Re Omni Bridgeway Ltd

[2024] WASC 133

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   RE OMNI BRIDGEWAY LTD; EX PARTE OMNI BRIDGEWAY LTD [2024] WASC 133

CORAM:   HILL J

HEARD:   12 APRIL 2024

DELIVERED          :   12 APRIL 2024

PUBLISHED           :   19 APRIL 2024

FILE NO/S:   COR 58 of 2024

MATTER:   IN THE MATTER OF OMNI BRIDGEWAY LTD

EX PARTE

OMNI BRIDGEWAY LTD

Plaintiff

Catchwords:

Corporations - Application for orders under s 1322 of Corporations Act 2001 (Cth) - Failure of company to have shareholder nominate auditor prior to annual general meetings - Failure of company to resolve to appoint auditor at annual general meeting - Impact on validity of cleansing notices - Where immediate steps taken to rectify irregularity - Where no substantial injustice caused by proposed orders - Where no blatant or flagrant disregard of obligations - Turns on own facts

Legislation:

Corporations Act 2001 (Cth) s 301, s 302, s 314, s 327A, s 327B, s 327C, s 328A, s 328B, s 706, s 707, s 708A, s 1322

Result:

Application granted

Category:    B

Representation:

Counsel:

Plaintiff : C E McKay

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 Golden Gate Petroleum Ltd [2010] FCA 40; (2010) 77 ACSR 17

Re Helios Energy Ltd [2017] FCA 840; (2017) 122 ACSR 174

Re Poseidon Nickel Ltd [2018] FCA 1063; (2018) 129 ACSR 57

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.)

1. On 10 April 2024, the plaintiff, Omni Bridgeway Limited (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 lodgement obligations under pt 2M.3 of the Act for the 2022 and 2023 financial years.

2. These contraventions occurred as a result of a failure to have a shareholder nominate BDO Audit (WA) Pty Limited (BDO) as auditor or have the appointment as auditor from 30 November 2021 approved at its 2021, 2022 or 2023 annual general meetings (AGM).

3. These contraventions have had a secondary impact on the Company in raising a question as to whether cleansing notices issued by the Company between 22 February 2022 and 29 January 2024 are also defective.  This is because the cleansing notices state that as at the date of their issue, the Company had complied with the provisions of ch 2M of the Act.  For this reason, the Company has also applied for orders declaring these notices were effective when given and that any offer for sale or sales of their shares are not invalid.

Factual background

1. In support of the application, the plaintiff relies on five affidavits: three affidavits of Hendrik van Aswegen, a partner of the plaintiff's solicitors, filed 10 and 12 April 2024; an affidavit of Jeremy Thomas Sambrook, the plaintiff's global general counsel and joint company secretary, filed 11 April 2024; and an affidavit of Christopher George Huish, the plaintiff's joint company secretary, filed 11 April 2024. 

2. The plaintiff is an Australian public company, whose securities are listed on the Australian Securities Exchange (ASX) and is a global leader in dispute financing.[1]

   [1] Affidavit of Jeremy Thomas Sambrook filed 11 April 2024 [10].

3. As of 8 April 2024, the Company had approximately 282.5 million shares on issue, 3,777 shareholders and a market capitalisation of approximately $397 million.[2]

   [2] First affidavit of Hendrik van Aswegen filed 10 April 2024 [8]; Affidavit of Jeremy Thomas Sambrook filed 11 April 2024 [82], 'JTS-31'.

4. Until May 2021, the auditors of the Company were Ernst and Young (EY).  In about March 2021, EY informed the Company of its intention to resign as auditor.  BDO was asked to replace EY and provided the Company with a notice of its consent to act as auditor on 26 March 2021.[3]

   [3] Affidavit of Jeremy Thomas Sambrook filed 11 April 2024 [14] - [16], 'JTS-02', 'JTS-03'.

5. On 8 April 2021, the Company's board resolved, by circular resolution, to accept EY's resignation as the Company's auditors and to appoint BDO to fill the vacancy.  The resolution stated that the appointment of BDO would take effect from the date of disclosure of EY's resignation.  On 5 May 2021, the Australian Securities and Investments Commission (ASIC) confirmed its consent to EY's resignation.[4]  On 17 May 2021, an ASX announcement was issued notifying of EY's resignation and BDO's appointment as auditor until the date of the Company's next AGM.[5]

   [4] Affidavit of Jeremy Thomas Sambrook filed 11 April 2024 [17], 'JTS-04'.

   [5] Affidavit of Jeremy Thomas Sambrook filed 11 April 2024 [20].

6. On 24 May 2021, BDO entered into an agreement with the Company for the audit for the financial year ending 30 June 2021.  Further formal engagement letters were entered into between BDO and the Company for the audit and review (as the case may be) of the Company's financial statements for the 2022 and 2023 financial years.[6]

   [6] Affidavit of Jeremy Thomas Sambrook filed 11 April 2024 [22] - [23], 'JTS-07', 'JTS-08', 'JTS-09', JTS‑10'.

7. Ultimately, no resolution concerning the appointment of BDO as auditor was put to shareholders at the Company's AGM in November 2021.  The evidence of Mr Sambrook is that the resolution was omitted as a matter of mistake or inadvertence as the Company was focused on the logistics of the 2021 AGM, which was the first virtual shareholder meeting held by the Company.[7]  Similarly, no resolutions were passed at the 2022 or 2023 AGM appointing BDO as the Company's auditor.[8]

   [7] Affidavit of Jeremy Thomas Sambrook filed 11 April 2024 [69(b)].

   [8] Affidavit of Jeremy Thomas Sambrook filed 11 April 2024 [67(c)], 'JTS-20', 'JTS-21'.

8. On 8 April 2024, Mr Sambrook became aware, from his review of various publications and on receiving information from Mr Huish, of the issue with BDO's appointment as the Company's auditor.  Since that date, he has worked closely with the Company's external legal counsel to determine what steps are needed to resolve the issue.  This has included liaising with both ASIC and the ASX, informing shareholders of the issue and commencing these proceedings.[9]

   [9] Affidavit of Jeremy Thomas Sambrook filed 11 April 2024 [72] - [75].

9. On 9 April 2024, the Company made an ASX announcement in respect of the issues, sought a trading halt of its securities and informed ASIC and the ASX of its intention to bring this application.  On 10 April 2024, the Company issued a further ASX announcement informing shareholders of the application.[10]

   [10] First affidavit of Hendrik van Aswegen filed 10 April 2024, 'HVA-19', 'HVA-20'; Second affidavit of Hendrik van Aswegen filed 11 April 2024, 'HVA-25'.

Statutory regime

Financial reports and appointment of auditor

1. The statutory regime that governs financial reports and the appointment of auditors is set out in ch 2M of the Act, entitled 'Financial Reports and Audit'.  The process for the appointment and removal of auditors is set out in pt 2M.4 of the Act.

2. Pursuant to s 327A(1) of the Act, directors of a public company are obliged within one month of registration of the company to appoint an auditor, unless the members at a general meeting have appointed an auditor.

3. Pursuant to s 327B(1)(b) of the Act, where a vacancy in the officer of auditor occurs, a company must appoint an auditor to fill the vacancy at each AGM subsequent to the company's first AGM. Section 327B(3) of the Act requires a director of the company to take all reasonable steps to comply with, or to secure compliance with s 327B(1) of the Act.

4. Section 327C of the Act deals with the circumstances where an auditor is appointed to fill a casual vacancy other than at an AGM. 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 must, within one month of the vacancy occurring, appoint an auditor to fill the vacancy unless the company has already done so at a general meeting.

5. Pursuant to s 327C(2) of the Act, where an auditor is appointed to fill a casual vacancy under s 327C(1) of the Act, they hold office until the company's next general meeting.

6. Section 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.

7. 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 its members.

8. 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 of the individual, firm, or company before the meeting was convened, or not less than 21 days before the meeting (unless an auditor is removed from office at the AGM). Where a company purports to appoint an auditor in contravention of s 328B(1) of the Act, 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 are guilty of an offence.

Fundraising disclosures

1. Part 6D.2 of the Act imposes fundraising disclosure obligations on corporations in relation to rights, issues and the issue and sale of quoted securities. 

2. Section 708A of the Act governs the issue of quoted securities, including shares. In certain circumstances and pursuant to s 708A(5) of the Act, the disclosure obligations can be satisfied by lodging a cleansing notice or a prospectus. If disclosure has not been made by the issuer and the shares are on-sold within a period of 12 months, the party to whom the shares are issued may be obliged to make disclosure.[11]

   [11] Corporations Act 2001 (Cth) s 707(3). See also Re Golden Gate Petroleum Ltd [2010] FCA 40; (2010) 77 ACSR 17.

3. The notice issued by the company is required to comply with s 708A(6) of the Act. This includes a requirement the notice state that, as at the date of the notice, the body has complied with the provisions of ch 2M of the Act.

Power under s 1322 of the Act to grant the relief sought

1. The plaintiff's originating process seeks orders under s 1322 of the Act.

2. In considering an application under this section, the essential principles are well known and can be summarised as follows:[12]

   (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;[13]

   (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;[14]

   (d)limitations to the broad powers in s 1322 of the Act will not be readily implied.[15] 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.[16]

   [12] Re Helios Energy Ltd [2017] FCA 840; (2017) 122 ACSR 174 [20].

   [13] Weinstock v Beck [2013] HCA 14; (2013) 251 CLR 396 [43], [53], [64].

   [14] Re Wave Capital Ltd [2003] FCA 969; (2003) 47 ACSR 418 [29].

   [15] Weinstock v Beck [43], [55] - [56], [60], [64].

   [16] Corporations Act2001 (Cth) s 1322(5).

Disposition

Application by an 'interested person'

1. In this case, on the evidence before me, I accept that the plaintiff is an interested person who may seek relief under the Act.[17]

Position of ASX and ASIC

[17] Re Wave Capital Ltd [29].

1. The ASX has informed the Company that it does not intend to appear at the hearing today.[18]  Similarly, ASIC has informed the Company that it does not intend to appear at the hearing today, and that it neither supports nor opposes the application.[19]

Validation of appointment of auditor

[18] Second affidavit of Hendrik van Aswegen filed 12 April 2024 [23], 'HVA-28'.

[19] Third affidavit of Hendrik van Aswegen filed 12 April 2024 [7], 'HVA-30'.

1. On the evidence before me, I make the following findings of fact.

   (a)Following the resignation of EY as auditor of the Company, the directors of the Company complied with their obligations under s 327C(1) of the Act by appointing BDO as auditor with effect from 17 May 2021.

   (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 2021, 2022 and 2023 AGMs to fill the vacancy. This did not occur.

   (c)By letter dated 26 March 2021, BDO consented to fill the casual vacancy as auditor of the Company until the 2021 AGM for the purposes of s 328A(1) of the Act. However, no resolution was passed at the 2021 AGM (or the subsequent AGMs) to appoint BDO as auditor of the Company. As a result, BDO's consent did not translate into a valid permanent appointment. As no resolution was passed at the 2021 AGM to ratify the appointment of BDO as auditor, BDO ceased to be the Company's auditor at the conclusion of this AGM.

   (d)The board of the Company did not comply with s 327B(1) of the Act to appoint an auditor following the 2021, 2022 or 2023 AGMs.

   (e)BDO has carried out the audit for the Company's financial reports for the years ended 30 June 2022 and 30 June 2023 in accordance with s 301(1) and s 314(1) of the Act, as well as the review of the Company's half year financial reports for the financial periods ending 31 December 2021, 31 December 2022 and 31 December 2023 in accordance with s 302 of the Act.

2. I have previously considered the legislative history and the objects of ch 2M.4 of the Act in Re Bellevue Gold Ltd.[20]  These reasons for decision reflect my views on the matter and it is not necessary for me to repeat what I said there.

Orders under s 1322(4)(a) of the Act

[20] Re Bellevue Gold Ltd [2021] WASC 80 [48] ‑ [54].

1. In this case, the plaintiff seeks declarations under s 1322(4)(a) of the Act, including that the appointment of BDO as auditor of the plaintiff from 24 May 2021 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 of the plaintiff to fill any vacancy in the office of auditor at the AGMs of the plaintiff in 2021, 2022, and 2023; and

   (b)the failure of the plaintiff to comply with s 328B of the Act.

2. In addition, the plaintiff seeks declarations that the cleansing notices given under s 708A(5) of the Act to the ASX between 22 February 2022 and 29 January 2024 were effective when given and that any offer for sale or sale of securities were not invalid by reason of:

   (a)any alleged failure of the notices given under s 708A(5)(e) of the Act to exempt the sellers from the obligation of disclosure under the Act; and

   (b)any consequent failure by the sellers of the securities to comply with s 707(3) of the Act.

3. In this case, I note that the prescriptive requirements of s 1322(4)(a) of the Act are satisfied in that:

   (a)the proposed orders are framed in a declaratory form;

   (b)the act, matter or thing is the appointment of an auditor, and the offer and sale of securities; and

   (c)the alleged contraventions are clearly identified.

Pre-conditions in s 1322(6)(a) of the Act

1. While only one of the preconditions in s 1322(6)(a) of the Act needs 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.

2. I accept the evidence of Mr Sambrook that the failure to appoint BDO 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. On this basis, I accept that the precondition in s 1322(6)(a)(ii) of the Act is satisfied.

3. Section 1322(6)(a)(iii) of the Act gives the court a wide discretion to exercise the powers under s 1322 of the Act.[21]  I am satisfied on the evidence before me that it would be just and equitable to make the orders sought.

   [21] See Re Bellevue Gold Ltd [64] - [65], and the authorities cited therein.

4. 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 timeframes specified by the Act. 

5. It is relevant that in this case, all parties - BDO, the Company, and its shareholders - have proceeded on the basis that BDO was validly appointed as auditor of the Company on 17 May 2021.  No issue or complaint has been raised in relation to 2021, 2022 or 2023 accounts or the conduct of the audits or reviews undertaken by BDO.

6. 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

1. In making the orders sought, I have also considered the classes of persons who may be impacted by the making of these orders, namely, the Company, its shareholders and BDO. 

2. First, while the plaintiff and its directors and officers did not comply with the relevant provisions of the Act regarding the appointment of BDO as auditor of the Company, at all material times BDO has acted as auditor of the Company.  It has undertaken the audits for the 2021, 2022 and 2023 full-year accounts and has reviewed the half-yearly accounts for the financial periods ending 31 December 2021, 31 December 2022 and 31 December 2023.  No issue has been raised by the shareholders or either regulator concerning these accounts or the work that has been performed by BDO in this respect.

3. Second, in relation to the Company, if validating orders are not made by the court, the appointment of BDO and the financial reports of the Company for the years 2021 to 2023 will remain uncertain.  This will impact the Company's ability to issue cleansing notices for any future capital raisings as the Company will be unable to certify its compliance with ch 2M of the Act. 

4. Third, in relation to BDO, if validating orders are not made, the status of BDO's appointment will be uncertain.  This may raise questions in the future as to the fees that have been charged for the work performed, and whether this work is covered by professional indemnity insurance. 

5. Finally, in relation to the plaintiff's shareholders, there is no evidence that any shareholder of the plaintiff has raised any issue regarding the financial reports of the Company or the work that has been performed by BDO. 

6. I also find 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. 

7. In contrast, I accept the submission of counsel that if the orders sought are not made, there may be substantial injustice to the plaintiff for the following reasons.  First, there will be uncertainty attaching to the work that has been undertaken by BDO to date.  Secondly, there will be uncertainty as to the status of the plaintiff's compliance with its financial reporting and audit obligations under ch 2M of the Act. 

No discretionary reason to withhold relief

1. 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.[22]

   [22] Re Wave Capital Ltd [29].

2. There is nothing in the evidence before me today that suggests that any minority interest might be oppressed or that any other interest might be affected by the orders sought by the plaintiff.  I am satisfied that all shareholders, together with the ASX and ASIC, have been notified of the plaintiff's contravention of the Act and have been given notice of this hearing today.  No shareholder or either regulatory body has sought to be heard or intervene in this hearing today. 

3. In exercising the discretion to grant relief under s 1322(4) of the Act, a relevant factor is the promptness with which the plaintiff sought to remedy the irregularity once it was identified.[23]  In this case, after the issue was identified on 8 April 2024, the plaintiff took steps to determine what relief was required, sought legal advice, commenced these proceedings and sought a hearing within four days.

Validation of issues of securities subject of a notice under s 708A(5) of the Act

[23] Re G8 Communications Ltd [2016] FCA 297; (2016) 112 ACSR 22 [60].

1. In addition to the orders sought by the Company in respect to the appointment of BDO, the Company also seeks orders in respect of the five issues of securities, which were the subject of a cleansing notices between 22 February 2022 and 29 January 2024 as set out in 'Annexure A' of the plaintiff's originating process.

2. In respect of these orders, I note that:

   (a)the proposed validation order is framed in a declaratory form;

   (b)the act, matter or thing is the offer for sale or issue, or sale of securities for the purposes of s 706, s 708A(5) or s 707(3) of the Act; and

   (c)the contraventions are the offering of securities for sale without proper disclosure in contravention of s 706 and s 707(3) of the Act.

3. In this case, counsel for the plaintiff submitted that each of the pre-conditions in s 1322(6)(a)(ii) and s 1322(6)(a)(iii) of the Act were satisfied.

4. Mr Sambrook's evidence is that extensive due diligence processes were undertaken and that when he issued the cleansing notices, he mistakenly believed there had been compliance with the provisions of ch 2M of the Act.[24]  The Company submitted, which I accept, that this was a genuine error and that there has been no failure of the persons concerned, the Company or its directors and officers to act honestly. 

   [24] Affidavit of Jeremy Thomas Sambrook filed 11 April 2024 [29].

5. On this basis, I am satisfied the precondition in s 1322(6)(a)(ii) of the Act is satisfied. I am also satisfied on the evidence before me today that it would be just and equitable to make the orders sought.

6. Once again, in considering whether there would be any substantial injustice if the orders are made, I have considered the classes of person who may be impacted by the making of these orders. 

7. First, the parties who have been issued shares, particularly those who have been issued shares within the last 12 months.  The prejudice to them is that any future sale of these shares may be void or voidable.[25]

   [25] Re Poseidon Nickel Ltd [2018] FCA 1063; (2018) 129 ACSR 57 [63].

8. Second, the shareholders of the Company.  The Company's failure to comply with the relevant provisions of the Act has caused the Company to enter a trading halt of its securities.  If orders are not made by the court and the trading halt is not lifted, the security holders of the Company will not have the benefit of a market for their securities. 

9. Third, I accept that if the orders sought by the plaintiff are not made, there may be substantial injustice to the Company as the offer and any subsequent sale of securities may be void or voidable.  This could give rise to commercial uncertainty and expense for the Company as it must remain involved in problems caused by void or voidable offers of its securities.  In addition, in this case, there is specific evidence that if the Company remains suspended and is deemed to have failed to maintain a listing on ASIC for more than five consecutive days, the Company may be subject to a 'Review Event' under a confidential debt facility agreement.  This could ultimately result in the Company being unable to access a very substantial debt facility.[26]

   [26] Affidavit of Jeremy Thomas Sambrook filed 11 April 2024 [79(d)].

10. I find 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. 

11. For the following reasons, I am satisfied that in the circumstances of this case, relief should be granted in the terms sought by the plaintiff.  First, the evidence before the court is that it is unclear whether there have been any sales of these securities.  Second, I accept there is a question as to the validity of the cleansing notices given the failure to comply with ch 2M.4 of the Act.  Third, the orders sought address the possibility that there has been a past act of a sale, that is, it concerns a possible past act and does not concern future acts.  Finally, I am satisfied the conduct was inadvertent and was not done in blatant disregard of the Company's obligations under the Act. 

Conclusion

1. In my view, public policy will not be undermined by granting the relief sought. 

2. For these reasons, I am satisfied that, in the circumstances of this case, relief should be granted in terms of orders 1 to 6 of the plaintiff's minute of proposed orders (except for order 1(c)) including the annexure at 'Annexure A'.

'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 APRIL 2024