Re Yandal Resources Ltd
[2022] WASC 338
•12 OCTOBER 2022
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE YANDAL RESOURCES LTD; EX PARTE YANDAL RESOURCES LTD [2022] WASC 338
CORAM: STRK J
HEARD: 7 OCTOBER 2022
DELIVERED : 7 OCTOBER 2022
PUBLISHED : 12 OCTOBER 2022
FILE NO/S: COR 182 of 2022
MATTER: IN THE MATTER OF YANDAL RESOURCES LIMITED
EX PARTE
YANDAL RESOURCES LIMITED
Plaintiff
Catchwords:
Corporations law - Securities - Multiple failures to issue a cleansing notice during the requisite period pursuant to s 708A(5)(e) of the Corporations Act 2001 (Cth) - Curative orders sought pursuant to s 1322 of the Corporations Act 2001 (Cth) - Declarations sought pursuant to s 1322(4)(a) of the Corporations Act 2001 (Cth) - Declarations made - Ancillary relief granted
Legislation:
Corporations Act 2001 (Cth), s 707, s 708A, s 1322
Result:
Application granted
Category: B
Representation:
Counsel:
| Plaintiff | : | N Wallwork |
Solicitors:
| Plaintiff | : | Steinepreis Paganin |
Case(s) referred to in decision(s):
Blaze Asset Pty Ltd v Target Energy Ltd [2009] FCA 698; (2009) 177 FCR 488
Re Archtis Ltd [2021] WASC 55; (2021) 151 ACSR 290
Re BPM Minerals Ltd [2021] WASC 329
Re Caeneus Minerals Ltd [2018] FCA 560
Re Classic Minerals Ltd [2018] FCA 2039
Re Cyprium Ltd [2022] WASC 241
Re Force Commodities Ltd [2019] FCA 1815; (2019) 140 ACSR 408
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 iCandy Interactive Ltd [2018] FCA 533; (2018) 125 ACSR 369
Re Jaxsta Ltd [2018] WASC 390
Re Matador Mining Ltd [2021] WASC 132
Re Memphasys Ltd [2022] WASC 269
Re Metalicity Ltd [2020] WASC 387
Re Micro-X Limited [2019] FCA 1154
Re Pilbara Minerals Ltd [2021] WASC 330
Re Poseidon Nickel Ltd [2018] FCA 1063; (2018) 129 ACSR 57
Re Silver Lake Resources Ltd [2012] FCA 32; (2012) 87 ACSR 436
Re Sprint Energy Ltd [2012] FCA 1354
Re Sprintex Ltd [2022] WASC 188
Re Wave Capital Ltd [2003] FCA 969; (2003) 47 ACSR 418
Re Whitehawk Ltd [2020] WASC 388
Weinstock v Beck [2013] HCA 14; (2013) 251 CLR 396
TABLE OF CONTENTS
Overview
Evidence filed in support of the application
The factual background
Failure to issue valid cleansing notices
Identification of the compliance failure
Investigation of the trading of the shares
Investigation of all shares issued since Yandal was listed on the ASX
No excluded information
Notice to holders of the shares
Notice to the ASX and ASIC
Capital raising
Legal principles
Obligations on the company to issue valid notices in connection with a share issue
The power to grant the relief sought
Disposition
Position of the ASX and ASIC
Standing
Preconditions to the making of orders pursuant to s 1322
No other discretionary reason to withhold relief
Proposed order 1 - extension of time
Proposed order 2 - deeming order
Proposed order 3 - declaration of validity
Conclusion
Sch A - Orders moved for in the originating process
Sch B - Orders made on 7 October 2022
STRK J:
Overview
The plaintiff is engaged in mineral exploration and development, focused on the exploration and development of gold projects in Western Australia. It was incorporated in 2004 as a private company limited by shares with the name Orex Mining Pty Ltd. In March 2018, it was converted to a public company limited by shares and changed its name to Yandal Resources Ltd. It was admitted to the official list of the Australian Securities Exchange (ASX) in December 2018.
Yandal failed to issue a valid notice pursuant to s 708A(5)(e) of the Corporations Act 2001 (Cth) (also known as a cleansing notice) during the requisite period, or to issue a prospectus under s 708A(11) of the Corporations Act (also known as a cleansing prospectus), following 11 issues of shares between 15 October 2022 and 31 December 2021. The impugned share issues are as follows:
(a)50,000 fully paid ordinary shares issued on 14 February 2019 on the conversion of unlisted options which were exercisable at $0.25 on or before 31 December 2021 (25c Options);
(b)120,000 shares issued on 19 February 2019;
(c)200,000 shares issued on 15 October 2020 on conversion of 25c Options;
(d)61,818 shares issued on 23 November 2020 on conversion of 25c Options;
(e)500,000 shares issued on 27 January 2021 on conversion of 25c Options;
(f)800,000 shares issued on 29 April 2021 on conversion of 25c Options;
(g)1,288,182 shares issued on 12 October 2021 on conversion of 25c Options;
(h)1,300,000 shares issued on 23 November 2021 on conversion of 25c Options;
(i)200,000 shares issued on 2 December 2021 on conversion of 25c Options;
(j)a total of 400,000 shares issued between 20 December 2021 and 21 December 2021 on conversion of 25c Options; and
(k)1,700,000 shares issued on 31 December 2021 on conversion of 25c Options.
Although Yandal failed to issue a valid cleansing notice or cleansing prospectus in respect of each of the 11 share issues identified above, relief was only sought in respect of seven failures (together, the share issues). Relief was not sought in respect of four share issues because:[1]
(a)with respect to the shares issued on 14 February 2019, 19 February 2019 and 12 October 2021, a prospectus was issued by Yandal after the date of each respective issue and prior to any offer for sale of those shares. By operation of s 708A(11)(b)(i) of the Corporations Act, disclosure was not required in the circumstances; and
(b)with respect to the shares issued on 2 December 2021, a prospectus was lodged before the date of issue and offers for securities under that prospectus remained open on the date of issue of the shares. By operation of s 708A(11)(b)(ii) of the Corporations Act, disclosure was not required in the circumstances.
[1] Submissions par 34; affidavit of B Taveria par 8.
The omissions were identified on 28 September 2022.[2] At this time, Yandal was already in a trading halt and had been since 27 September 2022 when Bianca Taveria, Yandal's company secretary, sent a request to the ASX to place Yandal in a trading halt in connection with an announcement by Yandal regarding a capital raising.[3] On 29 September 2022, at Yandal's request, the ASX suspension was voluntarily extended,[4] pending the hearing of this application. By an originating process filed on 5 October 2022, Yandal brought this application seeking curative orders under s 1322 of the Corporations Act. Yandal moved for orders in the form reproduced in sch A to these reasons. Notice of the omissions and of the hearing of this application was promptly given to recipients of the impugned shares,[5] and to ASIC and the ASX.[6]
[2] Affidavit of B Taveria par 20.
[3] Affidavit of B Taveria par 19, BT-04.
[4] Affidavit of B Taveria par 24, BT-06.
[5] Affidavit of B Taveria par 94, BT-25.
[6] Affidavit of B Taveria par 95, BT-26, BT-27; affidavit of HJ Shervington pars 4 - 9, HS-01 - HS-05.
By this application, pursuant to s 1322(4) of the Corporations Act, Yandal sought in respect of the share issues that the period of five business days referred to in s 708A(6)(a) of the Corporations Act be extended to 4 October 2022, and that such notice be deemed to be effective from the date of issue of the respective impugned shares. Yandal also by this application sought to validate any offers or sales of shares in respect of the share issues by a declaration that any on-sale of the relevant securities from the date of issue is not invalid by reason of any consequent contravention of the Corporations Act.
The curative orders were, in the submission of counsel, sought for the benefit of Yandal's shareholders (by restoring trading on the ASX) and for any on-sellers of the impugned shares.[7] Counsel emphasised that Yandal was not applying for declarations or orders that Yandal, nor the directors or other officers of Yandal, be relieved of any failure to comply with the Corporations Act. Rather, curative orders were sought in respect of the issuance of the shares to ensure that:
(a)there was no concern as to the validity of the issue, transfer, or sale in any subsequent trade of the impugned shares; and
(b)the suspension of trading in shares in Yandal on the ASX was lifted.
[7] Submissions par 5.
The circumstances which gave rise to the application were characterised by counsel for Yandal as a mistaken assumption on the part of the company secretary that disclosure was not required by pt 6D.2 of the Corporation Act because the necessary disclosure had been made by an initial public offer replacement prospectus dated 22 November 2018.[8]
[8] Submissions par 2.
Upon considering the materials filed and hearing counsel for Yandal on 7 October 2022, I was and am satisfied that Yandal made frank and honest admissions as to the circumstances of the failures to issue valid cleansing notices for the share issues in time or at all. On the basis of the evidence before me, I was and am satisfied that the failure was caused by inadvertence rather than any deliberate disregard of Yandal's obligations.
In light of the urgency with which the application was brought, I made orders at the conclusion of the hearing on 7 October 2022 granting the relief sought and said that I would publish reasons for my decision. These are my reasons. The final form of the relief granted is reproduced at sch B.
Evidence filed in support of the application
Three affidavits were read in support of the application.
The first was the affidavit deposed by Ms Taveria on 5 October 2022, who has been the company secretary of Yandal since 6 April 2018. Ms Taveria deposed to the need for the orders sought and the context in which the application was made. She further deposed to general information about Yandal, including its history and current total issued share capital; to her responsibilities in the performance of the company secretarial role for Yandal; to the process by which she was informed of the errors that had been made for each of the share issues; to her review of previous issues of shares in Yandal since it was listed on the ASX; to her review of the trading history of the impugned shares; to the circumstances in which the errors occurred and to her misunderstanding as to the circumstances in which a cleansing notice was required; to the issue of seven cleansing notices on 4 October 2022; to being satisfied that on the date of each of the share issues, there was no excluded information and a cleansing notice could have been lodged; to having put all recipients of impugned shares issued on notice that correct notices were not issued and to having informed them of Yandal's intention to bring this application; and to putting the ASX and ASIC on notice of the same.
Ms Taveria also deposed to the steps that would be taken to ensure shares are cleansed in the future; to the basis of her belief that if the orders sought by this application were granted, no person would suffer substantial injustice; and to Yandal being in the process of commencing a placement and pro‑rata non‑renounceable entitlement offer to raise essential funds for working capital purposes, which timetable had been delayed pending the determination of this application.
Ms Taveria attached to her affidavit copies of the ASIC historical company search for Yandal dated 3 October 2022; the certificate of registration for Yandal; Yandal's constitution; announcements made to the ASX on 27 September 2022 and on 29 September 2022; Yandal's initial public offer replacement prospectus dated 22 November 2018; a worksheet showing previous trading history of Yandal in relation to the share issues; the cleansing notices dated 4 October 2022 the subject of this application, as well as various valid cleansing notices issued by Yandal previously; a tenement sale agreement; Appendix 3B notices announced to the ASX on 20 February 2019 and 14 February 2019; Appendix 2A notices announced to the ASX on 24 November 2020, 28 January 2021, 5 May 2021, 26 October 2021, 24 November 2021, 3 December 2021, 21 December 2021 and 4 January 2022; an Appendix 3G notice announced to the ASX on 13 October 2021; Yandal's prospectuses dated 20 June 2019 and 19 November 2021; copies of letters dated 4 October 2022 sent to share recipients of the impugned shares; copies of email communications between Steinepreis Paganin and the ASX, and Steinepreis Paganin and ASIC; and a protocol intended to be followed by Yandal in relation to the issue and cleansing of securities going forward.
The second affidavit read was that sworn by Timothy Kennedy on 5 October 2022, who has been a director of Yandal since 17 February 2021 and currently undertakes the role of managing director. Mr Kennedy also deposed to the need for the orders sought and the context in which the application was made.
Mr Kennedy further deposed to the process by which he was informed of the share issue errors; to being satisfied that on the date of each of the share issues, there was no excluded information and a cleansing notice could have been lodged; to the basis of his belief that if the orders sought by this application were granted, no person would suffer substantial injustice; to his believe that it was in the interests of Yandal's 654 shareholders that the curative orders be made; and to the prejudice that would flow if the curative orders were not made.
The third affidavit read was that of Hugo James Shervington, deposed to on 7 October 2022. Mr Shervington deposed to his communication with the ASX and ASIC regarding this application; to having been forwarded email communication between Ms Taveria and the recipients of the share issues; and to his belief that no person had indicated that they objected to the orders sought or had indicated an intention to oppose the application. Mr Shervington attached all referenced correspondence to his affidavit.
At the hearing, counsel for Yandal tendered one document, being email correspondence as between Scarlette de Lavaine, a listings compliance adviser at the ASX, and Mr Shervington on 3 and 4 October 2022.[9] Counsel also relied upon a written outline of submissions filed on behalf of Yandal in support of the application on 5 October 2022.
[9] Exhibit 1.
The factual background
As noted above, Yandal was admitted to the official list of the ASX in 2018. Based on the latest closing price of shares in Yandal traded on the ASX (on 21 September 2022) and Yandal's total issued share capital (being 116,091,553 shares), Yandal has a market capitalisation of approximately AU$17,413,733.[10] As at 5 October 2022, there were 654 shareholders in Yandal.
[10] Affidavit of B Taveria par 14.
Ms Taveria has been the company secretary of Yandal since April 2018. At all material times, Ms Taveria has been responsible for lodging, or arranging the lodgement of, various documents with ASIC and the ASX, including documentation pertaining to any issue of shares or other securities to ensure compliance with the ASX Listing Rules and the CorporationsAct. Except where additional (or external) assistance was required, Ms Taveria undertook this work herself.[11]
[11] Affidavit of B Taveria par 16.
Ms Taveria deposed that while input from Yandal's directors would be sought in respect of all market sensitive announcements, input would not typically be sought from the directors with respect to the release and lodgement of documentation that was of a compliance nature, save that approval would be sought from the managing director.[12] Ms Taveria explained that she would seek advice from Yandal's external legal advisers when faced with an issue or matter that she was not familiar with. She also explained that given her experience in respect of share issues, she had not sought advice from Yandal's external legal advisers with respect to the process for completion of the impugned share issues the subject of this application.[13]
[12] Affidavit of B Taveria par 17.
[13] Affidavit of B Taveria par 18.
Mr Kennedy, in his capacity as the managing director of Yandal, deposed that he did not have any personal involvement in the procedural steps with respect to the issue of shares and lodgement of cleansing notices or cleansing prospectuses (as applicable).[14] Mr Kennedy explained that after the directors resolved to proceed with an issue of securities, it was the practice of him and the other directors to rely on the company secretary for compliance and procedural matters, such as the timing for release of a cleansing notice.
Failure to issue valid cleansing notices
19 February 2019 share issue
[14] Affidavit of T Kennedy par 10.
Yandal failed to issue a cleansing prospectus in respect of the issue of 120,000 shares in it on 19 February 2019.[15] As noted at [3(a)] above, Yandal did not seek orders in respect of this share issue as relief was unnecessary in the circumstances. However, the failure was appropriately brought to the court's attention in compliance with Yandal's obligation of full and frank disclosure. Ms Taveria described the circumstances in which the failure occurred in the following terms.
[15] Affidavit of B Taveria par 28.
On 13 February 2019, Yandal entered into a tenement sale agreement with Peter Gianni and Leon Gianni to acquire an exploration licence and prospecting licence in consideration for the issue of an aggregate of 120,000 shares in Yandal. Under the terms of the sale agreement, the shares in Yandal were to be distributed in even amounts, comprising 40,000 shares to Peter Gianni, 40,000 shares to Leon Gianni and 40,000 shares to Robert Jewson. The shares were to be subject to 6 months escrow from the date of issue.[16]
[16] Affidavit of B Taveria par 30, BT-09.
On 19 February 2019, Ms Taveria instructed Yandal's share registry to issue 40,000 shares to Leon Gianni, 40,000 shares to Peter Gianni and 40,000 shares to Robert Jewson and to hold these shares on Yandal's issuer sponsored subregister with a holding lock applied until 19 August 2019, being the end of the escrow period. On 20 February 2019, Ms Taveria arranged for quotation of the 120,000 shares on the ASX through lodgement of an Appendix 3B, which was at that time the correct document to apply for quotation of securities on the ASX.[17]
[17] Affidavit of B Taveria par 32, BT-10.
Ms Taveria failed to lodge a cleansing prospectus under s 708A(11) of the Corporations Act. Ms Taveria proffered an explanation to the failure and deposed to it being a simple omission whereby she missed a step in the process.
However, Ms Taveria's review of Yandal's share register report revealed that none of the shares issued on 19 February 2019 were on‑traded before a prospectus was issued by Yandal on 20 June 2019.[18] Accordingly, by operation of s 708A(11)(b)(i) of the Corporations Act, there was no breach of the pt 6D.2 disclosure obligations and it was not necessary for Yandal to seek relief in respect of these shares.
Share issues related to the conversion of the 25c Options
[18] Affidavit of B Taveria par 34, BT-11.
The 25c Options were issued upon the listing of Yandal on the ASX on 14 December 2018. The options were issued to three directors of Yandal, the broker who managed the initial public offering, the exploration manager employed by Yandal and Ms Taveria.[19] There were 10 instances where shares were issued upon the conversion of the 25c Options, however relief is only sought in respect of seven of the instances.
Share issues for which Yandal is not seeking relief
[19] Affidavit of B Taveria par 22.
The evidence filed for the purpose of the application included a description of occasions where Yandal had failed to issue a cleansing notice or prospectus but it was not necessary to seek relief from the court. Those occasions are described below.
14 February 2019
Ms Taveria deposed that on or before 14 February 2019, Yandal received an option exercise notice for the exercise of a total of 50,000 25c Options.[20] On 14 February 2019, Ms Taveria instructed Yandal's share registry to issue an aggregate of 50,000 shares on conversion of the 25c Options and to hold these shares on Yandal's issuer sponsored subregister with a holding lock applied until 14 December 2020, being the duration of the escrow period applying to these securities.
[20] Affidavit of B Taveria par 39.
Following confirmation from Yandal's share registry that 50,000 shares had been issued, on 14 February 2019, Ms Taveria arranged for quotation of the 50,000 shares on the ASX through lodging an Appendix 3B, which was at that time the correct document to apply for quotation of securities on the ASX.[21]
[21] Affidavit of B Taveria par 40, BT-12.
Ms Taveria deposed that she reviewed Yandal's share register report, which revealed that none of the shares issued on 14 February 2019 were on‑traded before the prospectus was issued by Yandal on 20 June 2019.[22] Ms Taveria deposed to her belief that by operation of s 708A(11)(b)(i) of the Corporations Act, there was no breach of the pt 6D.2 disclosure obligations and therefore no relief was sought by Yandal in respect of these shares.
12 October 2021
[22] Affidavit of B Taveria par 41, BT-11.
On or before 12 October 2021, Yandal received two option exercise notices for the exercise of a total of 1,288,182 25c Options.[23] On 12 October 2021 Ms Taveria instructed Yandal's share registry to issue 1,288,182 shares on conversion of the 25c Options.
[23] Affidavit of B Taveria par 64.
Following confirmation from Yandal's share registry that 1,288,182 shares had been issued, on 13 October 2021, Ms Taveria incorrectly arranged for quotation of the 1,288,182 shares on ASX through lodgement of an Appendix 3G. This mistake was later rectified when Ms Taveria lodged the correct form, being an Appendix 2A, on 26 October 2021.[24] Consequently, Yandal did not issue a valid cleansing notice or prospectus in respect of the shares issued on 12 October 2021 upon the conversion of the 25c Options.
[24] Affidavit of B Taveria par 66, BT-18.
Ms Taveria deposed that she reviewed Yandal's share register report, which revealed that none of the shares issued on 12 October 2021 were on-traded before the prospectus was issued by Yandal on 19 November 2021.[25] Accordingly, by operation of s 708A(11)(b)(i) of the Corporations Act, there is no breach of the pt 6D.2 disclosure obligations and no relief was sought by Yandal in respect of these shares.
2 December 2021
[25] Affidavit of B Taveria par 68, BT-19.
On or before 2 December 2021, Yandal received two option exercise notices for the exercise of a total of 200,000 25c Options.[26] On 2 December 2021, Ms Taveria instructed Yandal's share registry to issue 200,000 shares on conversion of the 25c Options.
[26] Affidavit of B Taveria par 74.
Following confirmation from Yandal's share registry that the 200,000 shares had been issued, on 3 December 2021, Ms Taveria arranged for quotation of the shares on the ASX through lodgement of an Appendix 2A.[27]
[27] Affidavit of B Taveria par 72, BT-21.
Yandal did not issue a valid cleansing notice or prospectus in respect of the shares issued on 2 December 2021 upon the conversion of the 25c Options. The prospectus issued by Yandal on 19 November 2021 was lodged on 19 November 2021 and offers for securities under that prospectus remained open for acceptance on 2 December 2021. Accordingly, by operation of s 708A(11)(b)(ii) of the Corporations Act, there was no breach of the pt 6.2D disclosure obligations and no relief was sought by Yandal in respect of these shares.
Share issues for which Yandal is seeking relief
As to the failures where relief was required and sought by this application, the circumstances in which the failures occurred were deposed to by Ms Taveria, and are summarised below.
15 October 2020
On or before 20 October 2020, Yandal received an option exercise notice for the exercise of a total of 200,000 25c Options and 288,034 and unlisted options exercisable at 27c on or before 30 June 2021 (27c Options).[28] On or before 20 October 2020, Ms Taveria instructed Yandal's share registry to issue an aggregate of 488,034 shares on conversion of the 25c Options and 27c Options.
[28] Affidavit of B Taveria par 43.
Following confirmation from Yandal's share registry that 488,034 shares had been issued, on 21 October 2020, Ms Taveria arranged for quotation of the shares on the ASX through lodgement of an Appendix 2A.[29]
[29] Affidavit of B Taveria par 45, BT-13.
The 27c Options were issued under the prospectus that was issued by Yandal on 20 June 2019.[30] For that reason, Yandal was not required to issue a cleansing notice within five business days after the date of issue of the shares on conversion of the 27c Options pursuant to the relief provided in ASIC Corporations (Sale Offers That Do Not Need Disclosure) Instrument 2016/80. However, Yandal did not issue a valid cleansing notice or prospectus in respect of the shares issued on 15 October 2020 upon the conversion of the 25c Options.
23 November 2020
[30] Affidavit of B Taveria par 46, BT-11
On or before 23 November 2020, Yandal received an option exercise notice for the exercise of a total of 61,818 25c Options and 123,079 27c Options.[31] On 23 November 2020, Ms Taveria instructed Yandal's share registry to issue an aggregate of 184,897 shares on conversion of the 25c Options and 27c Options.
[31] Affidavit of B Taveria par 48.
Following confirmation from Yandal's share registry that 184,897 shares had been issued, on 24 November 2020, Ms Taveria arranged for quotation of the shares on the ASX through lodgement of an Appendix 2A.[32]
[32] Affidavit of B Taveria par 50, BT-15.
In light of the relief provided in ASIC Corporations (Sale Offers That Do Not Need Disclosure) Instrument 2016/80, Yandal was not required to issue a cleansing notice in respect of the issue of the shares on conversion of the 27c Options.[33] However, Yandal did not issue a valid cleansing notice or prospectus in respect of the shares issued on 23 November 2020 upon the conversion of the 25c Options.
27 January 2021
[33] As discussed at [41] above.
On or before 27 January 2021, Yandal received an option exercise notice for the exercise of a total of 500,000 25c Options and 48,126 27c Options.[34] On 27 January 2021, Ms Taveria instructed Yandal's share registry to issue an aggregate of 548,126 shares on conversion of the 25c Options and 27c Options.
[34] Affidavit of B Taveria par 53.
Following confirmation from Yandal's share registry that 548,126 shares had been issued, on 28 January 2021, Ms Taveria arranged for quotation of the shares on the ASX through lodgement of an Appendix 2A.[35]
[35] Affidavit of B Taveria par 55, BT-16.
Again, in light of ASIC Corporations (Sale Offers That Do Not Need Disclosure) Instrument 2016/80, Yandal was not required to issue a cleansing notice in respect of the issue of the shares on conversion of the 27c Options.[36] However, Yandal did not issue a valid cleansing notice or prospectus in respect of the shares issued on 27 January 2021 upon the conversion of the 25c Options.
29 April 2021
[36] As discussed at [41] above.
On or before 5 May 2021, Yandal received an option exercise notice for the exercise of a total of 800,000 25c Options and multiple exercise notices for the exercise of 2,346,229 27c Options.[37] On 23 April 2021, Ms Taveria instructed Yandal's share registry to issue 2,346,229 shares on conversion of the 27c Options. On 29 April 2021, Ms Taveria instructed Yandal's share registry to issue 800,000 shares on conversion of the 25c Options.
[37] Affidavit of B Taveria par 58.
Following confirmation from Yandal's share registry that 3,146,229 shares had been issued, on 5 May 2021, Ms Taveria arranged for quotation of the shares on the ASX through lodgement of an Appendix 2A.[38]
[38] Affidavit of B Taveria par 61, BT-17.
Again, Yandal was not required to issue a cleansing notice in respect of the issue of the shares on conversion of the 27c Options.[39] However, Yandal did not issue a valid cleansing notice or prospectus in respect of the shares issued on 29 April 2021 upon the conversion of the 25c Options.
23 November 2021
[39] As discussed at [41] above.
On or before 23 November 2021, Yandal received multiple option exercise notices for the exercise of a total of 1,300,000 25c Options.[40] On 23 November 2021, Ms Taveria instructed Yandal's share registry to issue 1,300,000 shares on conversion of the 25c Options.
[40] Affidavit of B Taveria par 70.
Following confirmation from Yandal's share registry that 1,300,000 shares had been issued, on 24 November 2021, Ms Taveria arranged for quotation of the shares on the ASX through lodgement of an Appendix 2A.[41]
[41] Affidavit of B Taveria par 72, BT-20.
Yandal did not issue a valid cleansing notice or prospectus in respect of the shares issued on 23 November 2021 upon the conversion of the 25c Options.
20 December 2021 and 21 December 2021
On or before 21 December 2021, Yandal received two option exercise notices for the exercise of a total of 400,000 25c Options.[42] On 20 December 2021, Ms Taveria instructed Yandal's share registry to issue 100,000 shares on conversion of the 25c Options. On 21 December 2021, Ms Taveria instructed Yandal's share registry to issue 300,000 shares on conversion of the 25c Options.
[42] Affidavit of B Taveria par 79.
Following confirmation from Yandal's share registry that 400,000 shares had been issued, on 21 December 2021, Ms Taveria arranged for quotation of the shares on the ASX through lodgement of an Appendix 2A.[43]
[43] Affidavit of B Taveria par 82, BT-22.
Yandal did not issue a valid cleansing notice or prospectus in respect of the shares issued on 20 and 21 December 2021 upon the conversion of the 25c Options.
31 December 2021
On or before 31 December 2021, Yandal received two option exercise notices for the exercise of a total of 1,700,000 25c Options.[44] On 31 December 2021, Ms Taveria instructed Yandal's share registry to issue 1,700,000 shares on conversion of the 25c Options.
[44] Affidavit of B Taveria par 84.
On or before 4 January 2022, Yandal received an option exercise notice for the exercise of 1,355 unlisted options exercisable at 65c on or before 31 December 2022 (65c Options). On 4 January 2022, Ms Taveria instructed Yandal's share registry to issue 1,355 shares on conversion of the 65c Options.
Following confirmation from Yandal's share registry that an aggregate of 1,701,355 shares had been issued, on 4 January 2022, Ms Taveria arranged for quotation of the shares on the ASX through lodgement of an Appendix 2A.[45] Yandal did not issue a valid cleansing notice or prospectus in respect of the shares issued on 31 December 2021 upon conversion of the 25c Options.
[45] Affidavit of B Taveria par 82, BT-22.
In contrast, the 65c Options were issued under the prospectus that was issued by Yandal on 19 November 2021.[46] For that reason, Yandal was not required to issue a cleansing notice within five business days after the date of issue of the shares on conversion of the 65c Options pursuant to the relief provided in ASIC Corporations (Sale Offers That Do Not Need Disclosure) Instrument 2016/80.
The reason that cleansing notices were not issued in respect of the 25c Option conversions
[46] Affidavit of B Taveria par 46, BT-11
Ms Taveria proffered an explanation for the failures. She deposed that she had mistakenly assumed that the 25c Options were issued under Yandal's initial public offer replacement prospectus dated 22 November 2018.[47] Had that been the case, there would have been no need to issue a cleansing notice within five business days after the date of issue of the shares on conversion of the 25c Options in light of the relief provided by ASIC Corporations (Sale Offers That Do Not Need Disclosure) Instrument 2016/80.[48]
Identification of the compliance failure
[47] Affidavit of B Taveria, BT-05.
[48] Affidavit of B Taveria pars 22 and 91.
Yandal's failures to provide cleansing notices under s 708A(5)(e) of the Corporations Act within five business days of the issue of shares on conversion of the 25c Options were identified by Yandal's solicitors, Steinepreis Paganin, on 28 September 2022.[49] At the time the failures were discovered, Yandal was already in a trading halt and had been since 27 September 2022 when Ms Taveria sent a request to the ASX to place Yandal in a trading halt in connection with an announcement by Yandal regarding a capital raising.[50]
[49] Affidavit of B Taveria par 20.
[50] Affidavit of B Taveria par 19, BT-04.
By a telephone call with Steinepreis Paganin on 28 September 2022, Ms Taveria came to understand that Yandal had not complied with its pt 6D.2 disclosure obligations in respect of the issue of shares upon conversions of the 25c Options and that consequently, on-sales of those shares within 12 months of their issue would be a contravention of s 707(3) of the Corporations Act.[51] On 29 September 2022, at Yandal's request, the ASX suspension was voluntarily extended.[52]
Investigation of the trading of the shares
[51] Affidavit of B Taveria par 23.
[52] Affidavit of B Taveria par 24, BT-06; affidavit of T Kennedy par 12.
Ms Taveria conducted a review of the trading history of the shares by accessing Yandal's share register, which was hosted electronically by Boardroom Pty Ltd. Ms Taveria deposed that by her review, she identified that there had been trading of the relevant shares within 12 months of their issue.[53]
[53] Affidavit of B Taveria par 26, BT-07.
In order to regularise its affairs and to prevent further inadvertent contraventions by shareholders, Yandal gave the court notice of this application on 3 October 2022, issued seven separate cleansing notices on 4 October 2022 with respect to the 25c Option share issues,[54] and filed this application on 5 October 2022 seeking curative orders under s 1322 of the Corporations Act.
Investigation of all shares issued since Yandal was listed on the ASX
[54] Affidavit of B Taveria par 92, BT-24.
Following identification of the non-compliance, Yandal caused an investigation to be undertaken of all share issues since it was listed on the ASX in December 2018. Ms Tiveria deposed to having undertaken the review and to not being aware of any other failure to issue a cleansing notice or otherwise effectively cleanse an issue of securities.[55]
No excluded information
[55] Affidavit of B Taveria par 25.
A review of the ASX announcements by Yandal on and around the date of each of the share issues was undertaken, together with a review of internal documentation and correspondence for the purpose of determining whether there was any excluded information that must be set out in a cleansing notice, as required by s 708A(6)(e) of the Corporations Act. From their respective reviews, Ms Taveria and Mr Kennedy deposed that each were satisfied that:[56]
(a)on the date each of the share issues was completed, there was no excluded information; and
(b)cleansing notices could have been lodged for the share issues.
Notice to holders of the shares
[56] Affidavit of B Taveria par 93; affidavit of T Kennedy par 18.
By letters sent on 4 October 2022, all recipients of the impugned shares were notified of Yandal's failure to lodge a cleansing notice and of Yandal's intention to make this application.[57]
Notice to the ASX and ASIC
[57] Affidavit of B Taveria par 94, BT-25.
On behalf of Yandal, on 3 October 2022 Steinepreis Paganin informed the ASX and ASIC of Yandal's failure to lodge a cleansing notice or cleansing prospectus and cleanse the share issues, and of Yandal's intention to make this application.[58]
Capital raising
[58] Affidavit of B Taveria par 95, BT-26, BT-27; affidavit of HJ Shervington pars 4 - 9, HS-01 - HS-05.
I understood that Yandal was in the process of commencing a placement and pro-rata non-renounceable entitlement offer in order to raise funds for working capital and ongoing operational purposes, and that the announcement and timetable of the capital raising had been delayed pending the hearing and determination of this application.[59]
[59] Affidavit of B Taveria par 103; affidavit of T Kennedy par 20.
Mr Kennedy deposed that it was in the interests of Yandal's 654 shareholders that the curative orders were made.[60] Mr Kennedy deposed that he understood that if the curative orders were not made, then the ASX may not remove Yandal's shares from suspension, which would be prejudicial to all of Yandal's shareholders and may inhibit completion of the capital raising.
[60] Affidavit of T Kennedy par 21.
Legal principles
Obligations on the company to issue valid notices in connection with a share issue
Part 6D.2 of the Corporations Act imposes disclosure obligations in relation to the issue and sale of shares.[61] In certain circumstances, these obligations can be satisfied by lodging what is commonly referred to as a cleansing notice or a prospectus.[62] If disclosure has not been made by the issuer and the shares are on‑sold within 12 months, the party to whom the shares are issued may be obliged to make disclosure.[63] However, the sale offer does not need disclosure to investors under pt 6D.2 if the preconditions in s 708A(5) of the Corporations Act are met.
The power to grant the relief sought
[61] Submissions par 8.
[62] Corporations Act s 708A(5).
[63] Corporations Act s 707(3). See also Re Golden Gate Petroleum Ltd [2010] FCA 40; (2010) 77 ACSR 17.
The power of the court to make orders avoiding the effects of irregularities is set out in s 1322 of the Corporations Act, which 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.
As I recently noted in Re Memphasys Ltd [2022] WASC 269 at [45], orders under s 1322(4) to cure aspects of transactions have been variously made by courts in respect of the disclosure provisions in s 707, s 708AA and s 708A of the Corporations Act, which have included:
(a)validating orders and relief from liability when companies had inadvertently neglected to issue a cleansing notice under s 708A(5)(e) (see Re Silver Lake Resources Ltd [2012] FCA 32; (2012) 87 ACSR 436);
(b)validating orders and relief from liability when companies had issued cleansing notices, instead of and in the absence of a prospectus, when under s 708A(5)(a) this course of using a cleansing notice was not open to them by reason of their being less than three months of trading in that class of securities (see Re Golden Gate Petroleum Ltd); and
(c)validating orders and relief from liability when companies had issued cleansing notices, instead of and in the absence of a prospectus, when under s 708A(5)(b) this course of using a cleansing notice was not open to them by reason of suspensions from trading (see Re Sprint Energy Ltd [2012] FCA 1354).
The principles to be applied when considering an application under s 1322 of the Corporations Act are well established. As Hill J recently observed in Re Sprintex Ltd [2022] WASC 188 at [22], in considering an application under s 1322 of the Corporations Act, the essential principles are:[64]
(a)the prescriptive requirements of the wording in s 1322(4) and the preconditions in s 1322(6) need to be satisfied;[65]
(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;[66]
(d)limitations to the broad powers in s 1322 will not be readily implied.[67] Section 1322 is remedial in character and should be applied broadly;[68]
(e)the court can make orders under s 1322(4)(a) on conditions and also 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.[69]
[64] Hill J citing Re Helios Energy Ltd[2017] FCA 840; (2017) 122 ACSR 174 [20]. See also Re Archtis Ltd [2021] WASC 55; (2021) 151 ACSR 290 [34], cited in the submissions at par 17, in which Hill J outlines the same principles.
[65] Weinstock v Beck [2013] HCA 14;(2013) 251 CLR 396 [43], [53] and [64].
[66] Re Wave Capital Ltd[2003] FCA 969; (2003) 47 ACSR 418 [29].
[67] Weinstock v Beck[43], [55] - [56], [60], [64].
[68] See also submissions par 16, citing Re Force Commodities Ltd [2019] FCA 1815; (2019) 140 ACSR 408 [13].
[69] Corporations Act s 1322(5).
In the determination of this application, I adopted and applied the principles summarised above.
Disposition
Position of the ASX and ASIC
The ASX and ASIC were put on notice of this application. Neither sought to be heard.
As to the position of the ASX, by an email communication dated 4 October 2022, the ASX advised Yandal that the circumstances giving rise to this application would be recorded on the ASX file and that the ASX would revert if further information was needed.[70] There was no evidence before me of any further inquiry having been made, nor of any concern having been raised by the ASX.
[70] Exhibit 1.
As to ASIC, prior to the hearing of the application, ASIC by letter dated 7 October 2022 indicated that it neither supported nor opposed the application and that it did not intend to appear.[71]
Standing
[71] Affidavit of HJ Shervington par 10, HS-05.
An application may be made under s 1322 of the Corporations Act by an interested person. I accepted that Yandal was an interested person with standing to seek relief, as required by s 1322(4) of the Corporations Act.[72]
Preconditions to the making of orders pursuant to s 1322
Section 1322(6)(a) of the Corporations Act - three preconditions
[72] Re Sprint Energy Ltd [40]; Re Caeneus Minerals Ltd [2018] FCA 560 [38]; Re Classic Minerals Ltd [2018] FCA 2039 [34].
Counsel for Yandal submitted that the preconditions in s 1322(6)(a) had been satisfied.
As to subsection (i), counsel submitted that the issuing of a cleansing notice has regularly been held by the courts to be essentially of a procedural nature.[73] I accepted the same.
[73] Submissions par 47.
As to subsection (ii), counsel submitted that there is no failure of the persons concerned or the company to act honestly.[74]
[74] Submissions par 48.
I note that in Re iCandy Interactive Ltd [2018] FCA 533; (2018) 125 ACSR 369 [54] ‑ [104], Banks‑Smith J undertook a comprehensive review of the principles relevant to determining whether someone has acted honestly in this context. Relevantly, Banks‑Smith J considered that:
(a)when determining whether someone has acted honestly for the purposes of s 1322, the courts look to absence of evidence of dishonesty and prompt action to remedy the error;[75]
(b)the concept of acting honestly can embrace:[76]
(i)inadvertence or failure to turn one's mind to an issue;
(ii)active but incorrect consideration of a legal issue;
(iii)failure to consider an issue at all;
(iv)failure to understand or appreciate the significance of non-compliance; and
(c)when testing for honesty, the authorities reveal that the courts look at the company itself, the directors, the company secretary and others as may be concerned.[77]
[75] Re iCandy Interactive Ltd [54], [106] - [107].
[76] Re iCandy Interactive Ltd [55].
[77] Re iCandy Interactive Ltd [60] - [104].
I adopted and applied the above in determining this application.
Counsel submitted that the evidence disclosed that the non‑compliance was caused by the company secretary's misapprehension as to the requirements of pt 6D.2 of the Corporations Act, and that Yandal took action to rectify the irregularities once they were identified.[78] Counsel further submitted that Yandal had put before the court a full and frank explanation of its failures.
[78] Submissions par 48.
I accepted that in this case, the errors occurred through inadvertence rather than any deliberate disregard by Yandal or its officers of the obligations under ch 6D of the Corporations Act. I particularly noted that the compliance failures which occurred in relation to each of the share issues came about in circumstances where there was active but incorrect consideration of a legal issue. I also accepted that this was not a case where there had been a failure of the directors to take an active interest in Yandal's compliance with the Corporations Act, or to properly define the roles of company officers.
As to subsection (iii), counsel submitted that it would be just and equitable to make the order.[79] While it was not necessary for Yandal to satisfy both subsections (ii) and (iii), I accepted that it was just and equitable to make the orders sought in all of the circumstances deposed. While I came to this conclusion having weighed all of the circumstances, I was particularly cognisant that there was evidence of the shares the subject of the share issues having been on-sold,[80] and it could not be discounted that there had been resales of these shares, which weighed in favour of the grant of relief.
[79] Submissions par 49.
[80] Affidavit of B Taveria par 26, BT-07.
For these reasons, I found the preconditions to the making of orders prescribed in s 1322(6)(a) to have been satisfied.
Section 1322(6)(b) of the Corporations Act - honesty
As no order was pressed pursuant to s 1322(4)(c), the need to consider the precondition prescribed by 1322(6)(b) (which requires the court to be satisfied that the person subject to the civil liability concerned acted honestly) did not arise in this case.
Section 1322(6)(c) of the Corporations Act - no substantial injustice
Section 1322(6)(c) of the Corporations Act was enlivened, as it is in every case where relief is sought pursuant to s 1322. Section 1322(6)(c) provides that the court cannot make an order unless it is satisfied that no substantial injustice has been or is likely to be caused to any person.
Counsel for Yandal submitted that in Re Metalicity Ltd [2020] WASC 387at [46] ‑ [51], Re WhitehawkLtd [2020] WASC 388 at [45] ‑ [50], and in Re Imdex Ltd at [42] ‑ [47], this court identified the classes of persons who may be impacted by the making of orders akin to those sought in this case, and found that there was no basis for inferring that substantial injustice had been or was likely to be caused to any person by the making of the proposed orders. Counsel for Yandal respectfully adopted the court's comments in the three decisions of Hill J, and sought that a similar approach be adopted in this case.[81]
[81] Submissions par 51.
As I did recently in Re Cyprium Ltd [2022] WASC 241 at [64] and Re Memphasys Ltd at [68], in considering whether the precondition prescribed by s 1322(6)(c) had been met in this case, I proceeded by first seeking to identify the classes of persons who may be impacted by the making of the orders sought. From the evidence filed, I discerned that they would include those persons who were issued the shares under the share issues. The prejudice to them was that if they were to seek to offer to sell or sell the shares, such offers or sales may be void or voidable for want of compliance with the statutory requirements.[82]
[82] Re Poseidon Nickel Ltd [2018] FCA 1063; (2018) 129 ACSR 57 [63].
Those impacted would also include any person who purchased the impugned shares from on‑sellers who traded their shares on the open market of the ASX since their issue. Any such further sales will have occurred without the requisite disclosure under pt 6D.2 of the Corporations Act.
I considered that these classes of persons would benefit from the making of the orders sought. Further, on the evidence filed, I found there to be no basis for inferring that substantial injustice had been or was likely to be caused to any person by the making of the proposed orders. In this regard, I accepted the evidence of Ms Taveria and Mr Kennedy, both of whom deposed that if the orders were to be granted by the court, they did not believe that any person would suffer substantial injustice because:[83]
(a) there was no excluded information at the time of issue of the share issues; and
(b)since the announcements made by Yandal to the ASX, no one had communicated to either Ms Taveria or Mr Kennedy that they had suffered any loss or had been prejudiced.
[83] Affidavit of B Taveria par 102; affidavit of T Kennedy par 19.
I also proceeded on the basis that if the orders sought were not made, there may be substantial injustice to Yandal as the offers of and sales of shares may be void or voidable which could give rise to commercial uncertainty and expense for Yandal, as it must remain involved in problems caused by void or voidable offers and sales of its shares. I also accepted that there may be substantial injustice to the other ordinary shareholders of Yandal, as they may not be able to trade their shares on an open market if the ASX were not to lift the suspension from trading.[84]
[84] Affidavit of B Taveria par 104; affidavit of T Kennedy par 21.
It is usual in cases such as this 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 order. I accepted that this was an appropriate timeframe in this case for two reasons. First, the parties which may be impacted by the court's orders were given notice on 4 October 2022 of Yandal's intention to apply to the court for these curative orders.[85] Secondly, Yandal did not move for orders which would relieve any person of liability that might flow from the failure to comply with the Corporations Act. Rather, the relief sought was of a nature that would benefit the broader population of Yandal's shareholders (to maintain trading on the ASX), and any on-sellers of the impugned shares, being those persons to whom it issued shares and including some whom have variously on-sold them.[86]
[85] Affidavit of B Taveria par 94, BT-25.
[86] Submissions par 5.
With the comfort afforded by proposed order 6,[87] for the reasons set out above I found the precondition to the making of orders prescribed in s 1322(6)(c) to have been satisfied. I was satisfied that that no substantial injustice had been or was likely to be caused to any person.
No other discretionary reason to withhold relief
[87] See sch A.
I also considered whether there was evidence of any substantial misconduct, serious wrongdoing or flagrant disregard of the corporate law or the company's constitution so as to warrant refusal of the relief sought.[88] There was not.
[88] Re Wave Capital Ltd [29].
The evidence revealed that the non-compliance was caused by the company secretary's misapprehension as to the requirements of pt 6D.2 of the Corporations Act.[89] In the circumstances deposed, I was satisfied that Yandal's failure to comply with its disclosure obligations was inadvertent. All seven occasions came about in circumstances where there was active but incorrect consideration of a legal issue, namely, whether a cleansing notice was required to be issued in addition to Yandal's initial public offer replacement prospectus dated 22 November 2018.
[89] Submissions par 52.
There was no evidence of any substantial misconduct, serious wrongdoing or flagrant disregard of the corporate law or the company's constitution so as to warrant refusal of the relief sought. Other than the failure to lodge cleansing notices for the share issues the subject of this application, Yandal had a demonstrated record of compliance in this regard, having validly issued cleansing notices on at least four occasions in 2020 and 2021.[90]
[90] Affidavit of B Taveria par 27, BT-08.
I was and am satisfied that there was nothing in the evidence before me to suggest that any minority shareholder interest might be oppressed or any other interest might be adversely affected by the grant of the relief sought. I was and am satisfied that all shareholders impacted by the contravention as well as the ASX and ASIC were given notice of this hearing. No shareholder or regulator sought to intervene or gave notice that they wished to be heard.
Counsel relied upon, and I had regard to, the evidence of Mr Kennedy who deposed that in respect of the relevant share issues, there was no excluded information at the date the shares were issued (that is, the date on which the cleansing notices ought to have been issued).[91]
[91] Submissions par 53; see also affidavit of B Taveria par 93.
In exercising the discretion to grant relief under s 1322(4), a relevant factor is the promptness with which applicant seeks to remedy the irregularity once it is identified.[92] In this case, Yandal discovered the cleansing notices had not been issued on 28 September 2022; took legal advice; was at this time already in a trading halt and on 29 September 2022 secured the continuation of the trading halt from the ASX; gave the court notice of the proposed application on 3 October 2022; gave notice to all interested parties on 4 October 2022; and formally commenced this proceeding on 5 October 2022.
[92] Re G8 Communications Ltd [2016] FCA 297; (2016) 112 ACSR 22, 34 [60]; Re Archtis Ltd [51]; submissions par 37.
In the circumstances of this case, I accepted that Yandal acted diligently after discovering the omissions, and I was satisfied that there was no discretionary reason to withhold relief.
Proposed order 1 - extension of time
The test under s 1322(4)(d) of the Corporations Act was described by Vaughan J in Re Jaxsta Ltd [2018] WASC 390 as follows:[93]
[41]… 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.
[42]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.'
[43]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)
[93] This two-stage test has been consistently applied in this court: see for example Re Pilbara Minerals Ltd [2021] WASC 330 [26]; Re BPM Minerals Ltd [2021] WASC 329 [21]; Re Matador Mining Ltd [2021] WASC 132 [66] - [67]; Re Whitehawk Ltd [30]; Re Memphasys Ltd [79] ‑ [80].
I adopted and applied the same test in the determination of this application. I also proceeded on the basis that the period to be extended may be extended even if it had expired.
On behalf of Yandal, counsel submitted that it would be appropriate to make an order extending the relevant period having regard to the following.
First, the chronology deposed to demonstrated that Yandal acted promptly to inform investors of its failure to issue a cleansing notice, to place shares in the company into a trading halt and to bring this application to remedy the irregularity.[94] The irregularities were discovered on 28 September 2022 and this application was made within seven days of that date. This prompt response was a relevant factor for the court to consider in exercising the discretion to grant relief under s 1322(4): see Re G8 Communications Ltd [60]; see also Re Archtis Ltd [51].
[94] Submissions par 37.
Secondly, in the absence of extensions, there would be adverse consequences for Yandal and shareholders.[95] Unless orders were made by the court, Yandal's shares would continue to be suspended from trading which would deny its shareholders the opportunity to trade their shares. This would be prejudicial to all of the Yandal's shareholders and may inhibit its ability to complete the capital raising.[96]
[95] Submissions par 38.
[96] Submissions par 38; affidavit of T Kennedy pars 20 - 21.
Thirdly, shareholders who purchased shares on market since the share issues may have purchased some of the impugned shares. Given that any such sales will have occurred without disclosure, this potentially means that these transactions are void or voidable creating title issues for these parties.[97]
[97] Submissions pars 15, 39; Re Poseidon Nickel Ltd [62] - [63].
Fourthly, each of the investors had been notified of the error,[98] and there was no evidence they suffered any loss or had been prejudiced.[99]
[98] Affidavit of B Taveria par 94, BT-25.
[99] Submissions par 40.
Fifthly, steps had since been taken to ensure that the potential for there to be future non-compliance had been mitigated.[100] Steinepreis Paganin had drafted a protocol which Yandal indicated it would follow in relation to the issue and cleansing of securities as an additional compliance measure going forward.[101]
[100] Submissions par 41.
[101] Affidavit of B Taveria pars 99 - 100, BT-28; affidavit of T Kennedy par 17.
Sixthly, in facilitating the transaction as originally contemplated, the making of the orders sought would be consistent with the conduct of commerce generally.[102] I note that I proceeded on the basis that s 1322(4)(d) should be exercised in a way which did not unnecessarily stifle corporate and financial activity on technical grounds.[103]
[102] Submissions par 42.
[103] Blaze Asset Pty Ltd v Target Energy Ltd [2009] FCA 698; (2009) 177 FCR 488 [33]; as applied in Re Whitehawk Ltd [37], Re Cyprium Ltd [83(b)] and Re Memphasys Ltd [87].
Seventhly, the additional orders sought by Yandal provided for notice to be given to all persons affected and afforded them the opportunity to apply to raise any matters with the court (proposed order 6).[104]
[104] Submissions par 43; sch A.
The submissions made on behalf of Yandal were compelling. I was also satisfied that no substantial prejudice had been or was likely to be caused to any person by the making of the order.
Having regard to all of the matters set out above, and in circumstances where the preconditions to the making of such an order had been satisfied, I was and am satisfied that it was appropriate to grant the extension of time within which to lodge the cleansing notice for the share issues to 4 October 2022, as sought in the originating summons.
Proposed order 2 - deeming order
By this application, Yandal sought a 'deeming order' declaration that notices under s 708A(5)(e) of the Corporations Act given to the ASX on 4 October 2022 in respect of each of the impugned share issues, be deemed to take effect as if they had been given to the ASX on the date of issue of the respective shares.
Counsel for Yandal observed that the court in Re Imdex Ltd and in Re Memphasys Ltd had granted an order in the same form as proposed order 2 of the originating process filed on behalf of Yandal.[105] It is convenient to set out Hill J's observations in Re Imdex Ltd at [54] ‑ [58] below:
[54]In respect of the first order, courts have on a number of previous occasions made similar orders. [Her Honour cited Re Charter Hall Ltd [2007] FCA 1316; Re Diversified United Investment Ltd [2008] FCA 720; Re RCR Tomlinson Ltd [2009] FCA 1130; Re Austpac Resources NL [2010] NSWSC 1438; Re Beadell Resources Ltd [2013] FCA 13 and Re Micro-X Ltd [2019] FCA 1154.] 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 [Corporations Act].
[55]The question as to whether the court should make such a deeming order was discussed by Colvin J in Re Spectur Limited as follows:
Spectur also sought orders to the effect that when cleansing notices are issued in accordance with the orders extending time that the notices be deemed to take effect as if they had been given within the period of five business days specified in s 708A(6)(a). The effect of such an order would be to go further than extend the period after the time for compliance had passed (which is a possibility that is expressly contemplated by s 1322(4)(d)). It would give the cleansing notice retrospective operation.
The Court has power to make orders that are consequential upon or ancillary to an order extending the period for doing an act, matter or thing under the Corporations Act. There may be circumstances in which a period may be extended to a date which has already passed by the time of the application so as to bring an act that has occurred outside a period specified by the Corporations Act within the specified period. In such a case, there may be an ancillary order to the effect that the act which had already occurred was to take effect as if performed when time had been extended. However, the proposed order would go further and give a future act retrospective effect. In particular, it would seek to authorise the service of cleansing notices with retrospective effect. It is an order which would make the extension of the period of time unnecessary. As indicated in the course of submissions in support of the application I am not presently persuaded that such an order would be within the scope of s 1322(4)(d) or the power to make consequential or ancillary orders. In those circumstances, counsel for Spectur did not press for the making of those additional orders.
[56]In that case, at the time of the hearing, there was no evidence that there had been any trading in the shares nor had a cleansing notice been lodged. I accept that in such a case, there was no utility in making any orders for declarations of validity nor a deeming order.
[57]In Re Micro-X Ltd, Moshinsky J expressed the view that 'deeming orders' were a corollary of the orders seeking an extension of time.
[58]In my view, for the following reasons, I consider it is appropriate in this case to make the ancillary orders sought by the plaintiff, including the 'deemed order'. First, the evidence before me is that the shares the subject of the July share issue have been sold and it cannot be discounted that there have been resales of these shares. In these circumstances, I consider that it is appropriate to make the orders sought to remove any question as to title in the shares of the plaintiff. Second, at the time the application came on for hearing, the cleansing notice had already been lodged. For that reason, the order did not concern a future act but a past act. Third, I agree with Moshinsky J that where shares are on-sold, the 'deeming order' is a corollary of the orders seeking an extension of time. (footnotes omitted)
[105] Submissions par 44.
Counsel for Yandal submitted that as the circumstances of the present case are practically the same as that which concerned the court in Re Imdex Ltd and in Re Memphasys Ltd, Yandal respectfully adopted the court's reasoning therein and sought deeming orders in the form of proposed order 2 of the originating process.[106]
[106] Submissions par 45; sch A.
In the circumstances of this case, I was and am satisfied that the prescriptive requirements of the wording in s 1322(4) of the Corporations Act were met. I also considered that it was appropriate in this case to make a deeming order as sought on behalf of Yandal for the following reasons:
(a)the evidence before me was that shares the subject of the share issues had been sold and it could not be discounted that there had been resales of the shares. In the circumstances, I considered that it was appropriate to make the orders sought to remove any question as to title in the shares of Yandal;
(b)at the time the application came on for hearing, all of the cleansing notices in respect of the share issues had already been lodged. For that reason, the orders sought did not concern future acts but past acts; and
(c)I agreed with Moshinsky J's observations in Re Micro-X Ltd that where shares are on-sold, the 'deeming order' is a corollary of the orders seeking an extension of time.
Proposed order 3 - declaration of validity
Counsel on behalf of Yandal submitted that the declaration of validity was sought in order to remove any uncertainty as to the validity of the title to the shares so as to enable them to be offered for further sale.[107] Counsel further submitted that this order was sought to the benefit of shareholders and if the order is not granted then the integrity of future dealings in the shares by current holders may be called into question.[108]
[107] Submissions par 46.
[108] Re Poseidon Nickel Ltd [62] - [63].
In respect of proposed order 3, for the reasons set out above in respect of the extension of time, I also considered that it was appropriate to make the declarations sought pursuant to s 1322(4)(a).
Conclusion
I did not consider that public policy would be undermined by the making of the orders promoted on behalf of Yandal. I was satisfied on the evidence that Yandal's conduct did not involve a failure to act honestly, nor a blatant disregard of the provisions of the Corporations Act. In all of the circumstances of this case, I was and am satisfied that the relief sought on behalf of Yandal should be granted. At the conclusion of the hearing on 7 October 2022 I made orders substantially in the form sought in the originating process. The final form of the orders made at the conclusion of the hearing are reproduced at sch B to these reasons.
As to costs, counsel for Yandal referred to the view expressed by Hill J Re Metalicity Ltd at [62], to the effect that where the court is satisfied that there has been no failure of the persons concerned or the company to act honestly under s 1322(6)(a)(ii) of the Corporations Act, it would only be in the most unusual circumstances that an order for costs would be made against the officers of the company.[109] Counsel respectfully adopted those comments and sought no order as to costs.
[109] Submissions par 54.
The circumstances which gave rise to the application concern seven related instances of non‑compliance where there was no failure to act honestly and no deliberate disregard by Yandal or its officers of the obligations under ch 6D of the Corporations Act. In such circumstances, I accepted that it was appropriate for there to be no order as to costs, reflected in order 7 of my extracted orders.
Sch A - Orders moved for in the originating process
Sch B - Orders made on 7 October 2022
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
AI
Associate to the Honourable Justice Strk
12 OCTOBER 2022
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