FEDERAL COURT OF AUSTRALIA
QBiotics Limited, in the matter of QBiotics Limited [2016] FCA 873
File number: NSD 1036 of 2016 Judge: GLEESON J Date of judgment: 26 July 2016 Catchwords: CORPORATIONS – share transfers in contravention of pre-emptive rights provisions in company constitution – substantive contraventions of company’s constitution – no substantive injustice caused or likely to be caused – declaration made that certain purported share transfers are not invalid Legislation: Corporations Act 2001 (Cth) ss 1322(4) and (6) Cases cited: Oil Basins Ltd v Bass Strait Oil Company (2012) 297 ALR 261
Re Primelife Corporation Ltd v Aevum Ltd [2005] NSWSC 269; (2005) 53 ACSR 283
Re Golden Gate Petroleum Ltd (2010) 77 ACSR 17
Re NuSep Ltd [2007] FCA 613; (2007) 62 ACSR 301
Re Solco Ltd [2015] FCA 635; (2015) 106 ACSR 591
Re Wave Capital Ltd [2003] FCA 969; (2003) 47 ACSR 418
Date of hearing: 26 July 2016 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 49 Counsel for the Plaintiff: Mr I Jackman SC Solicitor for the Plaintiff: Thomson Geer ORDERS
NSD 1036 of 2016 IN THE MATTER OF IN THE MATTER OF QBIOTICS LIMITED (ACN 110 210 001)
QBIOTICS LIMITED (ACN 110 210 001)
Plaintiff
JUDGE:
GLEESON J
DATE OF ORDER:
26 JULY 2016
THE COURT DECLARES THAT:
1.The share transfers listed in Schedule A to the amended originating process filed 20 July 2016 are not and have never been invalid by reason of the fact that they were effected in contravention of the company constitution in force at the relevant times.
2.The share register of QBiotics Limited listed in Schedule B to the amended originating process filed 20 July 2016 is valid.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
GLEESON J:
On 26 July 2016, after a hearing, I made declarations pursuant to s 1322(4)(a) of the Corporations Act 2001 (Cth) (“Act”), declaring that certain purported share transfers undertaken in contravention of a provision of the constitution of QBiotics Limited (“QBiotics”) are not invalid and confirming the validity of QBiotics’ share register.
These are my reasons for granting that declaratory relief.
At the hearing, QBiotics was represented by Mr Jackman SC. No other party sought leave to appear.
Mr Jackman SC read the following affidavits and tendered the following exhibits:
(1)Affidavit of Dr Victoria Gordon, Chief Executive Officer of QBiotics (“Dr Gordon”), sworn 27 June 2016, and the accompanying exhibit “VG-1”;
(2)Affidavit of Daniel Parry, Chief Financial Officer of QBiotics, sworn 16 June 2016, and the accompanying exhibit “DP-1”;
(3)Affidavit of Mr Parry sworn 19 July 2016, and the accompanying exhibit “DP-2”;
(4)Affidavit of Mr Parry sworn 25 July 2016.
BACKGROUND TO APPLICATION
A detailed written outline of submissions was filed on QBiotics’ behalf. The submissions recorded the following background to the…
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- Re QBiotics Limited [2016] FCA 873
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CaseChat Overview and Summary
The central legal issue in this case was whether the Court should declare that the share transfers, which contravened the company's constitution, were nonetheless valid. The Court had to determine whether the share transfers were substantive contraventions of the company's constitution and whether it was just and equitable to declare them valid despite the contraventions. The Court also had to consider whether making such a declaration would cause substantial injustice to any party.
The Court found that the share transfers were indeed substantive contraventions of the company's constitution. However, the Court concluded that there was no evidence of any substantial injustice that would result from declaring the share transfers valid. The Court noted that 11 of the top 20 shareholders had already signed deeds of release, and it was likely that the remaining shareholders would also sign if given more time. The Court considered the broad policy underlying section 1322(4) of the Corporations Act, which permits the validation of substantive contraventions under certain conditions. The Court held that it was just and equitable to declare the share transfers valid, as doing so would not prejudice any third parties or the public interest in compliance with the Act.
Accordingly, the Court made a declaration that the share transfers in question were not invalid. This decision allows the share transfers to stand, provided that all relevant shareholders sign the deeds of release.
Orders
Orders of the court
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Background
Background to the litigation
Evidence
Evidence Before The Court
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Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
Mr Parry’s evidence was that, to date, 11 of the top 20 shareholders have signed deeds of release. In relation to the remaining nine shareholders, Mr Parry said:I have not been made aware by any of these shareholders of any unwillingness to sign the deeds of release … If there was more time before the final hearing in these proceedings, I believe it more likely than not that all of these shareholders would sign the deeds of release.SECTION 1322(4) OF CORPORATIONS ACT Section 1322(4) provides relevantly:(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;...and may make such consequential or ancillary orders as the Court thinks fit. Section 1322(4) is subject to s 1322(6) which provides relevantly:(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 ...(c)in every case—that no substantial injustice has been or is likely to be caused to any person. Mr Jackman SC did not seek to rely on s 1322(6)(a)(i), accepting that the transactions are substantive, and not merely procedural, in nature. In Weinstock v Beck [2013] HCA 14; (2013) 251 CLR 396, French CJ stated at [39]:In accordance with its evident purpose, s 1322(4)(a) is to be construed broadly and applied pragmatically, principally by reference to considerations of substance rather than those of form. In Re Golden Gate Petroleum Ltd [2010] FCA 40; (2010) 77 ACSR 17, McKerracher J stated relevantly:[38] … [Section] 1322 is remedial in nature and is to be given a liberal interpretation: Re Wave Capital Ltd [2003] FCA 969; (2003) 47 ACSR 418 at [29]; Re Insurance Australia Group Ltd [2003] FCA 581; (2003) 128 FCR 581 at 586; NRMA Ltd v Gould (1995) 18 ACSR 290 at 292; Elderslie Finance Corp Ltd v Australian Securities Commission (1993) 11 ACSR 157 at 160. …[40] The application of s 1322(4)(a) [of the Act] has not been confined to procedural or quasi procedural cases. It may be used to cure substantive as well as procedural contraventions of the [Act]: Jordan v Avram at 279.[41] For example, s 1322(4)(a) has been applied to validate:(a)the issue or transfer of shares in a company to a company it controls that were void under s 259C [of the Act]: Re Westpac Banking Corporation; Re Commonwealth Bank of Australia; Re MLC Ltd [2006] FCA 1357; (2006) 60 ACSR 187;(b)the appointment of directors appointed in contravention of the companies’ constitutions: NRMA Ltd v Gould; Jordan v Avram;(c)takeover offers that lapsed by operation of the CA where the bidder attempted to extend the offer period with non-conforming notices of extension: Primelife Corporation Ltd v Aevum Ltd; Re Centennial Coal Co Ltd [2006] NSWSC 62; (2006) 226 ALR 341;(d)the issue of options that were void for non-compliance with s 723(3): Re Golden Gate Petroleum Ltd [2004] FCA 1119; (2004) 50 ACSR 659;(e)offers of sale and sale of securities made in contravention of s 707(3) where there was non-compliance with s 708A(5)(e): Re Charter Hall Ltd; Diversified, in the matter of Diversified United Investment Limited [2008] FCA 720; Re Chameleon Mining NL [2009] NSWSC 660; Re RCR Tomlinson [2009] FCA 1130.[42] The validation of a contravention may operate retrospectively: Re Wood Parsons Pty Ltd (in liq) [2002] NSWSC 1058; (2002) 43 ACSR 257 at [52], [61]; Re Charter Hall Ltd; Re Diversified United Investment Limited; Re Chameleon Mining NL.[43] Notwithstanding the liberal approach to the interpretation of s 1322 [of the Act], the broad policy underlying s 1322 [of the Act] does not authorise the Court lightly to set aside the requirements of the [Act] where they have not been observed. Each case is to be considered on its merits to ensure that the indulgence sought is appropriate and does not undermine the requirements of the [Act]: Re Wave Capital Ltd (at [29]) per French J (as he then was). However, interested persons should be relieved of unnecessary liability or inconvenience or the consequences of invalid transactions where:(a)non-compliance with the [Act] is the product of honest and reasonable error or inadvertence;(b)to do so is without prejudice to third parties; and(c)to do so is without prejudice to the public interest in compliance with the [Act].