Australian Securities and Investments Commission v Axis International Management Pty Ltd

Supreme Court of NSW|2021-05-28|Before: Williams J

Judgment

The plaintiff in these proceedings, Airtasker Limited (Airtasker), listed on the Australian Securities Exchange (ASX) on 23 March 2021.
By originating process filed in court on 28 May 2021, Airtasker applied for: 1. an order under s 1322(4)(a) of the Corporations Act 2001 (Cth) declaring that a notice issued by Airtasker on 27 May 2021 under s 708A(6) of the Corporations Act (the Cleansing Notice) in purported compliance with s 708A(5) of that Act was not invalid, notwithstanding that: 1. the shares of Airtasker had not been quoted for a period of 3 months before the day on which the securities the subject of the Cleansing Notice had been issued as required by s 708A(5)(a) of the Corporations Act, that being a condition requiring satisfaction for any valid notice under s 708A(6); and 2. the Cleansing Notice was issued earlier than 5 business days after the day on which the shares the subject of the Cleansing Notice were issued, contrary to s 708A(6)(a) of the Corporations Act; 1. an order under s 1322(4)(a) of the Corporations Act declaring that any prospective sale offer or sale of any shares the subject of the placement of 20,703,934 shares referred to in Airtasker's announcement to the ASX on 25 May 2021 (the Placement) subsequent to their issue, is not invalid by reason of any failure of the Cleansing Notice purportedly issued in accordance with s 708A(5)(e) of the Corporations Act to exempt the prospective seller from the obligation of disclosure under the Corporations Act and any prospective failure on the part of the seller to comply with s 707(3) and 727(1) of the Corporations Act; and 2. an order pursuant to s 1322(4)(c) of the Corporations Act that any prospective seller of any shares issued pursuant to the Placement be relieved from any civil liability arising out of a contravention of s 707(3) and s 727(1) or by reason of the plaintiff's failure to satisfy s 708A(5) by reason of the invalidity of the Cleansing Notice.
I made those orders on 28 May 2021. These are my reasons for doing so.

Application legislative provisions

It is convenient to outline the applicable provisions of the Corporations Act before turning to the evidence of the circumstances in which Airtasker sought the orders.
Chapter 6D of the Corporations Act "seeks to ensure that investors are provided with all information that they and their professional advisers would reasonably require to make an informed assessment in connection with securities offered for issue or sale": In the matter of Kollakorn Corporation Limited [2020] NSWSC 1549 at [22], quoting Re Golden Gate Petroleum Ltd (2010) 77 ACSR 17; [2010] FCA 40 at [24].
An offer of securities for issue does not require disclosure to investors under Part 6D.2 of the Corporations Act if, relevantly, the offer falls within s 708(8) (which relates to sophisticated investors) or s 708(11) (which relates to professional investors).
However, an offer of a body's securities for sale within 12 months after their issue does need disclosure to investors if the body issued the securities to investors without disclosure under Part 6D.2 and either the body issued the securities for the purpose of the person to whom they were issued on-selling them, or that person acquired the securities for the purpose of on-selling them: Corporations Act, s 707(3).
Section 707(3) is an anti-avoidance provision aimed at attempts to circumvent the disclosure requirements for an initial offering of securities by issuing to sophisticated or professional investors for on-selling to other investors to whom disclosure would have been required if the shares had been issued to them directly: In the matter of Kollakorn Corporation Limited (supra) at [19] and [22]; Australian Securities and Investments Commission v Axis International Management Pty Ltd (No. 5) (2011) 81 ACSR 631; [2011] FCA 60 at [39].
The requirement for disclosure under s 707(3) applies unless s 708 or s 708A say otherwise. It is s 708A that is relevant in this case: see s 708A(1). Sections 708A(5) and (6) relevantly provide: "(5) The sale offer does not need disclosure to investors under this Part if: (a) the relevant securities are in a class of securities that were quoted securities at all times in the 3 months before the day on which the relevant securities were issued; and … (e) either: (i) if this section applies because of subsection (1) - the body gives the relevant market operator for the body a notice that complies with subsection (6) before the sale offer is made; … (6) A notice complies with this subsection if the notice: (a) is given within 5 business days after the day on which the relevant securities were issued by the body; and (b) states that the body issued the relevant securities without disclosure to investors under this Part; and (c) states that the notice is being given under paragraph 5(e); and (d) states that, as at the date of the notice, the body has complied with: (i) the provisions of Chapter 2M as they apply to the body; and (ii) section 674; and (e) sets out any information that is excluded information as at the date of the notice (see subsections (7) and (8))."
Section 727 of the Corporations Act prohibits a person from making an offer of securities that needs disclosure to investors under Part 6D.2 unless a disclosure document for the offer has been lodged with ASIC.
Section 1322 of the Corporations Act 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. (5) An order may be made under paragraph (4)(a) or (c) notwithstanding that the contravention or failure referred to in the paragraph concerned resulted in the commission of an offence. (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."

Relevant evidence

In an affidavit affirmed on 28 May 2021, the company secretary and general counsel of Airtasker, Mr Mark Simpson, set out the history of Airtasker's listing on the ASX on 23 March 2021 and the Placement and explained the circumstances in which the Cleansing Notice was issued.
On 8 February 2021, Airtasker applied for quotation of its shares on, and admission to the official list of, the ASX and issued a prospectus for its initial public offering of 128.7 million ordinary prepaid shares, of which 105.6 million were existing shares from selling shareholders and 23.1 million were new shares, at a price of $0.65 per share. Airtasker was admitted to the official list of the ASX on 19 March 2021 and the prospectus was lodged with the ASX on that date. Official quotation of Airtasker's shares on the ASX commenced on 23 March 2021. The quoted shares were 392,902,728 fully paid ordinary shares, including the shares issued pursuant to the initial public offering.
In addition to lodging the prospectus with the ASX on 19 March 2021, Airtasker issued two further announcements on 22 March 2021, namely a pre-quotation disclosure announcement and an announcement concerning the date of commencement of official quotation on 23 March 2021.
On 28 April 2021, Airtasker released its March Quarter 2021 Appendix 4C and Quarterly Activity Report and an upgraded profit forecast.
On 21 May 2021, Airtasker announced that its shares had been placed in trading halt at its request pending the release of an announcement. Later that same day, Airtasker announced that it had acquired United States local services marketplace Zaarly for approximately $3.4 million to accelerate expansion in the United States and launched a capital raising with proceeds to be used to fund the acquisition of Zaarly and further invest in international growth plans. In relation to the capital raising, the announcement stated: "Airtasker has also launched a fully underwritten placement of 20.7 million new ordinary shares in Airtasker issued at $1.00 per share to institutional, professional and sophisticated investors with proceeds of the Offer used to fund the Zaarly acquisition, expansion into key city markets in the US and UK, and the costs of the offer. The placement is expected to settle on 27 May 2021 and the shares issued under the placement will be issued without a disclosure document on 28 May 2021. The placement shares will be issued within Airtasker's existing placement capacity under ASX Listing Rule 7.1."
This is the Placement referred to in the orders sought by Airtasker.
In relation to the use of the proceeds of the Placement for the Zaarly acquisition, the announcement stated that the acquisition had been completed on 20 May 2021 using Airtasker's existing cash reserves, and the allocation of some of the proceeds of the Placement to the Zaarly acquisition would restore Airtasker's post-acquisition balance sheet.
Airtasker lodged an Investor Presentation concerning the capital raising with the ASX on 21 May 2021.
On 25 May 2021, Airtasker announced that the $20.7 million capital raising had been successfully completed and would result in the issue of 20,703,934 fully paid ordinary shares in Airtasker at a price of $1.00 per share, representing a 7.4% discount on Airtasker's closing price of $1.08 per share on 20 May 2021. The shares to be issued under the Placement represented approximately 4.9% of Airtasker's fully diluted pre-offer issued share capital and would rank equally with existing ordinary shares.
In his affidavit affirmed on 28 May 2021, Mr Simpson deposed that the opportunity for Airtasker to acquire Zaarly and to escalate its strategic expansion plans was a significant opportunity that had first been presented to Airtasker in about mid-April 2021 (that is, after the initial public offering). Prior to that opportunity arising, it had not been contemplated that Airtasker would pursue a strategic acquisition or fast-track its expansion strategy so soon after its initial public offering.
Prior to the Placement, Airtasker sought professional advice, including legal advice. Based on that advice, and on his own experience, it was Mr Simpson's understanding that Chapter 6D.2 of the Corporations Act did not require disclosure for the Placement because any shares issued pursuant to the Placement would be acquired by professional and sophisticated investors (the Placement Investors). Mr Simpson considered that Airtasker could rely on s 708(8) and s 708(11) of the Corporations Act.
However, Mr Simpson was aware that disclosure would be required in respect of any subsequent sale of those shares by the Placement Investors within 12 months after their issue unless Airtasker could rely on s 708A(5)(e) of the Corporations Act. As I understand that evidence, Airtasker did not propose to issue the shares to the Placement Investors specifically for the purpose of re‑sale (see s 707(3)(b)(i)), but at least some of the Placement Investors acquired the shares for the purpose of re-sale (see s 707(3)(b)(ii)).
On 27 May 2021, in reliance on the professional and legal advice he had received, Mr Simpson caused Airtasker to issue a notice under s 708A(5)(e) in the following terms: "Cleansing Notice - Placement Airtasker Limited (ASX Code: ART) (Company) announced on 25 May 2021 that it had understaken a placement of approximately 20.7 million fully paid ordinary shares in Company (Shares) to sophisticated and professional investors at a price of $1.00 per Share, under which it has raised approximately $20.0 million before costs (Placement). The Company gives notice as required under s 708A(5) of the Corporations Act 2001 (Act) that: 1. the Company issued the Shares without disclosure to investors under Part 6D.2 of the Act; 2. this notice is being given under section 708A(5)(e) of the Act; 3. as at the date of this notice, the Company has complied with: (a) the provisions of Chapter 2M of the Act as they apply to the Company; and (b) section 674 of the Act; AND 4. as at the date of this notice, there is no 'excluded information' as defined in sections 708A(7) or 708A(8) of the Act."
That is the Cleansing Notice referred to in the orders sought by Airtasker.
On the afternoon of 27 May 2021, the ASX informed Mr Simpson that the Cleansing Notice was non-compliant in that: 1. contrary to s 708A(5)(a), Airtasker's shares had not been quoted on the ASX at all times in the three months before 28 May 2021, being the date on which the Placement shares were to be issued; 2. contrary to s 708A(6)(a), the Cleansing Notice had been issued before the Placement shares had been issued, rather than within five days after the issue of those shares.
Mr Simpson deposed that none of Airtasker's legal or corporate advisers had informed him that the Cleansing Notice did not comply with s 708A(5)(a) or s 708A(6)(a) at the time that it was lodged. Mr Simpson, on behalf of Airtasker, had intended to cause a valid Cleansing Notice to be issued to enable the Placement Investors to on-sell the shares, once issued, to their retail clients. Insofar as s 708A(6)(a) is concerned, the Cleansing Notice was inadvertently issued prematurely.
On the morning of 28 May 2021, Airtasker issued an announcement that the issue of the Placement Shares would be delayed as a result of a technical problem relating to the Cleansing Notice. The announcement stated that further advice would be provided once the issue date had been finalised.
At the time of the hearing convened urgently at 4.30pm on 28 May 2021, all of the Placement Investors had been informed by Airtasker's broker that there was an issue with the Cleansing Notice that Airtasker was endeavouring to rectify, and none of the shares the subject of the Placement had been issued to the Placement Investors.
Airtasker's solicitors had notified the Australian Securities and Investments Commission (ASIC) of its intention to apply to the Court for the relief under s 1322. ASIC did not wish to be heard, but senior counsel for the plaintiffs drew my attention to ASIC's preliminary views set out in an email to Airtasker's solicitors at 3.15pm on 28 May 2021. The email stated that ASIC did not view this case as involving a mere procedural irregularity and considered that the problems with the Cleansing Notice were more substantive in nature. The email pointed out that Airtasker's shares had not been quoted continuously for at least three months, as acknowledged in Airtasker's evidence that I have summarised above. The email also stated: "… given the company has delayed the issue of the placement shares in question, it is open for the company to pursue alternative means to remedy the situation, such as delaying the transaction until outside the three months, or lodging a s 710 prospectus rather than asking the court to exercise its discretion."
The problem with those alternative courses raised by ASIC is the risk identified in Mr Simpson's affidavit that the Placement Investors will withdraw from the transaction if the issue of the shares is delayed, which may cause the fundraising to fail. The issue of shares to the Placement Investors would need to be delayed until 23 June 2021 in order to allow the three month period in s 708A(5)(a) to expire. Airtasker adduced evidence from its solicitor to the effect that the issue would be delayed by an even longer period if a s 710 prospectus were to be prepared, as preparation and lodgement would be likely to take approximately six weeks. Airtasker has already announced the Placement to the market and informed the market that its proceeds would be used to restore Airtasker's balance sheet after the Zaarly acquisition and to fund further expansion into overseas markets. If the Placement does not proceed, the potential for market uncertainty and adverse effects on investor confidence and the Airtasker share price, to the detriment of all shareholders, is plain. Mr Simpson deposed: "I believe that the [Placement Investors] had invested in the Placement under the contemplation that these initiatives would be pursued and completed and that the market has factored these matters into its current share price. I am also concerned that any delay will cause a disorderly market and will adversely affect the share price of [Airtasker]. I believe this impact may result because on 21 May 2021, [Airtasker] announced an indicative timetable to the market which contemplated the share issue being completed today."

Consideration

I am satisfied that Airtasker is an interested person within the meaning of s 1322(4) of the Corporations Act, as it is the issuer of the shares under the Placement.
I accept the submissions made on behalf of Airtasker that, whilst the issue of shares under the Placement did not require disclosure, the re-sale of those shares by the Placement Investors will require disclosure by reason of s 707(3) of the Corporations Act, unless s 708A provides otherwise. Airtasker intended to rely on ss 708A(5) by lodging with the ASX a notice complying with s 708A(6). This course is not open to Airtasker unless the Court grants the relief sought because: 1. its shares have been quoted on the ASX for a period of just over two months, rather than the three months required by s 708A(5)(a); and 2. the Cleansing Notice was lodged before the issue of the Placement shares rather than within five days after the issue of those shares.
Senior counsel for Airtasker acknowledged that these are not mere procedural irregularities. However, he submitted, and I accept, that the power under s 1322(4) is not limited to granting relief in respect of procedural irregularities: see s 1322(6).
On the basis of Mr Simpson's evidence that I have summarised above, I am satisfied that Airtasker acted honestly. Airtasker entered into the Placement in the knowledge that at least some of the Placement Investors were acquiring the shares for the purpose of re-sale and in circumstances where potential purchasers of those shares from the Placement Investors would have access to the extensive information disclosed to the market by Airtasker in its initial public offering prospectus, investor presentation and other disclosures that I have referred to above. Airtasker had considered disclosure requirements and formed the view, based on its legal and other professional advice, that a notice could be issued under s 708(5)(e). It was only after the issue of the Cleansing Notice that Airtasker realised that s 708(5)(a) presented an obstacle to the Placement Investors on-selling the shares without disclosure to purchasers. The need for such disclosure undermined the basis on which the Placement had been conducted, at a time when the issue of the Placement shares was imminent and the market had already been informed about the Placement and the manner in which Airtasker planned to apply the proceeds in its business. Having regard to the purpose for which the Placement Investors agreed to acquire the Placement shares, I infer that they did so in the honest belief that disclosure would not be required to investors to whom they may subsequently on-sell those shares.
Senior counsel for Airtasker submitted, and I accept, that the purpose of s 708(5)(a) is to prevent bodies offering shares without disclosing information to the market that is then released a short time later. I am satisfied on the basis of the evidence summarised above that this is not what occurred in this case. The opportunity to acquire Zaarly, and to fast-track overseas expansion strategies, arose after the initial public offering and lodgement of the prospectus with the ASX on 19 March 2021.
In light of that, and taking into account the information that Airtasker has disclosed to the market to which potential purchasers of shares from the Placement Investors will have access, I am satisfied that no substantial injustice has been or is likely to be caused by Airtasker's issue of the Cleansing Notice in circumstances where its shares had been quoted for a period of a little over two months rather than three months. Having regard to Mr Simpson's evidence that the matters stated in paragraphs 3 and 4 of the Cleansing Notice remain true, I am satisfied that the inadvertent lodgement of the Cleansing Notice on the day before the proposed issue of the Placement shares rather than within 5 business days after the issue of those shares as required by s 708A(6)(a) had not caused and was not likely to cause substantial injustice to any person.
For those reasons, I made the orders sought by Airtasker under s 1322(4)(a) and (c) of the Corporations Act on 28 May 2021.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 04 June 2021

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