Re Golden Rim Resources Ltd

Case [2019] FCA 1206

FEDERAL COURT OF AUSTRALIA

Golden Rim Resources Ltd, in the matter of Golden Rim Resources Ltd [2019] FCA 1206

File number: WAD 384 of 2019
Judge: JACKSON J
Date of judgment: 2 August 2019
Catchwords: CORPORATIONS - declaratory relief under s 1322(4) of the Corporations Act 2001 (Cth) - validation of share sales and sale offers and relief from civil liability for sellers of shares - contraventions of s 707(3) and s 727 of the Corporations Act - relief sought regarding omission to lodge 'cleansing notices' - inadvertence by company secretary - all persons acted honestly - just and equitable that orders sought are made
Legislation: Corporations Act 2001 (Cth) ss 704, 707, 708A, 727, 1322, 1337B, Part 62D.2, Part 6D.3A
Cases cited: Re iCandy Interactive Limited [2018] FCA 533; (2018) 125 ACSR 369
Date of hearing: 2 August 2019
Registry: Western Australia
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: Commercial Contracts, Banking, Finance and Insurance
Category: Catchwords
Number of paragraphs: 43
Counsel for the Plaintiff: Mr MF Gerus
Solicitor for the Plaintiff: Bellanhouse Lawyers

ORDERS

WAD 384 of 2019

IN THE MATTER OF GOLDEN RIM RESOURCES LTD (ACN 006 710 774)

GOLDEN RIM RESOURCES LTD (ACN 006 710 774)

Plaintiff

JUDGE:

JACKSON J

DATE OF ORDER:

2 AUGUST 2019

THE COURT ORDERS THAT:

1.The court declares under s 1322(4)(a) of the Corporations Act 2001 (Cth) that any offer for sale or sale of any of the tranche of 38,461,540 ordinary fully paid shares in the applicant that were issued on 21 September 2018, made in the period after their issue, is not invalid by reason of any contravention of s 707(3) or s 727(1) of the Corporations Act.

2.Pursuant to s 1322(4)(c) of the Corporations Act, persons offering to sell or selling the shares referred to in the preceding paragraph are relieved from any civil liability arising out of any such contravention.

3.The court declares under s 1322(4)(a) of the Corporations Act that any offer for sale or sale of any of the tranche of 55,498,960 ordinary fully paid shares in the applicant that were issued on 17 May 2019, made in the period after their issue, is not invalid by reason of any contravention of s 707(3) or s 727(1) of the Corporations Act.

4.Pursuant to s 1322(4)(c) of the Corporations Act, persons offering to sell or selling the shares referred to in the preceding paragraph are relieved from any civil liability arising out of any such contravention.

5.A sealed copy of these orders must be served on the Australian Securities and Investments Commission (ASIC) as soon as reasonably practicable and upon service of these orders on ASIC, ASIC is to include these orders on its database.

6.A copy of these orders must be given to each person to whom the shares referred to in paragraphs 1 and 3 above were issued and as soon as reasonably practicable the applicant must publish an announcement to the Australian Securities…

Continue reading Re Golden Rim Resources Ltd

Sign in free to access the full text

Details
AGLC
Re Golden Rim Resources Ltd [2019] FCA 1206
Case
[2019] FCA 1206
Decision Date

CaseChat Overview and Summary

Golden Rim Resources Ltd applied to the Federal Court of Australia for relief under section 1322 of the Corporations Act 2001 (Cth) concerning the sale and offer for sale of shares. The company sought declarations that the sales and offers were not invalid due to certain contraventions of the Corporations Act. Specifically, the sales of shares issued in September 2018 and May 2019 did not comply with the requirement to lodge a 'cleansing notice' as mandated by sections 707(3) and 727 of the Corporations Act. This non-compliance potentially made the sales invalid and exposed the company and its shareholders to civil liability. The company argued that the failure to lodge the notices was inadvertent and that all parties involved acted honestly.

The court needed to determine if the orders sought by Golden Rim were appropriate under section 1322. This required assessing whether the persons involved in the contraventions acted honestly and whether it was just and equitable to grant the relief sought. The court also had to consider if making such orders would cause substantial injustice to any party. The principles established in ReiCandy Interactive Limited were pertinent, indicating that section 1322 is to be interpreted liberally, and the court considers the honesty of the parties involved, including those responsible for the company's failure to lodge the cleansing notices.

The court found that all parties involved acted honestly, with the omissions being inadvertent. The relief sought was in the best interests of Golden Rim and its shareholders, as it would allow for the continuation of share trading without the burden of potential invalidity and civil liability. The court concluded that no substantial injustice would be caused if the orders were made and granted the declarations and relief from liability as sought by the company. The orders included specific directives for the company to notify ASIC, to publish the court's orders on the ASX, and to request the reinstatement of the quotation of its shares. The court declined to make any order for costs.

In conclusion, the court made orders validating the sales and offers of the specified shares and relieving the sellers from any civil liability arising from the contraventions. The orders also included provisions for notifying relevant authorities and the public, and allowing for potential objections within a specified period.

Orders

Orders of the court

1. The court declares under s 1322(4)(a) of the Corporations Act 2001 (Cth) that any offer for sale or sale of any of the tranche of 38,461,540 ordinary fully paid shares in the applicant that were issued on 21 September 2018, made in the period after their issue, is not invalid by reason of any contravention of s 707(3) or s 727(1) of the Corporations Act.

2. Pursuant to s 1322(4)(c) of the Corporations Act, persons offering to sell or selling the shares referred to in the preceding paragraph are relieved from any civil liability arising out of any such contravention.

3. The court declares under s 1322(4)(a) of the Corporations Act that any offer for sale or sale of any of the tranche of 55,498,960 ordinary fully paid shares in the applicant that were issued on 17 May 2019, made in the period after their issue, is not invalid by reason of any contravention of s 707(3) or s 727(1) of the Corporations Act.

4. Pursuant to s 1322(4)(c) of the Corporations Act, persons offering to sell or selling the shares referred to in the preceding paragraph are relieved from any civil liability arising out of any such contravention.

5. A sealed copy of these orders must be served on the Australian Securities and Investments Commission (ASIC) as soon as reasonably practicable and upon service of these orders on ASIC, ASIC is to include these orders on its database.

6. A copy of these orders must be given to each person to whom the shares referred to in paragraphs 1 and 3 above were issued and as soon as reasonably practicable the applicant must publish an announcement to the Australian Securities Exchange (ASX) in which a copy of these orders is included.

7. The applicant must make a request of the ASX, forthwith, for the quotation of the class of securities 'GMR' to be reinstated.

8. For a period of 28 days from the date of reinstatement by the ASX of the quotation of the class of securities 'GMR' and the date of publication of these orders on the ASX website (whichever is the later), any person who claims to have suffered substantial injustice or who claims that they are likely to suffer substantial injustice by reason of the contraventions referred to above or the making of any or all of these orders may apply within that period to vary or to discharge the orders.

9. No order as to costs.

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

Background

Background to the litigation

Finally, s 1322(4), s 1322(5) and s 1322(6) provide:(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.(5)An order may be made under paragraph (4)(a) or (c) notwithstanding that the contravention or failure referred to in the paragraph concerned resulted in the commission of an offence.(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.The facts of this case Hayley Butcher is the General Manager, Corporate of Golden Rim and its company secretary. The following account emerges from her affidavit sworn 30 July 2019 in support of the present application. As is common among junior explorers, Golden Rim does not have an income stream from mining operations, so it makes several securities issues each year in order to raise funds for exploration activities and for working capital.The September 2018 Shares On 30 July 2018 Golden Rim announced a placement of shares in two tranches. A cleansing notice was issued in relation to one of those tranches. As will appear, there was no cleansing notice in relation to the other tranche, being an offer to participate in a raising of $1 million by issuing 38,461,540 shares at an issue price of 2.6 cents per share.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

I have also taken account of the potential for prejudice to Golden Rim and its shareholders if the orders sought are not made. The possibility of liability for unwitting breach exposes shareholders who on-sold relevant shares to prejudice. More broadly, all shareholders in Golden Rim, and the company itself, are likely to suffer prejudice if the suspension continues for much longer. The orders sought will facilitate the removal of the suspension. The company seeks, and I will make, an order requiring it to request to ASX forthwith that the suspension from quotation of shares in the same class as the September 2018 Shares and the May 2019 Shares be lifted.Conclusion I am satisfied that all persons concerned acted honestly, and that it is just and equitable that the orders sought are made. I am also satisfied that no person has suffered any substantial injustice, or is likely to do so if the orders sought are made. It is in the interests of Golden Rim and its shareholders that on-sales of the September 2018 Shares and of the May 2019 Shares be validated. I will make orders substantially in terms that the company seeks. In view of the circumstances as I have described them, including that the omission to lodge cleansing notices was inadvertent, it is not appropriate to make any order for costs against the company or its officers.

Ratio Decidendi

Legal Principle Established

The principles to be applied in cases such as the present are not contentious. Banks-Smith J gave them detailed consideration in ReiCandy Interactive Limited [2018] FCA 533; (2018) 125 ACSR 369 and I gratefully adopt her Honour's analysis. The points that are salient for the purposes of this application are as follows:(a)Section 1322 is remedial in nature and is to be given a liberal interpretation: iCandy at [43].(b)The provision has been used to validate non‑disclosure by shareholders who on‑sell shares on a number of occasions: iCandy at [44].(c)The company whose shares were on-sold in breach of the Corporations Act is an interested party with standing to bring the application: iCandy at [46].(d)In determining whether those concerned in or party to the breaches acted honestly, the court looks to absence of evidence of dishonesty. The court is concerned only with whether those people acted honestly in the ordinary meaning of that term. The concept of honesty can embrace inadvertence: iCandy at [54]‑[56].(e)The honesty of the shareholders who sell shares without disclosure is relevant. It is open to the court to readily infer that those shareholders have acted honestly in on‑selling the shares: iCandy at [58].(f)However the court may also consider the honesty of those responsible for the failure of the company to lodge a cleansing notice, including company officers. That is so even where, as here, the relief sought is framed only in terms of the contraventions committed by on-sellers: iCandy at [83], [87], [101].(g)The court takes into account whether the plaintiff has taken prompt action to remedy the error: iCandy at [54].(h)In considering whether it is just and equitable to validate the on-sales (s 1322(6)(a)(iii)), the court will generally focus on the interests and conduct of the shareholders: iCandy at [110].Consideration Golden Rim seeks declarations that any sale or offer of the September 2018 Shares and the May 2019 Shares is not invalid by reason of the seller's failure to comply with s 707(3) and s 727(1) of the Corporations Act. The court has power under s 1322(4)(a) to make declarations of that sort. There was no relevant cleansing notice satisfying s 708A(5) and s 708A(6) of the Corporations Act, or a cleansing prospectus satisfying s 708A(11), at the time of the issue and subsequent sale, by participants in the issues, of shares in the class of shares that were issued. It is therefore likely that at least some of those sales and the offers leading to them breached the requirement in s 707(3) that an offer of a body's securities for sale within 12 months after their issue needs disclosure to investors under Part 6D.2 in circumstances such as those here. The offers are also likely to have contravened the prohibition in s 727(1) on offers of securities without a disclosure document. The court may not make an order under s 1322(4)(a) unless it is satisfied, relevantly, that the persons concerned in or party to the contravention acted honestly. There is no suggestion that shareholders who have on-sold did not act honestly and I infer that they did. I have described the course of events from the point of view of Golden Rim's company secretary, who is the person responsible for lodging cleansing notices to facilitate the lawful on-sale of the shares. The evidence demonstrates that the omission to lodge notices in relation to the September 2018 Shares and the May 2019 Shares was inadvertent and that Ms Butcher acted honestly.