Re Haranga Resources Ltd
[2024] WASC 105
•2 APRIL 2024
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE HARANGA RESOURCES LTD; EX PARTE HARANGA RESOURCES LTD [2024] WASC 105
CORAM: HILL J
HEARD: 2 FEBRUARY 2024
DELIVERED : 2 FEBRUARY 2024
PUBLISHED : 2 APRIL 2024
FILE NO/S: COR 13 of 2024
MATTER: IN THE MATTER OF HARANGA RESOURCES LTD
EX PARTE
HARANGA RESOURCES LTD
Plaintiff
Catchwords:
Corporations - Application for orders under s 1322 of Corporations Act 2001 (Cth) - Failure of company to issue cleansing notice following issue of shares - Where time period to lodge cleansing notice has expired - Impact on validity of share transactions - Where immediate steps taken to rectify irregularity once identified - Where no substantial injustice caused by proposed orders - Where no blatant or flagrant disregard of obligations - Where no other discretionary reason to withhold relief
Legislation:
Corporations Act 2001 (Cth) s 707, s 708A, s 1322
Result:
Application granted
Category: B
Representation:
Counsel:
| Plaintiff | : | M F Holler |
Solicitors:
| Plaintiff | : | Steinepreis Paganin |
Cases referred to in decision:
Re Bellevue Gold Ltd [2021] WASC 80
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 Jaxsta Ltd; Ex parte Jaxsta Ltd [2018] WASC 390
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.)
On 30 January 2024, the plaintiff, Haranga Resources Limited (Haranga), filed an originating process seeking orders under s 1322(4)(a) and s 1322(4)(d) of the Corporations Act 2001 (Cth) (Act). These orders are sought arising from contraventions of the Act following the issue of shares by the plaintiff on 7 December 2023 without the lodgement of a cleansing notice in accordance with the Act.
Haranga has provided a frank and detailed explanation as to the circumstances surrounding the contravention. Based on the evidence before me, I am satisfied that the failure to issue a cleansing notice was caused by inadvertence rather than any deliberate disregard of the plaintiff's obligations and that it is appropriate to make the orders sought.
Legal principles
The legal principles that govern this application are clear. Pursuant to pt 6D.2 of the Act, disclosure obligations are imposed on companies in relation to the issue and sale of securities. In certain circumstances, these obligations can be satisfied by lodging what is commonly referred to as a cleansing notice.[1] If disclosure has not been made by the issuer and the securities are on-sold within 12 months, the party to whom the securities are issued may be obliged to make disclosure.[2]
[1] Or a prospectus: Corporations Act 2001 (Cth) s 708A(5).
[2] Corporations Act 2001 (Cth) s 707(3). See also ReGolden Gate Petroleum Ltd [2010] FCA 40; (2010) 77 ACSR 17.
Factual background
In support of its application, Haranga relied on three affidavits: an affidavit of Kyla Peta Garic, its company secretary, filed on 31 January 2024; an affidavit of Michael Davy, its non-executive chairman, also filed on 31 January 2024; and an affidavit of Madeline Sky Ardon, a solicitor employed by the plaintiff's solicitor, filed on 1 February 2024.
Haranga is an Australian public company, whose securities are listed on the Australian Securities Exchange (ASX). It is an African-focused multi-commodity company with projects in Senegal.
As of 25 January 2024, Haranga had approximately 89.5 million shares on issue, 871 shareholders and a market capitalisation of approximately $19.6 million.
On 27 January 2024, while preparing the plaintiff's quarterly report, Ms Garic became aware that the plaintiff had failed to lodge a cleansing notice following a share issue on 7 December 2023. Her evidence is that on 7 December 2023, she prepared a draft cleansing notice which was then approved by the board. Due to her heavy workload at the time (both in respect of the plaintiff and the other companies for which she is company secretary) as well as a number of matters personal to her, as a matter of oversight, she failed to lodge the cleansing notice.
Having identified the issue, Ms Garic informed the non-executive chairman of Haranga and sought legal advice from the plaintiff's external solicitors. Since that time, the plaintiff has reviewed all share issues it has undertaken since 7 December 2017. This review did not identify any other instances of non-compliance with the Act.
On 29 January 2024, the plaintiff requested a trading halt from the ASX. On the same date, the plaintiff's solicitors informed the court of Haranga's intention to lodge this application and requested a date for an urgent hearing. The plaintiff's solicitors have written to both the ASX and also the Australian Securities and Investment Commission (ASIC) informing them of the issue of non-compliance and that Haranga intended to make an urgent application to this court seeking relief under s 1322 of the Act.
On 31 January 2024, the plaintiff notified the recipients of the relevant share issue of the plaintiff's failure to properly cleanse these shares and of its intention to make this application.[3] On the same date, the plaintiff lodged a cleansing notice in relation to the share issue that had occurred on 7 December 2023.
[3] Affidavit of Kyla Peta Garic filed 31 January 2023, 'KPG-13'.
From Ms Garic's examination of the share register of the plaintiff, she believes that some of the shares issued on 7 December 2023 have already been sold.
Mr Davy, the non-executive chair of the plaintiff, has reviewed the plaintiff's materials, including its ASX announcements, and believes the plaintiff would have been entitled to lodge the cleansing notice on 7 December 2023.
Power under s 1322 of the Act to grant the relief sought
In considering an application under s 1322 of the Act, 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 it makes 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 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.[6]
(d)Limitations to the broad powers in s 1322 of the Act 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.
(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).
Disposition
Position of ASX and ASIC
Both the ASX and ASIC have provided a response to the plaintiff in respect of the application.
I note that the ASX has indicated that it is not in a position to comment on the matter and does not intend to appear at the hearing today. ASIC has provided the plaintiff with a letter confirming that it neither supports nor opposes the application and does not intend to appear today.
Extension of time under s 1322(4)(d)
The plaintiff seeks an extension of the time period within which to lodge a cleansing notice until 31 January 2024.
The test that the court applies under s 1322(4)(d) of the Act was set out by Vaughan J in Re Jaxsta Ltd; Ex parte Jaxsta Ltd at [41] ‑ [43].[9]
[9] Re Jaxsta Ltd; Ex parte Jaxsta Ltd [2018] WASC 390.
It is clear from the authorities that the period can be extended even if it has expired. In this case, the period to lodge a cleansing notice expired on 14 December 2023.
For the following reasons, I am satisfied it is appropriate to extend this time period until 31 January 2024, as sought by the plaintiff in their originating process.
First, the extension sought is only of approximately six weeks, which is consistent with extensions previously granted by the courts.
Second, I am satisfied on the evidence before me today that the cleansing notice was not lodged due to inadvertence and was promptly rectified once the plaintiff became aware of the error. The evidence before me demonstrates that as soon as Ms Garic became aware of the error, she immediately took steps to rectify the position and to draw it to the attention of others within Haranga.
Third, in the absence of an extension being granted, I accept that there are adverse consequences for both the plaintiff and its shareholders. Unless orders are made by the court, the plaintiff's shares will continue to be suspended from trading, which will deny the plaintiff's shareholders the opportunity to trade their shares. In addition, Haranga will potentially lose its ability to lodge a cleansing notice under s 708A(5)(b) of the Act, which would require the preparation of a prospectus for future issues of shares.
Fourth, the shareholders who have purchased shares on the market since 7 December 2023 may have purchased some of the shares the subject of the issue. Given that any such sales will have occurred without disclosure, this potentially means that these transactions are void or voidable, which creates potential title issues for these parties.
Fifth, in facilitating the transaction as originally contemplated, the making of the orders sought is consistent with the conduct of commerce generally. Section 1322(4)(d) of the Act should be exercised in a way which does not unnecessarily stifle corporate and financial activity on technical grounds.
Sixth, I am satisfied that the plaintiff has brought the application without delay. Only three days passed between Haranga becoming aware of the issue, and orders being sought from the court.
Seventh, the additional orders sought by the plaintiff provide for notice to be given to all of the persons affected and for the ability for them to apply within 28 days to raise any matters with the court.
Finally, neither ASIC nor the ASX oppose the application and nor do any of the plaintiff's shareholders.
Pre-conditions in s 1322(6)(a) of the Act
Turning then to the pre-conditions as set out in s 1322(6)(a) of the Act, the plaintiff submitted that each of the pre-conditions were satisfied in this case.
I accept this submission.
First, I accept that the pre-condition in s 1322(6)(a)(i) of the Act is satisfied as the issue of a cleansing notice is of a procedural nature.
Second, on the evidence before the court, I am satisfied and find that the action of the plaintiff in failing to lodge the cleansing notice as required by s 708A(5) of the Act, was honest and inadvertent.
I am also satisfied that it would be just and equitable to make the orders sought.[10]
No substantial injustice under s 1322(6)(c) of the Act
[10] The Court is granted a wide discretion under s 1322(6)(a)(iii) of the Act in exercising its powers under s 1322 of the Act: see Re Bellevue Gold Ltd [2021] WASC 80 [64] and the authorities cited therein.
In considering whether there are any substantial injustices required under s 1322(6)(c) of the Act, I have considered the classes of persons who may be impacted by the making of these orders.
First, the people who were issued the shares that were the subject of the share issue on 7 December. The prejudice to these people is that the sale of these securities may be void, or voidable, for want of compliance with the statutory requirements.
Second, the people who purchased the shares may have resold the impugned shares themselves. Any further sales of these shares will also have occurred without the requisite disclosure under pt 6D.2 of the Act until 13 January 2024.
I find there is no basis for inferring that substantial injustice has been, or is likely to be, caused to any person by the making of the orders proposed by the plaintiff.
In contrast, I accept that if the orders that have been sought are not made, there is likely to be substantial injustice to the plaintiff as the offers and sales of shares may be void or voidable. This can give rise to commercial uncertainty and expense for the Company as it must remain involved in the problems that have been caused by void or voidable offers and sales of its shares. I also accept there may be substantial injustice to the other ordinary shareholders of Haranga, as they may not be able to trade their securities on an open market if the current suspension from trading is not lifted.
It is usual in cases such as these to provide an opportunity for shareholders or other parties to raise a complaint about the proposed orders. The usual timeframe is that there be liberty to apply within 28 days from the date of the orders, which in this case I accept is an appropriate timeframe.
No other discretionary reason to withhold relief
I also consider that there is no other discretionary reason to withhold the relief that has been sought. There is no evidence before me that there has been any substantial misconduct, serious wrongdoing or flagrant disregard of the Act or the Company's constitution which would warrant refusal of the relief that has been sought.
Nothing on the evidence before me suggests that any minority shareholder interest might be oppressed or that there is any other interest that might be affected by the relief that has been sought. I am satisfied that all shareholders who have been impacted by the contravention, as well as both ASIC and the ASX, have been given notice of this application, the contravention of the Act and this hearing today. No one has sought to intervene in the hearing or give notice that they want to be heard.
In exercising the discretion to grant relief under s 1322(4) of the Act, a relevant factor is the promptness with which the plaintiff has sought to remedy the irregularity once it has been identified.[11] In this case, Haranga discovered its failure to lodge a cleansing notice on 27 January 2024, which I note was a Saturday. The plaintiff then conducted a review of its previous share issues to determine whether there were any further instances of contravention. Within three days of discovering the issue, Haranga had sought legal advice, notified investors, procured a trading halt, notified both ASIC and the ASX of the issue and the plaintiff's intention to seek curative relief, and commenced these proceedings. In these circumstances, I accept that Haranga has acted diligently after being made aware of the issue.
Orders under s 1322(4)(a) of the Act
[11] Re G8 Communications Ltd [2016] FCA 297; (2016) 112 ACSR 22 [60].
In addition to the orders sought for an extension of time, the plaintiff also seeks two declarations under s 1322(4)(a) of the Act.
The first is that any offer for sale or sale of the quoted securities between their issue and 31 January 2024 is not invalid by reason of:
(a)the plaintiff's failure to issue a notice under s 708A(5)(e) and s 708A(6) of the Act to exempt sellers from the obligation of disclosure under the Act; and
(b)the sellers' consequent failure to comply with s 707(3) of the Act.
The second declaration sought is that the notice under s 708A(5)(e) of the Act given to the ASX on 31 January 2024 be deemed to take effect as if it had been given to the ASX on the date of the issue of the shares.
The prescriptive requirements of s 1322(4)(a) of the Act are satisfied in that:
(a)the proposed validation orders are framed in a declaratory form;
(b)the act, matter or thing is the offer and sale of securities; and
(c)the contravention is the offering of securities for sale or sales without proper disclosure in contravention of s 707(3) of the Act.[12]
[12] See Re Caeneus Minerals Ltd [2018] FCA 560 [39] ‑ [40]; Re Classic Minerals Ltd [2018] FCA 2039 [35] ‑ [36].
In respect of the second declaration that is sought, courts have made orders to this effect on a number of previous occasions. In my view, it is not in doubt that the court has power to make orders that are consequential or ancillary to an order extending the period for doing an act, matter, or thing under the Act.
In my view, it is appropriate in this case to make the orders sought by the plaintiff. First, the evidence before me is that some of the shares the subject of the share issue have been sold and it cannot be discounted that there have been resales of these shares. Accordingly, I consider that it is appropriate to make the orders sought to remove any question as to the title of these shares.
Second, at the time the orders are sought to be made by the court, the cleansing notice has already been lodged. For this reason, the order does not concern a future act, but a past act.
Third, in my view, the 'deeming order' is a corollary of the order seeking an extension of time.
Conclusion
In these circumstances and for the reasons above, I consider that it is appropriate to make orders in terms of the plaintiff's minute of proposed orders in terms of orders 1 to 7.
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
2 APRIL 2024
0
7
1