THC Global Group Limited, in the matter of THC Global Group Limited
[2020] FCA 1371
•22 September 2020
FEDERAL COURT OF AUSTRALIA
THC Global Group Limited, in the matter of THC Global Group Limited [2020] FCA 1371
File number: NSD 1054 of 2020 Judgment of: YATES J Date of judgment: 22 September 2020 Catchwords: CORPORATIONS – application for declaratory relief under s 1322(4) of the Corporations Act 2001 (Cth) – where plaintiff inadvertently failed to lodge a cleansing notice in respect of shares issued Legislation: Corporations Act 2001 (Cth) ss 707, 708A(5), 708A(7), 727(1), 1322(4)(a), 1322(4)(c), 1322(6) Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 23 Date of hearing: 22 September 2020 Counsel for the Plaintiff: Mr D Sulan Solicitor for the Plaintiff: Baker McKenzie ORDERS
NSD 1054 of 2020 IN THE MATTER OF THC GLOBAL GROUP LIMITED
THC GLOBABL GROUP LIMITED ACN 614 508 039
Plaintiff
ORDER MADE BY:
YATES J
DATE OF ORDER:
22 SEPTEMBER 2020
THE COURT ORDERS THAT:
1.Pursuant to s 1322(4)(a) of the Corporations Act 2001 (Cth) (Act) it is declared in respect of the 22,003,331 ordinary fully paid shares in THC Global Corporation Limited (Company) that were issued on 29 June 2020 (Placement Shares) that any offer for sale of the Placement Shares during the period 29 June 2020 until 21 September 2020 is not invalid by reason of:
(a)the failure to issue a valid cleansing notice under s 708A of the Act or a prospectus as the case may be to exempt the sellers from the obligation of disclosure under the Act before selling the shares; and
(b)any consequent failure by the sellers to comply with s 707(3) or s 727(1) of the Act.
2.Pursuant to s 1322(4)(c) of the Act any sellers of the Placement Shares during the period 29 June 2020 to 21 September 2020 are relieved from any civil liability arising out of any contravention of s 707(3) and s 727(1) of the Act.
3.These orders be served by the Company on the Australian Securities and Investments Commission (ASIC) as soon as reasonably practicable. ASIC shall include these orders on its database.
4.As soon as is reasonably practicable:
(a)a copy of these orders be sent to the last known email address of each person to whom the Placement Shares were issued; and
(b)the Company publish on the ASX Markets Announcement Platform an announcement with a link to these orders.
5.For a period of 28 days from the date of this order, 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 discharge the orders.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
YATES J:
INTRODUCTION
The plaintiff, THC Global Group Limited, applies for curative relief under ss 1322(4)(a) and (c) of the Corporations Act 2001 (Cth) (the Act) in respect of the consequences of its failure to lodge a “cleansing notice” in respect of shares issued on 29 June 2020.
On 21 September 2020, the plaintiff requested a trading halt in respect of its shares, pursuant to ASX Listing Rule 17.1. At the time of that request, the plaintiff expressed its expectation that the halt would be lifted on or before 23 September 2020 provided this proceeding could be heard and determined by that date.
The plaintiff has read the following affidavits in support of its application:
(a)Sreenidh Didugu affirmed 21 September 2020;
(b)Sreenidh Didugu (second affidavit) affirmed 21 September 2020;
(c)Jarrod White affirmed 21 September 2020; and
(d)Alan Preston Beasley sworn 21 September 2020.
I am satisfied that the relief sought by the plaintiff should be granted, for the following reasons.
BACKGROUND
The plaintiff owns and operates an end-to-end commercial scale medicinal cannabis production process with primary operations in Australia and Canada. Its ordinary shares have been quoted on the Australian Securities Exchange (ASX) since 4 May 2017.
On 22 June 2020, it made an announcement to the ASX in relation to:
(a)the placement of shares to be offered to institutional and sophisticated shareholders (the Placement); and
(b)an offer to be made to eligible shareholders in Australia and New Zealand to apply for shares to a certain value, at the same price as that offered under the Placement, under a Share Purchase Plan (the SPP).
On the same day, the plaintiff made two additional announcements. The first announcement was of a proposed issue of an estimated 22 million shares on 26 June 2020 to institutional investors under the Placement (Placement shares). The second announcement was of a proposed issue of an estimated 11,333,334 shares on 20 July 2020 under the SPP (SPP shares).
On 25 June 2020, the plaintiff lodged a cleansing notice in respect of the SPP shares to be issued. On 20 July 2020, 5,116,835 SPP shares were issued.
On 29 June 2020, 22,003,331 Placement shares were issued to 82 participants. However, no cleansing notice was lodged in respect of those shares.
On 17 September 2020, the ASX notified the plaintiff that a cleansing notice had not been issued in respect of the Placement shares. Mr Sreenidh (Sonny) Didugu was the plaintiff’s company secretary who had responsibility for preparing and lodging cleansing notices with the ASX. He prepared and arranged for the lodgement of the plaintiff’s cleansing notice with respect to the SPP shares, once it had been approved by the plaintiff’s Management Committee. Mr Didugu says that, while he was aware of the requirements for a cleansing notice, he overlooked the need for a separate cleansing notice in respect of the Placement shares. The Management Committee, having approved the cleansing notice with respect to the SPP shares, was not aware of the need for a separate cleansing notice in respect of the Placement shares.
Mr Jarrod White, who is now the plaintiff’s interim Group Chief Executive Officer, and who was also one of the plaintiff’s company secretaries at the time, says that he assumed that the cleansing notice that was approved by the Management Committee was sufficient to cover the issue of the SPP shares and the Placement shares.
Mr Didugu says that, had a cleansing statement in respect of the Placement shares been given, it would have been in the same terms as the cleansing notice given in respect of the SPP shares. In other words, there was no “excluded information” of the kind referred to in s 708A(7) of the Act that would have required disclosure. I take this evidence to be an affirmation that, in the period 29 June 2020 to 21 September 2020, the plaintiff had complied with Ch 2M and s 674 of the Act.
Mr Didugu also says that, at no time in the 12 months prior to the issue of the Placement shares:
(a)was trading in the ordinary shares of the plaintiff suspended;
(b)did an exemption under s 111AS or s 111AT cover the plaintiff or any person as a director or auditor of the plaintiff;
(c)did an order under s 340 or s 341 cover the plaintiff or any person as a director or auditor of the plaintiff.
On 17 September 2020, after receiving notification from the ASX, the plaintiff sought legal advice from its solicitors on the record. On 21 September 2020, after requesting the trading halt to which I have referred, the plaintiff lodged a cleansing prospectus.
Mr Didugu says that, in the time available, it has not been possible to determine from the plaintiff’s records how many of the participants in the Placement may have traded the Placement shares since 29 June 2020, or the potential volume of any trades.
ASX has been informed of the plaintiff’s present application to the Court and has advised that it does not intend to appear. The Australian Securities and Investments Commission (ASIC) has also been informed of the application and it too has said that it does not intend to appear and has nothing to convey to the Court.
CONSIDERATION
Subject to any available exemption, the plaintiff accepts that s 707 of the Act means, in the present case, that an offer for sale of the Placement shares, within 12 months after their issue, needs disclosure to investors. The plaintiff’s failure to lodge a cleansing notice within 5 business days after the issue of the Placement shares means that the disclosure exemption in s 708A(5) of the Act, which would otherwise apply, does not apply. Therefore, absent curative relief, any offer of the Placement shares after their issue and before lodgement of the cleansing prospectus may be invalid and would constitute a contravention of s 727(1) of the Act.
As I have noted, the plaintiff seeks relief under ss 1322(4)(a) and (c) of the Act, which provide:
(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;
…
(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);
In seeking this relief, the plaintiff must also satisfy the requirements of s 1322(6), which provides:
(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.
The plaintiff submits, and I accept, that its failure to lodge a cleansing notice in respect of the issue of the Placement shares was inadvertent and that it has acted honestly. Further, there is nothing to suggest that the persons to whom the shares were issued, and who may have subsequently offered those shares for sale, have acted in a way that is other than honest. It would be just and equitable to grant the declaratory relief that is sought.
Further, those to whom the Placement shares were issued and who may have offered to sell those shares should have protection from their unwitting contravention of s 727(1) of the Act.
In light of the fact that a cleansing notice could have been lodged in respect of those shares, and that in the relevant period the market was not deprived of any information it should have had, I am satisfied that no substantial injustice has been or is likely to be caused to any person should the relief sought be granted.
DISPOSITION
In the circumstances, the relief that the plaintiff seeks will be granted. The orders that will be made will include provision enabling any person who claims to have suffered substantial injustice, or who is likely to suffer such injustice, by the making of the orders, to apply to the Court, within a limited period, to vary or discharge those orders.
I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Yates. Associate:
Dated: 23 September 2020
0
0
1