Re Health House International Ltd; [No 2]
[2023] WASC 161
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE HEALTH HOUSE INTERNATIONAL LTD; EX PARTE HEALTH HOUSE INTERNATIONAL LTD [No 2] [2023] WASC 161
CORAM: HILL J
HEARD: 4 MAY 2023
DELIVERED : 4 MAY 2023
PUBLISHED : 19 MAY 2023
FILE NO/S: COR 30 of 2023
MATTER: IN THE MATTER OF HEALTH HOUSE INTERNATIONAL LTD
EX PARTE
HEALTH HOUSE INTERNATIONAL LTD
Plaintiff
CRESO PHARMA LTD
Interested Party
Catchwords:
Corporations - Scheme of arrangement - Application for orders approving the scheme under s 411(4)(b) of the Corporations Act 2001 (Cth) - Orders made approving scheme
Corporations - Application for orders extending time for provision of annual report to members and lodgment with ASIC - Application for orders extending time to hold annual general meeting - Application for declaratory relief to validate holding of annual general meeting - Where no flagrant disregard of obligations - Where no substantial injustice if orders made - Application granted
Legislation:
Corporations Act 2001 (Cth), s 250N, s 314, s 315, s 411(4)(b), s 411(6), s 411(11), s 411(17), s 1322(4), s 1322(6)
Result:
Orders made approving scheme
Orders made extending time and making declaration
Category: B
Representation:
Counsel:
| Plaintiff | : | A J Papamatheos |
| Interested Party | : | A Ritchie |
Solicitors:
| Plaintiff | : | Blackwall Legal |
| Interested Party | : | Steinepreis Paganin |
Cases referred to in decision:
Blaze Asset Pty Ltd v Target Energy Ltd [2009] FCA 698; (2009) 177 FCR 488
Re G8 Communications Ltd [2016] FCA 297; (2016) 112 ACSR 22
Re Health House International Limited [2023] WASC 133
Re Helios Energy Ltd [2017] FCA 840; (2017) 122 ACSR 174
Re Jaxsta Ltd; Ex parte Jaxsta Ltd [2018] WASC 390
Re Oklo Resources Ltd [No 2] [2022] WASC 313
Re Seven Network Ltd [No 3] [2010] FCA 400; (2010) 267 ALR 583
Re TriAusMin Limited [No 2] [2014] FCA 833
Re Wave Capital Ltd [2003] FCA 969; (2003) 47 ACSR 418
Weinstock v Beck [2013] HCA 14; (2013) 251 CLR 396
HILL J:
The plaintiff, Health House International Limited (Health House), applies for orders approving a proposed scheme of arrangement (Scheme). The background to the matter is set out in the judgment I delivered following the first court hearing.[1] Following the first court hearings on 21 and 22 March 2023, I made orders for the Scheme meeting to be convened on 2 May 2023 (Orders).
[1] Re Health House International Limited [2023] WASC 133.
Scheme meeting
The Scheme meeting was convened and held on 2 May 2023. At the meeting, the resolution was passed by the requisite statutory majorities.
81 shareholders were present at the Scheme meeting in person and by proxy, comprising approximately 5.2% of shareholders by number.[2] 90.12% of shareholders who voted at the meeting were in favour of the resolution.[3] 95.96% of votes cast on the Scheme resolution were cast in favour of the resolution.[4]
[2] Affidavit of David Colin Wheeler filed 3 May 2023 [27(a)].
[3] Affidavit of David Colin Wheeler filed 3 May 2023 [22].
[4] Affidavit of David Colin Wheeler filed 3 May 2023 [22]; Affidavit of Timothy Ryan Slate filed 3 May 2023, 'TRS23'.
Approval of Scheme
This matter came back before me for the second court hearing on 4 May 2023.
In addition to the affidavits relied upon at the first court hearing, Health House relied on an additional nine affidavits filed prior to the second court hearing. These were:
(a)an affidavit of Belinda Sarah Giles filed 27 March 2023, a solicitor employed by Blackwall Legal LLP, the solicitors for the plaintiff. Ms Giles' affidavit annexed an amended Scheme booklet which incorporated changes requested by the auditors of Creso Pharma Limited (Creso), correspondence between Blackwall Legal and the Australian Securities and Investments Commission (ASIC), and Creso's preliminary final report for the financial year ended 31 December 2022;
(b)an affidavit of Jamie George Michael Ogilvie filed 28 April 2023, a partner at Blackwall Legal. Mr Ogilvie confirmed the Orders had been lodged with ASIC;
(c)a second affidavit of Mr Ogilvie filed 1 May 2023. His affidavit annexed two affidavits: an affidavit of Brendan George Wilson, a company director at Linkway Financial Communications (Linkway), the company responsible for the dispatch of the relevant Scheme documents to Health House shareholders in Europe and the United Kingdom, and an affidavit of Robert Wilhelm Ehlers, an employee at Linkway;
(d)a second affidavit of Ms Giles filed 1 May 2023 which annexed email correspondence between Blackwall Legal and ASIC, as well as copies of the advertisements of the second court hearing in The Australian newspaper on 20 and 21 April 2023;
(e)an affidavit of Timothy Ryan Slate filed 3 May 2023, the company secretary of Health House. Mr Slate gave evidence of the enquiries he had received from shareholders in relation to the Scheme and deposed to the conduct of the 2022 annual general meeting (AGM) of Health House. Mr Slate annexed various ASX announcements by Health House, a copy of the annual report of Health House for the year ended 20 June 2022, minutes of the 2022 AGM held on 2 May 2023 at 1.30 pm, as well as a spreadsheet confirming the entities associated with Mr Peterson had not voted at the Scheme meeting;
(f)an affidavit of Jason William Gould Peterson filed 3 May 2023, a director of CPS Capital Group, a corporate adviser to the plaintiff. Mr Peterson deposed to the enquiries he received from shareholders about the Scheme and confirmed the entities associated with him did not vote at the Scheme meetings;
(g)an affidavit of David Colin Wheeler filed 3 May 2023, an executive director of Health House. Mr Wheeler provided a report of the conduct and results of the Scheme meeting and annexed copies of the minutes of the Scheme meeting, a poll report for the Scheme meeting and minutes of the AGM;
(h)an affidavit of Terence Chong Tay filed 3 May 2023, the Client Relationship Manager at Link Market Services, the plaintiff's share registry and related services provider. Mr Tay deposed to the dispatch of the Scheme booklet, proxy form and, where relevant, notice to shareholders, including what steps were taken when a bounce back was received from electronic despatch. Mr Tay also gave evidence of the receipt of proxy votes lodged for the Scheme meeting, and the collection and processing of voting cards at the Scheme meeting;
(i)a third affidavit of Mr Ogilvie filed 4 May 2023, which annexed email correspondence from the solicitors for Link Digicom, and an affidavit of Tiati Stephen Savage, the account manager of Link Digicom, who provided digital copies of the Scheme documentation to Health House shareholders in all jurisdictions except for the European Union and the United Kingdom; and
(j)a fourth affidavit of Mr Ogilvie filed 4 May 2023 which attached the certificates executed by both Health House and Creso confirming that each of the conditions precedent of the Scheme had been satisfied or waived (apart from court approval), as well as a letter from ASIC confirming ASIC had no objection to the proposed Scheme under s 411(17) of the Corporations Act 2001 (Cth) (Act). Mr Ogilvie also annexed correspondence between the plaintiff's solicitors and Creso's solicitors in relation to issues of various securities by Creso, a letter from Health House which waived the condition precedent in cl 3.1(c) of the SID, as well as a letter from the independent expert confirming these issues of securities did not alter his opinion.
These additional affidavits address the matters Health House was required to establish at the second court hearing.
Legal Principles in respect of the Scheme Approval
The approval of the proposed Scheme pursuant to s 411(4)(b) of the Corporations Act 2001 (Cth) (Act), or the second court hearing, is the third stage of approval for a scheme of arrangement. The second stage is the approval of the Scheme by the requisite statutory majorities, which occurred at the Scheme meeting.
At the second court hearing, the court has two tasks:[5]
(a)to ensure that all statutory and procedural requirements have been satisfied. This includes confirming that:[6]
(i)the meeting was convened and held in accordance with the court's earlier orders;
(ii)the resolutions were passed with the requisite statutory majorities; and
(iii)the plaintiff otherwise complied with the court's earlier orders;
(b)to determine, in the exercise of the court's discretion, whether to approve the proposed arrangement.
[5] Re Wesfarmers Ltd [No 2] [2018] WASC 357 [12].
[6] Re International Goldfields Ltd [2004] WASC 112 [7].
The court has a discretion to approve a scheme under s 411(4)(b) of the Act and is not bound to approve a scheme just because the court previously made orders for the convening of a meeting or because the statutory majorities have been achieved.[7] That said, the court will usually approach the task on the basis that shareholders are better judges of what is in their commercial interests than the court.[8]
[7] Re Wesfarmers Ltd [No 2] [13]; Re Seven Network Ltd [No 3] [2010] FCA 400; (2010) 267 ALR 583 [31].
[8] Re Wesfarmers Ltd [No 2] [13]; Re Seven Network Ltd [No 3] [32] - [33].
The factors that inform the court's discretion whether or not to approve a scheme are:[9]
(a)whether the members have voted in good faith and not for an improper purpose;
(b)whether the proposal is fair and reasonable so that an intelligent and honest person who was a member of the relevant class, properly informed and acting alone, might approve it;
(c)whether the plaintiff has brought to the attention of the court all matters that could be considered relevant to the exercise of the court's discretion;
(d)whether there has been full and frank disclosure of all information material to the members' decision;
(e)whether minority shareholders would be oppressed by the scheme;
(f)whether the court is satisfied that the scheme has not been proposed to avoid ch 6 of the Act;
(g)whether ASIC has an objection to the scheme; and
(h)whether the scheme offends public policy.
[9] Re Seven Network Ltd [No 3] [35] - [40], [50], [52].
Disposition
Compliance with statutory and procedural requirements
I was and am satisfied, on the basis of the additional affidavits that were filed by Health House, that:
(a)a copy of the Orders was lodged with ASIC on 22 March 2023;[10]
(b)a copy of the Scheme booklet that was approved for distribution by the court at the first court hearing, subject to an amendment that was approved by ASIC, was lodged with ASIC and registered on 23 March 2023;[11]
(c)the Scheme booklet was despatched to shareholders in accordance with the Orders, save that all shareholders (other than Email Shareholders) received hard copies of the Scheme booklet;[12]
(d)in accordance with the Orders, Health House announced the release of the Scheme booklet to the ASX, attaching the notice of meeting, and made each available for inspection electronically;[13]
(e)the Scheme meeting was convened and held on 2 May 2023 in accordance with the Orders;[14]
(f)the Scheme was approved by the requisite statutory majorities;[15]
(g)notice of the second court hearing was given by way of advertisement in The Australian newspaper on 20 April 2023 and subsequently on 21 April 2023 to correct a typographical error in the original notice;[16] and
(h)ASIC informed Health House on 4 May 2023, pursuant to s 411(17)(b) of the Act, that it has no objection to the proposed Scheme.[17]
[10]Affidavit of Belinda Sarah Giles filed 1 May 2023 [5] - [6], 'BSG6'.
[11] Affidavit of Belinda Sarah Giles filed 27 March 2023 [15], 'BSG3'.
[12] Affidavit of Terence Chong Tay filed 3 May 2023; Affidavit of Jamie George Michael Ogilvie filed 4 May 2023, 'JGMO2'.
[13] Affidavit of Timothy Ryan Slate filed 3 May 2023 [6], 'TRS12'.
[14] Affidavit of David Colin Wheeler field 3 May 2023.
[15] Affidavit of David Colin Wheeler field 3 May 2023 [22] - [23], 'DGW2', 'DGW3'.
[16] Affidavit of Belinda Sarah Giles filed 1 May 2023 [11] - [12], 'BSG9', 'BSG10'.
[17] Affidavit of Jamie George Michael Ogilvie filed 4 May 2023, 'JGMO1'.
In written and oral submissions, counsel for the plaintiff drew my attention to two matters in relation to the Scheme meeting.
First, at the first court hearing, following an exchange of correspondence with ASIC, Health House agreed to tag the votes of Mr Petersen and his associated entities at the Scheme meeting. Neither Mr Petersen nor any of his associated entities voted at the meeting, in person or by proxy.[18] For this reason, no votes were tagged at the Scheme meeting.
[18] Affidavit of Jason William Gould Peterson filed 3 May 2023; Affidavit of Timothy Ryan Slate filed 3 May 2023 [37] – [38], 'TRS30'.
Second, counsel for the plaintiff also drew my attention to the voter turnout at the Scheme meeting. Of the 178,224,621 total Health House shares on issue, 37,968,682 shares were voted at the Scheme meeting, comprising approximately 21.3% of the Health House shares on issue.[19] However, only 81 out of 1560 eligible Health House shareholders voted at the Scheme meeting, representing approximately only 5.2% of eligible shareholders by number.
[19] Affidavit of David Colin Wheeler filed 3 May 2023 [27(b)].
As was stated by Farrell J in Re TriAusMin Limited [No 2]:[20]
It is inappropriate to assume (in the absence of complaint) that shareholders who did not vote either did not have notice of the meeting or were silent in protest of the scheme; apathy should not be presumed to be antagonism.
Nonetheless it does call for consideration to ensure that the vote [was] not unrepresentative, since the court retains the discretion to withhold its approval in that case. It is relevant to consider whether members have been deterred from attending or voting at the meeting. (footnotes omitted)
[20] Re TriAusMin Limited [No 2] [2014] FCA 833 [10] - [11].
Relatively low shareholder turnout does not prevent the court from making orders approving a scheme of arrangement.[21]
[21] See, for example Re Oklo Resources Ltd [No 2] [2022] WASC 313 [12] (56.55% of shares and 6.68% of eligible shareholders) and the authorities cited at fn 21.
I was and am satisfied that there was sufficient turnout at the Scheme meetings. I do not consider the low voter turnout by number of shareholders suggested there had been any error in the despatch of the Scheme booklet, nor that this should prevent the court from making orders under s 411(4)(b) of the Act. In this respect, I have had regard to the following matters:
(a)the number of shareholders who voted at the Scheme meeting, being approximately 5.2% of all eligible shareholders, exceeded the number of shareholders who voted at the preceding annual general meeting of Health House;[22]
(b)Mr Peterson and his entities, who own almost 10% of the Shares in Health House did not vote at the Scheme meeting;
(c)a significant majority of shareholders (by number) who voted at the Scheme meeting voted in favour of the Scheme;
(d)there was no evidence which suggested any irregularity in the despatch of the Scheme booklet; and
(e)there was no evidence of any issue which would have deterred shareholders from voting at or attending the Scheme meeting.
[22] Being approximately 3.1% at the 2021 AGM: Affidavit of Timothy Ryan Slate filed 3 May 2023 [17].
Accordingly, I was and am satisfied that all statutory pre-conditions have been met. I now turn to consider the discretionary considerations.
Good faith and proper purpose
There is no evidence that the Health House shareholders voted for an improper purpose.
I am satisfied on the evidence filed by Health House that its members voted in good faith and for a proper purpose as:
(a)the purpose of the proposed Scheme is to effect the acquisition by Creso of all Health House shares on issue, a transaction of a kind ordinarily approved by the court. It does not involve any novel treatment of rights;
(b)the independent expert opined that, in the absence of an alternate proposal (and none has since emerged), the Scheme is in the best interests of shareholders; and
(c)neither ASIC nor any shareholder appeared at the second court hearing to object to approval of the proposed Scheme.
Fairness and reasonableness
At the first court hearing, based on the evidence before the court, I was satisfied the proposed Scheme was of such a nature that there was no apparent reason that it should not receive approval if the requisite voting majorities were achieved at the Scheme meeting.
Nothing has occurred since the date of the first hearing to change this view. The shareholders who voted at the meeting overwhelmingly supported the proposed Scheme. No shareholder appeared at the second court hearing to oppose the orders sought by Health House. I was and am satisfied that the proposed Scheme is fair and reasonable and is a Scheme that sensible business people might consider to be of benefit to shareholders.
All relevant matters brought to the court's attention
At the first court hearing, counsel for the plaintiff drew my attention to a number of matters. These were summarised at [40] - [91] of Re Health House International Limited.
There were four further matters counsel for the plaintiff drew to my attention at the second court hearing.
First, after approval of the Scheme booklet by this court at the first court hearing but prior to its dispatch to shareholders, it was drawn to Health House's attention that the current financial report of Creso had not yet been audited. As a consequence, an amendment was proposed to the Scheme booklet by the auditors for Creso, which was approved by ASIC.[23] Following publication of Creso's audited accounts on 31 March 2023, the solicitors for Health House confirmed there was no material change to the information that was disclosed in the Scheme booklet and that supplementary disclosure was not required.[24] This was drawn to the attention of ASIC who have not contended otherwise.
[23] Affidavit of Belinda Sarah Giles filed 27 March 2023 [6] - [16].
[24] Affidavit of Belinda Sarah Giles filed 1 May 2023, 'BSG8'.
Second, prior to the Scheme meeting, there was some engagement between representatives of Health House and its shareholders in relation to the Scheme. The detail of these communications was provided to me. The email from one shareholder of Health House raised questions about the disclosures in the Scheme booklet and the recommendation of the Health House board of directors, given the opinion of the independent expert. [25] The response of Health House's company secretary was also provided to me.[26] The evidence before me is that these communications were broadly consistent with the information in the Scheme booklet and do not give rise to any relevant issue as to whether approval for the Scheme should be withheld.
[25] Affidavit of Timothy Ryan Slate filed 3 May 2023, 'TRS25'.
[26] Affidavit of Timothy Ryan Slate filed 3 May 2023, 'TRS26'.
Third, counsel drew to my attention that the parties had agreed to extend the End Date of the Scheme from 5 May 2023 to 12 May 2023.[27]
[27] Exhibit 3.
The final matter concerned the satisfaction of the conditions precedent to the implementation of the Scheme. The conditions precedent (apart from court approval at the second court hearing) were satisfied or waived as at 8.00 am on the date of the second court hearing as evidenced by the certificates put before me.[28] However, given the second court hearing was adjourned until 4.00 pm that day, counsel drew my attention to the fact these certificates were delivered more than two hours before the commencement of the second court hearing. At the second court hearing, counsel for both Health House and Creso confirmed there had been no material change to the certificates and that the court could rely upon the certificates for the purpose of the hearing.[29]
[28] Affidavit of Jamie George Michael Ogilvie filed 4 May 2023, 'JGMO3'.
[29] ts 57 (Health House); ts 58 (Creso).
Counsel for Health House also drew to my attention the waiver sought by Creso in relation to cl 3.1(c) of the SID, concerning the 'No Creso Prescribed Occurrence' condition. The request arose as a consequence of Creso's issue and agreement to issue various securities.[30] The securities issued by Creso were shares issued under a $2 million capital raising on 24 February 2023, 1.7 million convertible notes issued to SBC Global Investment Fund (and security granted over the assets of the company) on 13 March 2023, and 40 million shares issued to Zelira Therapeutics Limited on 9 January 2023. In addition, Creso had agreed to issue a number of shares and options under the February placement, a further tranche of convertible notes and options to SBC Global Investment Fund, convertible notes and options to La Plata (which was the subject of an announcement to the ASX), and various options to Everblu for its fees in assisting with the various capital raisings.
[30] Affidavit of Jamie George Michael Ogilvie filed 4 May 2023, 'JGMO6'.
Health House provided this information to the independent expert and asked them to express an opinion as to whether any of these issues of securities was material from the perspective of a Health House shareholder and whether these would cause them to reconsider their opinion. The independent expert confirmed these issues had been considered in the independent expert report, were not material and would not impact their opinion.[31] These matters were also drawn to the attention of ASIC prior to the second court hearing.[32]
[31] Affidavit of Jamie George Michael Ogilvie filed 4 May 2023, 'JGMO7'.
[32] Exhibit 2.
Given these transactions have been announced to the market and specifically considered by the independent expert, I accept the submissions of counsel for Health House that none of these issues of securities affect the assessment of the fairness of the Scheme or create any concern that there had been any material non-disclosure of relevant information to shareholders.
Full and fair disclosure
At the first court hearing, based on the evidence before the court, I was satisfied the draft Scheme booklet would provide full and fair disclosure to shareholders.
The additional affidavit evidence filed by Health House establishes the Scheme booklet despatched to shareholders was in the form approved for distribution by the court, save for the amended disclosure regarding the financial accounts of Creso. In addition, given the variability associated with the calculation of the Scheme Consideration, the plaintiff offered to provide weekly updates to shareholders as to the estimated Scheme Consideration by way of announcements to the ASX. I am satisfied that updates were provided on 31 March 2023, 6 April 2023, 14 April 2023, 21 April 2023, 28 April 2023 and 2 May 2023.[33]
[33] Outline of submissions for second court hearing [55].
Nothing has arisen to suggest there has not been full and fair disclosure of all information which was material to the decision of shareholders prior to them voting on the Scheme.
Oppression of minorities
There was no evidence that any minority has been oppressed.
Satisfaction of s 411(17) of the Act and ASIC's view
ASIC has provided a written statement to the effect that it does not object to the Scheme pursuant to s 411(17)(b) of the Act.[34] As a result, the requirements of s 411(17) have been satisfied. In any event, having regard to the nature of the proposed transaction, it cannot be said the Scheme was proposed to avoid the operation of ch 6 of the Act.
Public policy
[34] Affidavit of Jamie George Michael Ogilvie filed 4 May 2023, 'JGMO1'.
There is no evidence before the court that the proposed Scheme offends any aspect of public policy. Given the nature of the proposed Scheme, it is my view that it could not be sensibly suggested that the Scheme offends public policy.
Exemption from s 411(11) of the Act
Health House seeks an exemption from s 411(11) of the Act. In my view, there is no utility in requiring the court's orders approving the Scheme to be annexed to Health House's constitution as the orders do not effect any change to the constitution. This exemption has become ordinary practice for transactions of this kind.
Conclusion
For these reasons, at the second court hearing before me, I was satisfied the substantive and procedural requirements under s 411(4) of the Act had been satisfied and that I should approve the proposed Scheme.
Applications under s 1322(4) of the Act
As foreshadowed at the first court hearing, at the second court hearing, Health House sought orders for an extension of time under s 1322(4)(d) of the Act in connection with the 2022 annual report, as well as the holding of the 2022 annual general meeting.
Specifically, Health House sought orders extending:
(a)the time specified in s 315(1) of the Act for provision of the annual financial report to members (as required by s 314 of the Act) until 22 December 2022;
(b)the time specified in s 319(3) of the Act for the lodgment of the annual financial report for the year ending 30 June 2022 until 22 December 2022; and
(c)the time specified in s 250N(2) of the Act for the holding of the 2022 AGM be extended to 2 May 2023.
In addition, Health House sought a declaration, pursuant to s 1322(4)(a) of the Act, that the 2022 AGM not be invalid notwithstanding its non-compliance with s 250N(2) of the Act and cl 12.9 of the constitution.
Reporting requirements under the Act
Part 2M.3 of the Act imposes financial reporting requirements on certain entities including the plaintiff.[35]
[35] Corporations Act 2001 (Cth) sub-ss (1)(b), (c).
The Act imposes various requirements on Health House to:
(a)prepare a financial report and a directors' report for each financial year;[36]
(b)have the financial report audited and obtain an auditor's report;[37]
(c)report to members for a financial year by providing to members the financial report, directors' report and auditor's report for that year;[38] and
(d)lodge each of the reports referred to in (c) with ASIC.[39]
[36] Corporations Act 2001 (Cth) s 292(1)(b).
[37] Corporations Act 2001 (Cth) s 301(1).
[38] Corporations Act 2001 (Cth) s 314(1).
[39] Corporations Act 2001 (Cth) s 319(1).
The deadline for Health House to report to members and lodge the requisite documents with ASIC is four months after the end of the financial year,[40] namely 31 October of each year.
[40] Corporations Act 2001 (Cth) s 315(4), s 319(3).
Part 2G.2 div 8 of the Act sets out the obligation of public companies in respect of their annual general meetings. This imposes a requirement on Health House to hold an AGM within five months after the end of its financial year,[41] namely 30 November of each year. Clause 12.9 of Health House's constitution requires it to hold its AGM in accordance with the provisions of the Act.[42]
Granting of relief under Act
[41] Corporations Act 2001 (Cth) s 250N(2).
[42] Affidavit of David Colin Wheeler filed 28 February 2023, 'DCW2'.
Section 1322 of the Act 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.
In considering an application under s 1322 of the Act, the essential principles are:[43]
(a)the prescriptive requirements of the wording in s 1322(4) and the pre-conditions in s 1322(6) need to be satisfied;[44]
(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;[45]
(d)limitations to the broad powers in s 1322 will not be readily implied.[46] Section 1322 is remedial in character and should be applied broadly;
(e) the court can make orders under s 1322(4)(a) 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), notwithstanding that the contravention or failure concerned resulted in the commission of an offence.[47]
[43] Re Helios Energy Ltd [2017] FCA 840; (2017) 122 ACSR 174 [20].
[44] Weinstock v Beck [2013] HCA 14; (2013) 251 CLR 396 [43], [53] and [64].
[45] Re Wave Capital Ltd [2003] FCA 969; (2003) 47 ACSR 418 [29].
[46] Weinstock v Beck [43], [55] - [56], [60], [64].
[47] Corporations Act2001 (Cth) s 1322(5).
The test under s 1322(4)(d) was set out by Vaughan J in Re Jaxsta Ltd; Ex parte Jaxsta Ltd:[48]
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.
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.'
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)
The period to be extended may be extended even if it has expired.
[48] Re Jaxsta Ltd; Ex parte Jaxsta Ltd [2018] WASC 390 [41] - [43].
I accept that Health House is an 'interested person' who may seek relief under s 1322(4) of the Act.
Application for extension of time
For the following reasons, I was satisfied that it was appropriate to extend the time periods sought by the plaintiff.
First, granting the extension of time sought by Health House is consistent with the purpose of the relevant provisions of the Act. The purpose of these sections is to ensure that shareholders are kept informed as to the financial performance of the company and to enable shareholders to ask questions of the company, its auditors and directors at the company's AGM. An AGM also allows shareholders to have a regular say on who should comprise the directors of the company. Health House has now complied with each of these obligations. There is no suggestion that Health House has failed to comply with its reporting obligations, including its obligations of continuous disclosure, nor did the delay in holding its AGM have any impact on who are the directors of the company.
Second, the reasons for non-compliance with the Act, including the delay in seeking orders from the court, were explained. In respect of the delay in providing its financial report to shareholders and lodging it with ASIC and the holding of its 2022 AGM, this arose due to the termination of the previous proposed scheme and entry into the SID, as well as the requirement to refinance its previous loan facility. As a consequence of these matters, the relevant officers of Health House were unable to complete the necessary working capital and other confirmations within the time required by the auditors. In respect of the holding of the AGM, this delay was due to the Scheme and the belief that delaying the 2022 AGM to the same date as any Scheme meetings would save the time and expense in convening two separate meetings.
While there has been some delay in seeking orders from the court, I accept that the initial delay was because Health House did not turn its mind to whether any extension of time was required. Once Health House was made aware of this, it decided to bring the application as part of these proceedings. In my view, Health House has acted relatively promptly in seeking relief.
Third, there is no suggestion that any third party has acted to its detriment as a result of the delay in complying with the Act or that any substantial injustice has been or is likely to be cause to any third party. No complaint has been raised by any shareholder or by ASIC in relation to the delay. Health House has informed shareholders and ASIC of its intention to seek orders under s 1322(4) at the second court hearing and no one has sought to be heard on the application.
Fourth, there is no suggestion that Health House's non-compliance with the Act undermines the objects of the Act.
Fifth, the making of the orders sought is consistent with the conduct of commerce generally. Section 1322(4)(d) should be exercised in a way which does not unnecessarily stifle corporate and financial activity on technical grounds.[49]
[49] Blaze Asset Pty Ltd v Target Energy Ltd [2009] FCA 698; (2009) 177 FCR 488 [33].
I am also satisfied that 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 proposed orders. While Health House delayed in complying with its obligations under the Act, these obligations have now been satisfied. There is no indication from any shareholder, creditor or person that they have suffered any prejudice as a result of the delay in complying with these obligations. This is particularly the case in circumstances where, as a result of the approval of the Scheme, the shareholders of Health House will transfer their shares to Creso, be issued shares in Creso and become shareholders of Creso.
I also accept and find there is no evidence of any substantial misconduct, serious wrongdoing or flagrant disregard of the Act or the company's constitution to warrant refusal of the relief sought.[50]
[50] Re Wave Capital Ltd [29].
There is nothing in the evidence before me suggesting that any minority shareholder interest might be oppressed, or any other interest might be affected. I am satisfied that all shareholders, as well as the ASX and ASIC, have been notified of the plaintiff's contravention of the Act and been given notice of this hearing. No shareholder or either regulator has sought to intervene in the hearing or given notice they want to be heard on the application.
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.[51] In this case, I am satisfied that Health House has brought the application relatively promptly after being informed of the necessity to seek relief under this section. The matter was raised with the court at the first court hearing and the court was informed that orders would be sought at the second court hearing.
Application for declaration of validity
[51] Re G8 Communications Ltd [2016] FCA 297; (2016) 112 ACSR 22 [60].
Health House also seeks a declaration that the 2022 AGM is not invalid by reason of its failure to comply with s 250N(2) of the Act and cl 12.9 of the constitution.
I note that 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 holding of an AGM within five months of the end of Health House's financial year; and
(c)the contravention is the failure to hold the AGM within this time period and not holding it until 2 May 2023.
The plaintiff submitted that the precondition in s 1322(6)(a)(iii) is satisfied.
I accept this submission. In this case, for the same reasons as set out above at [52] - [60], I consider it is just and equitable for the declaration sought by Health House to be made.
Orders
For these reasons, at the conclusion of the hearing on 4 May 2023, I made orders in terms of 'Annexure A' to this judgment in respect of the Scheme.
Annexure A
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
19 MAY 2023
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