Re Poseidon Nickel Ltd

Case [2018] FCA 1063

FEDERAL COURT OF AUSTRALIA

Poseidon Nickel Ltd, in the matter of Poseidon Nickel Ltd [2018] FCA 1063

File number: WAD 195 of 2018
Judge: COLVIN J
Date of judgment: 17 July 2018
Catchwords: CORPORATIONS – application for declarations and orders under s 1322 – where shares issued on 40 occasions in apparent contravention of disclosure requirements in s 707(3) and s 727(1) of the Corporations Act 2001 (Cth) – where almost all shares issued were on-sold within 12 months – where most share issues were under a convertible note agreement and a subscription deed – where agreement and deed each required issuer to comply with disclosure obligations and issue shares that were freely tradable – where cleansing notices could have been issued in most cases – where cleansing prospectus issued after trading – where no blatant or flagrant disregard of disclosure obligations – whether a declaration should be made that sales of shares not invalid – whether an order should be made relieving sellers of shares from civil liability – whether relief from civil liability should extend to companies issued with shares under the terms of the agreement and the deed – consideration of appropriate form of orders
Legislation: Corporations Act 2001 (Cth) ss 707, 708A, 727, 1322, Part 6D.2
Cases cited:

Hall v Poolman [2007] NSWSC 1330; (2007) 215 FLR 243

NMRA Ltd v Gould (1995) 18 ACSR 290

Re Allied Resources Partners Pty Ltd [2017] FCA 1451

Re Caeneus Minerals Ltd [2018] FCA 560

Re Castillo Copper Ltd [2018] FCA 602

Re Clancy Exploration Ltd [2018] FCA 569

Re EHR Resources Ltd [2018] FCA 997

Re European Lithium Ltd [2017] FCA 894

Re Golden Gate Petroleum Ltd [2010] FCA 40

Re ICandy Interactive Ltd [2018] FCA 533

Re Spectrum Rare Earths Ltd [2017] FCA 883

Re Wangle Technologies Ltd [2018] FCA 864

Re Wave Capital Ltd [2003] FCA 969

Trevor v Southern Equities Corporation Ltd [1998] WASC 149

Weinstock v Beck [2013] HCA 14; (2013) 251 CLR 396
Date of hearing: 12 July 2018
Registry: Western Australia
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Category: Catchwords
Number of paragraphs: 92
Counsel for the Plaintiff: Mr TO Coyle
Solicitor for the Plaintiff: Steinepreis Paganin
Counsel for the Interested Party: Mr SC Wong
Solicitor for the Interested Party: Australian Securities & Investments Commission

ORDERS

WAD 195 of 2018

IN THE MATTER OF POSEIDON NICKEL LTD (ACN 060 525 206)

POSEIDON NICKEL LTD (ACN 060 525 206)

Plaintiff

JUDGE:

COLVIN J

DATE OF ORDER:

17 JULY 2018

THE COURT ORDERS THAT:

1.Pursuant to s 1322(4)(a) of the Corporations Act 2001 (Cth) it is declared in respect of the shares listed in Annexure A that any offer for sale or sale of the shares during the period from the date of issue until 5 April 2018 is not invalid by reason of:

(a)the seller's failure to issue a notice under s 708A of the Corporations Act or a prospectus as the case may…

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AGLC
Re Poseidon Nickel Ltd [2018] FCA 1063
Case
[2018] FCA 1063
Decision Date

CaseChat Overview and Summary

Poseidon Nickel Ltd applied for relief from certain disclosure requirements under s 1322 of the Corporations Act 2001 (Cth). Poseidon issued shares on 40 occasions in apparent contravention of disclosure requirements in s 707(3) and s 727(1) of the Corporations Act. Almost all of the shares were on-sold within 12 months. The court was required to determine whether a declaration should be made that sales of shares were not invalid and whether an order should be made relieving sellers from civil liability. The court also had to consider whether relief from civil liability should extend to companies issued with shares under the terms of a convertible note agreement and a subscription deed.

The court found that relief should be granted to protect the interests of current holders of the shares and to maintain the integrity of future dealings in shares in Poseidon. The orders should be framed to protect any interest that current holders of Poseidon shares may have in raising any complaint or claim concerning the matters that led to the contraventions of the Corporations Act. The court declined to grant orders extending relief to certain parties who were involved in the conduct that may have resulted in contraventions. The court noted that no relief was sought by Poseidon or its present or former officers in respect of their own conduct.

The court made orders that any offer for sale or sale of the shares during the period from the date of issue until 5 April 2018 is not invalid by reason of the seller's failure to issue a notice under s 708A of the Corporations Act or a prospectus as the case may be before selling the shares, and any consequent failure to comply with s 707(3) and s 727(1) of the Corporations Act. Any holder as at the date of these orders of shares listed in Annexure A who is still the holder at the time of application may apply at any time in the next 12 months for a different order. Subject to certain exceptions, pursuant to s 1322(4)(c) of the Corporations Act any sellers of the shares listed in Annexure A are relieved from any civil liability arising out of any contravention of s 707(3) and s 727(1) of the Corporations Act. An announcement was required to be made to the Australian Securities Exchange. Any person who claims to have suffered substantial injustice or is likely to suffer substantial injustice by the making of any or all of these orders has liberty to apply to vary or to discharge these orders within 28 days.

Orders

Orders of the court

1. Pursuant to s 1322(4)(a) of the Corporations Act 2001 (Cth) it is declared in respect of the shares listed in Annexure A that any offer for sale or sale of the shares during the period from the date of issue until 5 April 2018 is not invalid by reason of:

(a) the seller's failure to issue a notice under s 708A of the Corporations Act or a prospectus as the case may be before selling the shares; and

(b) any consequent failure to comply with s 707(3) and s 727(1) of the Corporations Act.

2. Any holder as at the date of these orders of shares listed in Annexure A who is still the holder at the time of application may apply at any time in the next 12 months for a different order.

3. Subject to order 4, pursuant to s 1322(4)(c) of the Corporations Act any sellers of the shares listed in Annexure A are relieved from any civil liability arising out of any contravention of s 707(3) and s 727(1) of the Corporations Act.

4. Order 3 does not apply to Jefferies LLC, Petra Capital Pty Ltd or Pershing Australia Nominees Pty Ltd.

5. These orders are to be served by the plaintiff on the Australian Securities and Investments Commission as soon as reasonably practicable. The Australian Securities and Investments Commission shall include these orders on its database.

6. As soon as is reasonably practicable a copy of these orders be sent to the last known email address of each person to whom the shares listed in Annexure A were issued.

7. As soon as reasonably practicable and prior to the resinstatement of the class of securities 'POS' on the Australian Securities Exchange the plaintiff is to publish, on the ASX Markets Announcement Platform an announcement with a link to these orders and the reasons for decision in this proceeding.

8. In addition to the liberty to apply under order 2, for a period of 28 days from the date of reinstatement of the class of securities 'POS', any person who claims to have suffered substantial injustice or is likely to suffer substantial injustice by the making of any or all of these orders has liberty to apply to vary or to discharge these orders.

Annexure A

1. 367,979 shares issued on 17 December 2013;

2. 434,419 shares issued on 20 January 2014;

3. 5,357,143 shares issued on 15 March 2014;

4. 2,120,666 shares issued on 1 October 2014;

5. 2,984,747 shares issued on 10 January 2015;

6. 300,000 shares issued on 23 March 2015;

7. 800,000 shares issued on 15 April 2015;

8. 5,364,199 shares issued on 2 April 2015;

9. 863,636 shares issued on 13 April 2015;

10. 1,666,667 shares issued on 25 June 2015;

11. 311,111 shares issued on 4 May 2015;

12. 3,807,197 shares issued on 2 July 2015;

13. 534,687 shares issued on 5 October 2015;

14. 10,274,158 shares issued on 5 October 2015;

15. 14,300,000 shares issued on 6 October 2015;

16. 11,739,812 shares issued on 4 January 2016;

17. 16,200,000 shares issued on 7 January 2016;

18. 3,605,769 shares issued on 15 January 2016;

19. 3,832,926 shares issued on 25 January 2016;

20. 721,154 shares issued on 24 February 2016;

21. 20,000,000 shares issued on 14 March 2016;

22. 15,000,000 shares issued on 8 June 2016;

23. 532,544 shares issued on 12 July 2016;

24. 10,000,000 shares issued on 12 July 2016;

25. 15,000,000 shares issued on 8 August 2016;

26. 4,520,951 shares issued on 3 October 2016;

27. 15,000,000 shares issued on 19 October 2016;

28. 246,657 shares issued on 14 October 2016;

29. 549,451 shares issued on 19 December 2016;

30. 15,000,000 shares issued on 2 February 2017;

31. 20,000,000 shares issued on 17 March 2017;

32. 10,000,000 shares issued on 15 June 2017;

33. 10,000,000 shares issued on 21 June 2017;

34. 20,000,000 shares issued on 24 July 2017;

35. 20,000,000 shares issued on 22 August 2017;

36. 20,000,000 shares issued on 7 September 2017;

37. 20,000,000 shares issued on 5 October 2017;

38. 20,000,000 shares issued on 30 October 2017;

39. 20,000,000 shares issued on 9 November 2017; and

40. 20,000,000 shares issued on 30 November 2017.

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

Background

Background to the litigation

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Evidence

Evidence Before The Court

Significantly, an order under s 1322(6)(c) operates only for the benefit of the party concerned and will not require a consideration of wider public interest issues of a kind that may support the making of an order under s 1322(6)(a) on the basis that it is just and equitable.No evidence of dishonesty As to dishonesty in cases of this kind, the relevant authorities were carefully considered by Banks‑Smith J in Re ICandy Interactive Ltd [2018] FCA 533 at [54]-[106]. As noted by her Honour, considerations of honesty also arise when the court is considering whether to grant relief under s 1318 from liability for negligence, default, breach of trust or breach of duty as an officer, auditor, expert or insolvency administrator. In that context, Palmer J stated in Hall v Poolman [2007] NSWSC 1330; (2007) 215 FLR 243 at [325] that one of the matters that the court should be concerned with in considering whether a person has acted honestly is whether the person acted 'without carelessness or imprudence to such a degree as to demonstrate that no genuine at all has been made to carry out the duties and obligations of his or her office'. Conduct of that character would amount to dishonesty because there could be no genuine performance of the office at all by such a person. Mere carelessness or imprudence in respect of the performance of disclosure obligations will not amount to dishonesty. However, an awareness of the obligations coupled with a complete disinterest in, or lack of concern as to, whether they have been met in the particular case may do so. Applying those principles, I infer that the current holders of the shares the subject of the Share Issues have acted honestly. Almost all of the shares have been publicly traded. There is no reason to believe that the parties who acquired those shares on-market did so with any inkling that there may have been a failure to comply with disclosure obligations in respect of the Share Issues, or indeed that the particular shares had been the subject of the Share Issues. The same may be said of any intermediate parties who purchased shares from the parties to whom shares were issued and then on‑sold them. Further, on the evidence before me there was no dishonesty by those who participated in the making of the Share Issues. Rather, the failure to provide disclosure arose from the conduct of those responsible for the Share Issues at Poseidon and was due to an absence of any proper care or consideration of the issues, a willingness to proceed with the Share Issues without any consideration of the legal requirements, a poor understanding of the legal requirements, a failure to take any advice or a combination of those matters. In other cases where the Court has granted relief it has been on the basis that the failure to comply was due to inadvertence or a lack of blatant disregard of the provisions or an absence of 'substantial misconduct, serious wrongdoing or flagrant disregard' of the applicable law: Re Clancy Exploration Ltd [2018] FCA 569; Re Castillo Copper Ltd [2018] FCA 602; Re Caeneus Minerals Ltd [2018] FCA 560; Re ICandy Interactive Ltd; Re Spectrum Rare Earths Ltd [2017] FCA 883; Re European Lithium Ltd [2017] FCA 894; Re EHR Resources Ltd; and Re Wangle Technologies Ltd [2018] FCA 864.

Decision

Reasons for decision

Poseidon applies under s 1322(4) of the Corporations Act for orders that dealings in shares the subject of the Share Issues were not invalid by reason of the failure by those who have sold the shares to comply with s 707(3) and s 727(1) of the Corporations Act and that the sellers be relieved from any civil liability in respect of the contravention of those provisions.Decision I am satisfied that relief should be granted. It should be confined to that which is reasonably necessary to protect the interests of current holders of the shares the subject of the Share Issues, and those who participated innocently, as well as to maintain the integrity of future dealings in shares in Poseidon. The orders should be framed so as to protect any interest that current holders of Poseidon shares may have in raising any complaint or claim concerning the matters that led to the contraventions of the Corporations Act. In particular, the orders should reserve to those shareholders the right to apply to the Court for different orders in the next 12 months provided they continued to be the holders of the shares at that time. There should be general liberty to any interested party who claims to have suffered substantial injustice by the making of the orders to apply to vary or vacate the orders within 28 days. Further, an appropriate announcement should be required to be made to the Australian Securities Exchange. I decline to grant orders extending relief to certain parties who were involved in the conduct that may have resulted in contraventions. I note that no relief was sought by Poseidon or its present or former officers in respect of their own conduct.The power of the Court to grant relief Section 1322(1), (2), (3), (3AA), (3A) and (3B) confers upon the Court powers to determine the consequences for validity of proceedings under the Act, meetings held for the purposes of the Act and the exercise of voting rights where there have been a failure to comply with the Act of a kind specified in the section. Then, s 1322(4) confers a power, on the application of an interested person, to make all or any of the following orders either unconditionally or subject to conditions:(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 rectification of any register kept by ASIC under this Act;(c)an order relieving a person in whole or in part of 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… Section 1322(6) of the Corporations Act provides: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.

Ratio Decidendi

Legal Principle Established

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