Warrego Energy Limited, in the matter of Warrego Energy Limited
[2020] FCA 1368
•18 September 2020
FEDERAL COURT OF AUSTRALIA
Warrego Energy Limited, in the matter of Warrego Energy Limited [2020] FCA 1368
File number: NSD 991 of 2020 Judgment of: YATES J Date of judgment: 18 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(3), 708A(5), 727(1), 1322(4)(a), 1322(4)(c), 1322(6)
Federal Court of Australia Act 1976 (Cth) s 37AF
Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 24 Date of hearing: 18 September 2020 Counsel for the Plaintiff: Mr L Gyles SC Solicitor for the Plaintiff: Piper Alderman ORDERS
NSD 991 of 2020 IN THE MATTER OF WARREGO ENERGY LIMITED
WARREGO ENERGY LIMITED ACN 125 394 667
Plaintiff
ORDER MADE BY:
YATES J
DATE OF ORDER:
18 SEPTEMBER 2020
THE COURT ORDERS THAT:
1.Pursuant to s 1322(4)(a) of the Corporations Act 2001 (Cth) (Act) it is declared that, in respect of the tranche of 27,619,579 fully paid ordinary shares in the plaintiff issued on 22 July 2020 (the relevant securities), any sale or offer for sale of the relevant securities during the period after their issue on 22 July 2020 until 3 August 2020 is not invalid by reason of:
(a)the failure by the plaintiff to give a cleansing notice under s 708A(5)(e) of the Act or a cleansing prospectus under s 708A(11) of the Act; and
(b)the seller’s consequent failure to comply with s 707(3) and s 727(1) of the Act.
2.Pursuant to s 1322(4)(c) of the Act, it is declared that any person who sold or offered for sale relevant securities during the period after the date of their issue on 22 July 2020 until 3 August 2020 is relieved from any civil liability in respect of any contravention in connection with the plaintiff’s failure to give a notice in accordance with s 708A(5)(e) of the Act, including any contravention of s 707(3) and s 727(1) of the Act.
3.These orders be entered forthwith.
4.A sealed copy of these orders be served on the Australian Securities and Investments Commission and each person to whom the relevant securities were issued as soon as reasonably practicable.
5.As soon as reasonably practicable, the plaintiff is to publish an announcement to the ASX in which a copy of these orders is included.
6.Any person who claims to have suffered substantial injustice or is likely to suffer substantial injustice by the making of these orders has liberty to apply to vary or discharge the orders within 28 days of the publication of the announcement referred to in Order 5.
7.There be no order as to costs.
8.Pursuant to s 37AF of the Federal Court of Australia Act (Cth), the Confidential Affidavit of Gordon Thomas Grieve sworn 18 September 2020 not be published to any person other than the plaintiff and its legal advisers without leave of the Court. This order is to remain in operation until 4.00 pm on Monday 21 September 2020 and is made in order to prevent prejudice to the proper administration of justice.
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, Warrego Energy Limited, applies urgently for curative relief under s 1322(4) of the Corporations Act 2001 (Cth) in respect of the consequences of its failure to lodge a “cleansing notice” in respect of shares issued on 22 July 2020. The reason for the urgency is that, on 17 September 2020, ASX Limited (ASX) suspended the quotation of its shares under Listing Rule 17.3 pending the granting of the relief that it now seeks.
ASX has provided a “no objection” letter, meaning that it neither supports nor opposes the plaintiff’s application, and does not wish to be heard on it. The Australian Securities and Investments Commission (ASIC) has been informed of the proceeding and, similarly, has stated that it has no matter that it wishes to convey to the Court, and does not propose to appear.
The plaintiff relies on the following affidavit evidence:
(a)Ian Bruce Kirkham sworn 4 September 2020;
(b)James Peter Poulos affirmed 17 September 2020;
(c)Gordon Thomas Grieve sworn 18 September 2020; and
(d)Gordon Thomas Grieve sworn 18 September 2020 (comprising six pages).
I have made an order of limited duration under s 37AF of the Federal Court of Australia Act 1976 (Cth) in respect of the last-mentioned affidavit, which explains some particular additional circumstances warranting an urgent hearing.
I am satisfied that the plaintiff is an interested person for the purposes of s 1322(4) and that it is appropriate that the relief it seeks should be granted.
BACKGROUND
On 25 May 2020, the plaintiff announced a capital raising of $15 million by way of an issue of 115,384,615 shares at an issue price of $0.13 per share. The share issue proceeded in two tranches, with the issue of the second tranche being subject to shareholder approval. There were two lead managers in relation to the capital raising, who were responsible for managing the relationship with the placees.
The first tranche involved the issue of 94,882,750 shares. They were issued on 29 May 2020. A cleansing notice under s 708A(5)(e) of the Act was given in respect of them.
On 16 July 2020, the plaintiff’s shareholders, at a general meeting, approved the issue of the second tranche (27,619,579 shares). The shares were issued on 22 July 2020. However, a cleansing notice was not given. Mr Kirkham, who was the plaintiff’s secretary at the relevant time, with responsibility for preparing and lodging the cleansing notice, has deposed that this failure was due to inadvertence on his part. He had prepared and lodged the cleansing notice in respect of the first tranche of shares but simply forgot to prepare and lodge the cleansing notice in respect of the second tranche of shares, most likely due to the distraction of preparing, revising and settling a large number of other documents involved in the transaction.
The fact that a cleansing notice had not been given in respect of the second tranche of shares only came to Mr Kirkham’s attention on the morning of 31 July 2020. By that time it was too late to give the required notice. The notice should have been given by 29 July 2020 at the latest.
The plaintiff moved swiftly to address that failure. On 31 July 2020, the plaintiff contacted its solicitors to obtain legal advice. After obtaining that advice it proceeded to prepare a cleansing prospectus under s 708A(11) of the Act. The cleansing prospectus was prepared over the weekend and lodged with ASIC on Monday, 3 August 2020 before market opening. Earlier that morning, Mr Kirkham contacted the lead managers to advise them that a cleansing notice had not been lodged with respect to the second tranche and that a cleansing prospectus would be lodged that morning.
On 10 August 2020, the plaintiff’s directors resolved to approach the Court for declarations to rectify any liability incurred, or possibly incurred, by recipients of the second tranche of shares who subsequently sold them before the cleansing prospectus was lodged on 3 August 2020.
Mr Kirkham has given evidence that, during the 12 months to 22 July 2020:
(a)the plaintiff’s ordinary shares (including the second tranche of shares) were quoted securities at all times;
(b)trading in the shares had not been suspended for more than a total of 5 days;
(c)no exemption under ss 111AS or 111AT of the Act covered the plaintiff or any director or auditor of the plaintiff;
(d)the plaintiff had not received notice from ASIC of any order being made with respect to it under s 340 of the Act; and
(e)the plaintiff did not rely on any class order made under s 341 of the Act and gazetted by ASIC.
Mr Kirkham has also given evidence that in the period 22 July 2020 to 3 August 2020, the plaintiff:
(a)had complied with the provisions of Ch 2M;
(b)had complied with s 674 of the Act; and
(c)was not in possession of any “excluded information” within the meaning of s 708A(7) of the Act.
I will act on this evidence.
This proceeding was commenced on 7 September 2020. Case management orders were made on 16 September 2020 providing for an anticipated hearing date in late October 2020. However, as I have noted, the following day (17 September 2020) the plaintiff’s shares were suspended from quotation.
CONSIDERATION AND CONCLUSION
Because the plaintiff failed to lodge a cleansing notice within 5 business days after the issue of the second tranche of shares, the disclosure exemption in s 708A(5) does not apply. Any offer of those securities for sale by shareholders in the period 22 July 2020 to 3 August 2020 required disclosure to investors: s 707(3). The offer of securities without lodgement of a relevant disclosure document is prohibited by s 727(1) of the Act.
As ultimately argued, the plaintiff’s primary application is for 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);
The granting of relief under these provisions is subject to the limitations in s 1322(6):
(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, based on Mr Kirkham’s evidence, its failure to lodge a cleansing notice in respect of the second tranche of shares was inadvertent and that the plaintiff itself has acted honestly.
Further, on the evidence before me I accept that those who, before 3 August 2020, offered to sell shares that had been issued in the second tranche are likely to have done so without knowing that the shares had been issued without a cleansing notice or cleansing prospectus. There is no reason to find otherwise. I accept, therefore, that those persons would have acted honestly within the meaning of s 1322(6)(a)(ii) and s 1322(6)(b) of the Act.
Additionally, I accept that, in the circumstances I have outlined, it would be just and equitable for the relief that is sought under s 1322(4)(a) to be granted.
As I have noted, the plaintiff acted promptly in taking steps to regularise the position. I also note Mr Kirkham’s evidence that, in the period 22 July 2020 to 3 August 2020, the plaintiff had complied with Ch 2M and s 674 of the Act, and was not in possession of any “excluded information”. The evidence also indicates that, but for the failure to lodge the cleansing notice, the disclosure exemption in s 708A(5) of the Act would have applied.
Having regard to these matters, I am satisfied that no substantial injustice has been, or is likely to be, caused to any person by granting the relief that is sought. In fact, substantial injustice might be caused by refusing that relief.
The orders will accommodate any unforeseen potential for substantial injustice arising from the orders by granting liberty to any person who claims to have suffered such injustice to approach the Court, within a limited time, to move the Court to vary or discharge the orders.
I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Yates. Associate:
Dated: 24 September 2020
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