statutory regime
Financial reporting and appointment of auditors
The statutory regime that governs financial reports and the appointment of auditors is contained in ch 2M of the Act, which is entitled 'Financial Reports and Audit'. The process for the appointment and removal of auditors is in pt 2M.4 of the Act.
Specifically, s 327C of the Act deals with the circumstances where an auditor is appointed to fill a casual vacancy other than at an AGM, which is the position in this case. Pursuant to s 327C(1) of the Act, where this occurs, and not by removal of the auditor from the office and there is no surviving or continuing auditor of the company, the directors are required, within one month of the vacancy occurring, to appoint an auditor to fill the vacancy unless the company has already done so at a general meeting.
Pursuant to s 327C(2) of the Act, where an auditor is appointed to fill a casual vacancy, they hold office until the company's next general meeting.
Pursuant to s 328B(1) of the Act, a company may appoint an individual, firm, or company as auditor of the company at its AGM but only if a member of the company gives the company written notice of the nomination before the meeting was convened, or not less than 21 days before the meeting. Where a company purports to appoint an auditor in contravention of this subsection, pursuant to s 328B(2)(a) and s 328B(2)(b) of the Act, the appointment is of no effect and the company and each of its officers who are in default of the section are guilty of an offence.
In relation to the Company's reporting obligations, s 301 of the Act requires a company to have its financial reports for a financial year audited in accordance with div 3 of pt 2M.3 of the Act and to obtain an auditor's report. Section 314 of the Act relevantly requires a company to report to its members for a financial year by providing certain specified reports, including the auditor's reports, to members.
Power under s 1322 of the Act to grant the relief sought
In this case, the plaintiff seeks orders under s 1322 of the Act. In considering an application under this section, the essential principles are well known and can be summarised as follows:[4]
(a)the prescriptive requirements of the wording in s 1322(4) and the pre‑conditions in s 1322(6) of the Act need to be satisfied;[5]
(b)the court retains a discretion under s 1322(4) of the Act as to whether or not it will make the orders sought;
(c)the broad powers that are granted to the court under s 1322 of the Act 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 the 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;[6]
(d)limitations to the broad powers in this section will not be readily implied.[7] This section is remedial in character and should be applied broadly;
(e)the court can make orders under s 1322(4)(a) of the Act on conditions and make such consequential and ancillary orders as it thinks fit; and
(f)an order can be made under s 1322(4)(a) of the Act notwithstanding that the contravention or failure concerned resulted in the commission of an offence.[8]
[4] Re Helios Energy Ltd [2017] FCA 840; (2017) 122 ACSR 174 [20].
[5] Weinstock v Beck [2013] HCA 14; (2013) 251 CLR 396 [43], [53], [64].
[6] Re Wave Capital Ltd [2003] FCA 969; (2003) 47 ACSR 418 [29].
[7] Weinstock v Beck [43], [55] - [56], [60], [64].
[8] Corporations Act2001 (Cth) s 1322(5).
Should the orders sought by the plaintiff be made?
Application by an 'interested person'
On the evidence before me, I accept the plaintiff has standing as an interested person under the Act to seek the relief sought in the originating process.[9]
Position of ASX and ASIC
[9] Re Wave Capital Ltd [29].
The position of the ASX and the Australian Securities and Investments Commission (ASIC) are in evidence before me. The ASX has informed the Company that it does not intend to appear today.[10] Similarly, ASIC has informed the Company that it also does not intend to appear, and that it neither supports nor opposes the application. The only qualification to the position of ASIC is that given the short time between service and hearing of the application, they seek 28 days within which to bring any application to set aside the orders.[11] This, I note, is not opposed by the plaintiff, and is contained in their originating process.
Validation of appointment of auditor
[10] Third affidavit of Sophie Ellen Durrant filed 9 October 2024, 'SED-5'.
[11] Third affidavit of Sophie Ellen Durrant filed 9 October 2024, 'SED-6'.
On the evidence that has been filed by the plaintiff, I make the following findings of fact.
(a)Following the resignation of BDO as auditor of the Company in November 2022, the directors of the Company complied with their obligations under s 327C(1) of the Act by appointing EY as auditor with effect from November 2022.
(b)The directors of the Company were required, pursuant to s 327B(3) of the Act, to take all reasonable steps to comply with, or to secure compliance with s 327B(1) of the Act to appoint an auditor at its 2023 AGM to fill the vacancy that had been created by the resignation of BDO. This did not occur.
(c)No resolution was put nor passed at the 2023 AGM to appoint EY as auditor of the Company. As a result, EY ceased to be the Company's auditor at the conclusion of this AGM. Following this, the board of the Company did not comply with s 327B(1) of the Act to appoint an auditor.
(e)EY has carried out the audit for the Company's financial reports for the year ended 30 June 2024 in accordance with s 301 of the Act, as well as the review of the Company's half-year financial reports for the financial period ending 31 December 2023, as required by s 302 of the Act.
(f)The Company has lodged both the annual financial report and the half-year financial report, which has been audited and reviewed by EY respectively.
I have previously considered the legislative history, the objects and purpose of ch 2M.4 of the Act, starting in Re Bellevue Gold Ltd.[12] Those reasons for decision reflect my views on the matter and I do not consider it is necessary for me to repeat those views in these reasons.
Orders under s 1322(4)(a) of the Act
[12] Re Bellevue Gold Ltd [2021] WASC 80 [48] ‑ [54].
In this case, the plaintiff seeks declarations under s 1322(4)(a) of the Act, including that the appointment of EY as auditor of the Company from 30 November 2022 is not invalid by reason of:
(a)the failure of the plaintiff to comply with s 327B(1)(b) of the Act by not appointing an auditor to fill any vacancy in the office of auditor at the AGM end of 2023;
(b)the failure of the plaintiff to comply with s 328B of the Act;
(c)the failure to comply with s 327C of the Act within one month of the 2023 AGM; and
(d)its consequent failures to comply with both the financial reporting provisions and lodgement requirements.
The form of the proposed orders satisfy the prescriptive requirements of s 1322(4)(a) of the Act in that:
(a)the proposed orders are framed in a declaratory form;
(b)the act, matter or thing is the validity of the appointment of an auditor; and
(c)the alleged contraventions are clearly identified.
Pre-conditions in s 1322(6)(a) of the Act
While it is only necessary for one of the pre-conditions in s 1322(6)(a) of the Act to be satisfied, counsel for the plaintiff submitted that the pre-conditions in both s 1322(6)(a)(ii) and s 1322(6)(a)(iii) of the Act are satisfied in this case.
On the evidence before me, I accept the failure to appoint EY as auditor arose as a matter of inadvertence. This conclusion is supported by the steps that have been taken by the Company to rectify the irregularity as soon as it became aware of the issue, which occurred only three days ago. On this basis, I accept that the precondition in s 1322(6)(a)(ii) of the Act is satisfied.
In relation to s 1322(6)(a)(iii) of the Act, this subsection gives the court a wide discretion to exercise the powers that it has under s 1322.[13] I am satisfied on the evidence before me that it would also be just and equitable to make the orders sought.
[13] See Re Bellevue Gold Ltd [64] - [65], and the authorities cited therein.
In my view, the making of an order sought by the plaintiff is consistent with the public policy of ch 2M of the Act, which is to ensure that public companies appoint independent auditors to audit the companies' accounts, and that audited accounts are lodged within the timeframe specified by the Act and provided to members.
In my view, it is relevant that, in this case, all parties, namely, EY, the Company, and its shareholders, have proceeded on the basis that EY has been validly appointed as auditor of the Company. No issue or complaint has been raised in relation to the accounts or the conduct of the audit or review that has been undertaken by EY.
In my view, the granting of relief will remove any doubt about the Company's compliance with its financial reporting obligations and the potential impact on the Company's operations.
No substantial injustice under s 1322(6)(c) of the Act
In considering the orders that are sought by the plaintiff, I have taken into account the classes of persons who may be impacted by the making of these orders, namely, the Company, its shareholders and EY.
While the plaintiff and its directors and officers did not comply with the relevant provisions of the Act regarding the appointment of EY as auditor of the Company, at all material times, EY has acted in fact as auditor of the Company. It has undertaken the audit of the full-year accounts for the financial year of 2023/2024 and reviewed the half-yearly accounts for the financial period ending 31 December 2023. As I commented earlier, no issue has been raised by shareholders or either regulator concerning these accounts or the work that has been performed by EY.
In relation to the Company, if validating orders are not made by the court, the appointment of EY and the financial reports of the Company will remain uncertain. This has the potential impact on the Company's ability to issue cleansing notices for any future capital raisings as the Company will be unable to certify compliance with ch 2M of the Act.
In relation to EY, if validating orders are not made, their status remains uncertain. This may raise questions in the future as to the fees that have been charged for the work that they have performed and whether their work is covered by professional indemnity insurance.
In relation to the plaintiff's shareholders, there is no evidence before the court that any shareholder has raised any issue regarding the financial reports of the Company or the work that has been performed by EY.
In my view, I do not consider there is any basis on which an inference could be drawn that substantial injustice has been or is likely to be caused to any person by the making of the proposed orders.
In my view, if the orders sought are not made, it is more likely that there will be substantial injustice to the plaintiff. This is for the following reasons. First, there will be continuing uncertainty attaching to the work that has been undertaken by EY to date and second, to the compliance by the plaintiff with its financial reporting and audit obligations under the Act.
No discretionary reason to withhold relief
I accept and find there is no evidence of any substantial misconduct, serious wrongdoing or flagrant disregard of the Act or the Company's constitution which would warrant refusal of the relief sought.[14]
[14] Re Wave Capital Ltd [29].
There is nothing in the evidence before me that suggests that any minority interest might be oppressed or that any other interest might be affected by the orders that have been sought. I am satisfied that the shareholders of the plaintiff, together with the ASX and ASIC, have been notified of the contravention of the Act and have been given notice of this hearing. No shareholder or either regulator sought to be heard or to intervene in the hearing today.
In deciding whether or not to exercise the discretion to grant relief under s 1322(4) of the Act, a relevant factor is the promptness with which a plaintiff has sought to remedy the irregularity once it has been identified.[15] In this case, after the issue was identified on 7 October 2024, the plaintiff took steps to determine what relief was required, sought external legal advice, commenced these proceedings, and sought and obtained a hearing within three days.
[15] Re G8 Communications Ltd [2016] FCA 297; (2016) 112 ACSR 22 [60].
Conclusion
In my view, public policy will not be undermined by the granting of the relief sought by the plaintiff. For these reasons, I am satisfied that, in the circumstances of this case, relief should be granted to the plaintiff broadly in accordance with the orders that are sought in the originating process.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
JN
Associate to the Honourable Justice Hill
21 OCTOBER 2024
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