ASIC's case
7 In making the interim application, and indeed the final application, ASIC principally relies on the affidavit of Mr Raymond Michael Harrison made 24 March 2016. Mr Harrison is a senior lawyer in the Enforcement Western Australia team within the Perth office of ASIC and has been involved in the conduct of investigations into suspected contraventions of the laws regulated by ASIC, including the Corporations Act. Pursuant to the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), he is the recipient of delegated functions and powers relating to the conduct of investigations by ASIC under Pt 3 of the ASIC Act.
8 ASIC seeks an order winding up the defendant on the ground stated by s 461(1)(k) of the Corporations Act, that it is just and equitable to do so.
9 Section 464 of the Corporations Act also permits ASIC to apply to the Court for the winding up of a company where ASIC is or has been investigating, under Div 1 Pt 3 of the ASIC Act, matters being, or connected with, the affairs of a company. In such a case, the Corporations Act applies as if the winding up application had been made by the company.
10 In its submissions filed 15 April 2016, ASIC states the following facts as creating the appropriate grounds for winding up:
(1) ASIC has commenced an investigation into the defendant and its officers (this is a ground to wind up the defendant by s 464 of the Corporations Act).
(2) The defendant appears to have breached sections of the Corporations Act regulating how funds are raised from the public by:
(a) failing, contrary to s 722 of the Corporations Act, to hold all application money received from people applying for securities under the supplementary prospectus dated 27 November 2014 in trust until the securities were issued or the money returned to applicants; and
(b) offering, contrary to s 728 of the Corporations Act, securities under a disclosure document, namely the supplementary prospectus dated 27 November 2014, and omitting from the prospectus information reasonably required to make an informed assessment of the prospects of the defendant, being the appointment of the Business Rescue Practitioners to the operating subsidiaries, thereby ending the defendant's management and control of those subsidiaries, and the assets of those subsidiaries.
(3) The defendant appears to be in breach of a number of regulatory or governance obligations under the Corporations Act, namely:
(a) the failure to maintain two Australian resident directors (contrary to s 201A of the Corporations Act);
(b) the failure to have audited financial reports for the:
(i) financial year ended 30 June 2015 (contrary to s 301 of the Corporations Act); and
(ii) half-year to 31 December 2015 (contrary to s 302 of the Corporations Act).
(c) the failure to hold an annual general meeting within five months of the end of its financial year on 30 June 2015 (contrary to s 250N of the Corporations Act).
(4) It is just and equitable (within the meaning of s 461(1)(k) of the Corporations Act) to wind up the defendant because:
(a) the company is unable to carry on its business as contrary to the statements of intended action by the Australian director the actions are not implemented; and
(b) the management are operating fraudulently, misleadingly or in breach of the law as management has failed to observe the Corporations Act when raising funds from the public and failed to observe regulatory or governance provisions.
(5) The defendant appears to be insolvent because of:
(a) the inference from the statements to the Australian Stock Exchange (ASX) in the context of a decision to raise equity to retire debt, that without the successful completion of that process, the defendant may be unable to continue as a going concern, and the in substance subsequent failure of that fundraising process and sale of assets for the benefit of the defendant;
(b) the inference from the audited accounts for the period ended 30 June 2014;
(c) the inference from the unaudited accounts for the period ended 30 June 2015;
(d) the inference arising from an application to wind up the defendant the subject of a notice dated 28 August 2015 even though the application did not proceed;
(e) the inference from the letter from the auditor BDO to ASIC dated 19 November 2015 indicating the defendant may be trading whilst insolvent and the failure to pay the auditor's fees;
(f) the inference from the failure to return subscription money to applicants for securities under the supplementary prospectus dated 27 November 2014, contrary to assertions of the Australian director;
(g) the inference from the failure to pursue a subscriber for securities who was issued securities, Ivory Mint, when payment was due; and
(h) the inference from the admissions in Mr Landau's examination that without funds, an administrator would be appointed and the failure to appoint an administrator on the failure of the funds to be deposited to the defendant's accounts.
11 Mr Harrison's March 2016 affidavit supports both the winding up and the interim applications and states as follows (not including the 53 attachments):
1. I am employed by the Plaintiff, ASIC, as a Senior Lawyer in the Enforcement Western Australia team within the Perth office.
2. I am authorised to swear this affidavit on behalf of the Plaintiff.
3. I have been employed as a lawyer with the Plaintiff for the last six years. Prior to commencing my employment with the Plaintiff, I was employed as a lawyer with a private law firm.
4. During the course of my employment with the Plaintiff, I am involved in the conduct of investigations into suspected contraventions of the laws regulated by the Plaintiff, including the Corporations Act 2001 (Cth) (the Act).
5. Pursuant to section 102 of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act), the Plaintiff has delegated to me certain functions and powers including its functions and powers under Part 3 of the ASIC Act relating to the conduct of investigations.
6. With the assistance of other staff members of the Plaintiff, I have primary responsibility for the Plaintiff's investigations pertinent to this proceeding, which I have detailed below.
7. Unless otherwise stated, I make this affidavit from information within my own knowledge and from an examination of the records of, or otherwise in the possession of, ASIC. Where I depose to matters from information and belief, I do so after having made the enquiries set out herein and I believe those matters to be true and correct.
8. I provide this affidavit in support of the Plaintiff's originating process for orders to:
8.1. wind up the Defendant, Continental Coal Limited (ACN 009 125 651) (CCC) on the grounds that:
8.1.1. ASIC is conducting an investigation into matters connected with the affairs of the company;
8.1.2. it is just and equitable since the business of CCC appears to have ceased and it is not complying with the Act and other obligations; and
8.1.3. there is some doubt as to its solvency;
8.2. appoint a provisional liquidator and a liquidator.
The Defendant, its business and its directors
9. The Defendant:
9.1. has its registered office at Suite 5, 531 Hay Street, Subiaco, Western Australia, 6008. Annexed hereto and marked 'RMH-1' is a copy of a Short Form Company Extract dated 24 March 2016;
9.2. is engaged in the acquisition, exploration, development and operation of thermal coal mines in South Africa. The Defendant holds its mining interests in South Africa through a 74% share which it has in a South African registered entity, Continental Coal Limited South Africa (CCLSA). CCLSA is in turn the parent company for various South African registered entities which directly own the mines. CCC's core mining assets are owned by CCLSA's wholly owned subsidiaries, Ntshovelo Mining Resources (Pty) Ltd, Mashala (Pty) Ltd, Penumbra Coal Mining (Pty) Ltd and Mashala Hendrina Coal (Pty) Ltd;
9.3. has at all relevant times been listed on the Australian Securities Exchange (ASX), via the issuer code 'CCC';
9.4. had a last traded listed share price of $0.001. Annexed hereto and marked 'RMH-2' is a copy of a print out of the Defendant's share price information as at 26 February 2016 from the ASX website; and
9.5. trading in the Defendant's shares has been suspended since 11 June 2015. Annexed hereto and marked 'RMH-3' is a copy of an announcement released on the ASX Market Announcements Platform (MAP) dated 11 June 2015 and titled 'Suspension from Official Quotation'.
10. According to Plaintiff's records (see RMH-1), the current registered directors of the Defendant are:
10.1. Peter Neil Landau (Mr Landau), who resides in Perth, Western Australia;
10.2. Lars Schernikau, who resides in Rapperswil-Jona, Switzerland; and
10.3. Mzwandile Bruce Buthelezi, who resides in Johannesburg, South Africa.
11. On 4 January 2016 the Defendant released an announcement on MAP dated 31 December 2015 that Mr D'Sylva, the only other Australian resident director, had resigned. Annexed hereto and marked 'RMH-4' is a copy of an announcement released on MAP dated 31 December 2015 and titled 'Resignation of Director'.
12. The company secretary of the Defendant is Jane Rosemary Flegg (Ms Flegg), who resides in Perth, WA (see RMH-1).
ASIC's investigations
13. On 11 June 2015 the Plaintiff commenced a formal investigation into the Defendant, its officers, employees, representatives, associates, agents and/or related entities in relation to suspected contraventions of:
13.1. s180 to s184, s722, s1308, s1309 and s1041E of the Act; and
13.2. s378 of the Criminal Code Act Compilation Act 1913 (WA);
the investigation has since been extended to include suspected contraventions of:
13.3. s588G and s674 of the Act;
(the CCC Investigation).
14. The breaches which the Plaintiff suspects the Defendant to have committed and which are the subject of the CCC Investigation include:
14.1. contraventions of s674 of the Act; and
14.2. contraventions of s722 of the Act.
15. I am the project manager of the CCC Investigation.
16. During the course of the CCC Investigation, I have directed that:
16.1. various notices for the production of books and records be issued under the ASIC Act on the Defendant and other entities that hold information relevant to the CCC Investigation;
16.2. officers of the Defendant be examined under s19 of the ASIC Act, including its director, Mr Landau (the Examinations);
16.3. the following Examinations be transcribed:
16.3.1. an examination of Mr Landau that was held on 25 August 2015 (Mr Landau's First Examination). Annexed hereto and marked 'RMH-5' is a copy of the transcript;
16.3.2. an examination of Mr Landau that was held on 11 September 2015 (Mr Landau's Second Examination). Annexed hereto and marked 'RMH-6' is a copy of the transcript; and
16.3.3. an examination of Mr Landau that was held on 15 January 2016 (Mr Landau's Third Examination). Annexed hereto and marked 'RMH-7' is a copy of the transcript.
The Defendant's announcements on the ASX Markets Announcement Platform
17. A review of the announcements released on MAP by the Defendant during 2014, 2015 and 2016, the documents obtained by the Plaintiff, and the transcripts of the Examinations referred to above, reveals that:
17.1. On 1 August 2014 the Defendant released its report for the quarter ended 30 June 2014, which included a proposal for the repayment of debt by raising equity. The Defendant indicated that it was progressing a non-renounceable rights issue to raise $35.1m at an offer price of $0.005 per share. The process was being completed following the Defendant reaching standstill agreements with key unsecured convertible note and royalty holders, during negotiations with its two largest financiers, ABSA Capital Limited (ABSA) and EDF Trading Limited (EDF). Annexed hereto and marked 'RMH-8' is a copy of the report dated 31 July 2014.
17.2. On 26 August 2014 the Defendant issued a notice of general meeting, to seek approval from shareholders for, among other things, the non-renounceable rights issue to raise $35.1m. Annexed hereto and marked 'RMH-9' is a copy of the notice of meeting. The explanatory statement to the notice of meeting indicates that the directors supported the rights issue and advised shareholders that
if the Resolution is not passed by the required majority and the Entitlement Issue does not proceed, the Company may be unable to meets its payment obligations to its creditors … [and that may imply] empowering creditors to take enforcement action, including appointing an administrator and the Company may become insolvent.
17.3. The explanatory statement included a note from the auditor's report for CCC for the half-year ending 31 December 2013, which stated that:
the ability of the consolidated entity to continue as a going concern is dependent upon the success of the renegotiations with financiers and future successful raising of necessary funding through equity. These conditions indicate the existence of a material uncertainty that may cast significant doubt about the consolidated entity's ability to continue as a going concern and therefore, the consolidated entity may be unable to realise its assets and discharge its liabilities in the normal course of business.
17.4. The rights issue was approved at the general meeting of shareholders which was held on 24 September 2014 and the result announced on MAP. Annexed hereto and marked 'RMH-10' is a copy of the announcement of the results of the meeting of shareholders.
17.5. On 29 August 2014 the Defendant released on MAP the prospectus for the rights issue dated 28 August 2014 (the Prospectus). The rights issue was to raise approximately A$35.1M on the basis of 9 new shares for every 1 existing share held, at an offer price of A$0.005 per new share (the CCC Rights Issue). Annexed hereto and marked 'RMH-11' is a copy of the announcement attaching the Prospectus dated 28 August 2014, entitled 'Underwritten Entitlement Issue Prospectus and Appendix 3B';
17.6. Between 18 September 2014 and 13 October 2014 CCC received $3.26m from its shareholders in application monies for entitlements under the CCC Rights Issue (Application Monies).
17.7. In that same period, the Defendant withdrew and spent the entire $3.26m in Application Monies. The Defendant paid $932,000 to Mr Landau's private company, OKAP Ventures Pty Ltd (131 358 266) (OKAP). The $932,000 was subsequently distributed to others including to Mr Landau's personal account, and to another of his private entities, Doull Holdings Pty Ltd (Doull).
17.8. These Application Monies were withdrawn and spent prior to CCC issuing any shares to shareholders, contrary to s722 of the Act, which requires that a company hold application monies for shares to be issued under a disclosure document on trust until the shares are issued.
17.9. In documents produced by the Westpac Bank, which holds all of CCC's bank accounts, it is apparent that:
17.9.1. $3,277,417.94 of Application Monies was deposited into CCC's Trust Account (CCC's Trust Account). Annexed hereto and marked 'RMH-12' is a copy of Westpac statements for CCC's Trust Account;
17.9.2. between 18 September 2014 and 13 October 2014, $3,264,519.45 of the Application Monies was withdrawn from CCC's Trust Account. Annexed hereto and marked 'RMH-13' is a copy of the vouchers in respect of those withdrawals;
17.9.3. between 18 September 2014 and 31 October 2014, $932,000 of the Application Monies (the $932,000 Transfer) was transferred from CCC's Trust Account to a bank account held by OKAP. Annexed hereto and marked 'RMH-14' is a copy of a bank statement for OKAP's bank account (OKAP Account), indicating receipt of funds totalling the $932,000;
17.9.4. subsequently, various amounts have been transferred from the OKAP Account to accounts held in the following names:
17.9.4.1. P & S Landau, in the amount of $20,000;
17.9.4.2. OKAP Ventures Pty Ltd (Account no 036-406 13-8733), in the amount of $90,000;
17.9.4.3. Mr Peter Neil Landau & Doctor Susan Jane Cann (Account no 736-000 64-1547), in the amount of $90,000;
17.9.4.4. OKAP Ventures Pty Ltd (Account no 036-406 22-2898), in the amount of $51,000;
17.9.4.5. The Secretary of OKAP Ventures Pty Ltd (Account no 4293 1831 1044 2359), in the amount of $40,000;
17.9.4.6. Doull Holdings (Account no 036-406 12 7217), in the amount of $31,000;
17.9.4.7. Ms Flegg, OKAP Ventures Pty Ltd (credit card no 4293 1831 1015 0838) in the amount of $30,000;
17.9.4.8. Jane R Flegg (Account no 066-164 1011-6095), in the amount of $18,500;
Annexed hereto and marked 'RMH-15' is a copy of the vouchers showing the above transfers. Also annexed hereto and marked 'RMH-16' is a copy of a flowchart prepared by ASIC indicating the flow of funds.
17.10. In the examinations conducted by ASIC under s19 of the ASIC Act of Mr Landau, he provided the following explanations in relation to the unauthorised withdrawal of the Application Monies:
[Pages 90 to 93]
A The company was under pressure in terms of wanting to keep a process going and obviously keep me delivering on that process. A judgment call by me was made. As I said, at that point in time, whilst subsequent to that the board knew about it, it was made by me on the basis that, in terms of from a business judgment perspective, either we'd have confidence in the process being completed or, through my ability - which I've done in the past - I'd always been able to replenish the money. I think the best thing to call it is a serious error of judgement at the time resulting from multiple pressures. It was done in my opinion for the right reasons - to keep the company alive, which to date we still have. Privilege. I'm not trying to justify it, but from a business judgement perspective, it was done to ensure that the company could get where it needed to be. I know that's no legal excuse potentially, but that's why it was done. I backed myself to be able to, in the worst case scenario, replenish the money, even though it was used for Continental. Again, we all know the answer if you asked me if I had my time again. But, at the same time, if I had my time again, that would have been the end of the company. It would have stopped there. Privilege. Maybe that should have been where we took it. But, as I said, I was backing myself to complete at that point in time a rights issue process and then a sale process… The problem I've got when I look at it is a gross error of judgment, absolutely. But this is this grey area where it would have just stopped there - wind it up, all finished - as opposed to me backing myself to get this company…
[Mr Landau's First Transcript annexed at 'RMH-5'].
[Pages 19 to 20]
Q Yeah. But at the point in time at which it was taken, it wasn't the company's money to take, that's the issue, it was money held in a subscription account?
A So - privilege - I think I have answered that questions, I don't - as I said, that's that - as I said, when people are under pressure, if legally it wasn't the company's money to take but there wouldn't be a company if were just left it there and allowed a process to basically - as I said, that is potentially no legal justification but that's - when I'm referring to business judgment is if we'd just left that money there for three months, with the pressures of running a listed company, trying to actually get it through a process, the company would have been called in and, as I said, on that basis, at zero cents in the dollar to creditors and shareholders.
Q Yeah, okay.
A And privilege again Ray, but again, I'm not disputing the issue that it was trust account subscription monies…
….
[page 27]
Q …you mentioned about the reasons behind the money being paid of the trust account and the judgment behind it. I wanted to ask did you have a discussion with the other board members of Continental Coal regarding that?
A … No, I did not.
[Mr Landau's Second Transcript annexed at 'RMH-6'].
17.11. On 30 September 2014 the Defendant announced that the CCC Rights Issue had raised $3.2m from shareholders, and that the remaining shares to the value of $31.9m would be placed by the underwriter. The announcement indicated that the allotment of new shares under the Rights Issue would be completed by 6 October 2014. Annexed hereto and marked 'RMH-17' is a copy of the Defendant's announcement dated 30 September 2014.
17.12. On 10 October 2014 the Defendant announced that, subsequent to completion of the Rights Issue, it had received offers from third parties to purchase its 74% interest in CCLSA and that it was considering issuing a supplementary prospectus which, due to the change in circumstances, would give shareholders the right to have refunded their applications monies paid under the CCC Rights Issue. Annexed hereto and marked 'RMH-18' is a copy of the Defendant's announcement dated 10 October 2014 regarding the receipt of the offers from third parties to purchase the Defendant's 74% interest in CCLSA.
17.13. On 28 October 2014 the Defendant released on MAP its amended financial report for the year ended 30 June 2014 which revealed an excess of liabilities over assets, an excess of current liabilities over current assets and a total loss for the year of $34.5m. Annexed hereto and marked 'RMH-19' is a copy of the announcement dated 28 October 2014. The report referred to a notification of breach from ABSA and EDF in respect of the Finance Loan Agreement, that negotiations had commenced to restructure the loans, and that the standstill agreements with other creditors had been extended.
17.14. On 3 November 2014 the Defendant released on MAP an announcement dated 31 August 2014 stating that:
17.14.1.it had accepted an offer for the sale of its 74% interest in CCLSA and was proceeding to sell that interest;
17.14.2.in respect of the CCC Rights Issue, it would be preparing and releasing a supplementary prospectus (given the material nature of the change in circumstance);
17.14.3.shareholders would be given an opportunity to have their funds returned from the CCC Rights Issue, or remain by way of the proposed supplementary prospectus;
17.14.4.shareholders who did not participate in the CCC Rights Issue would be given an opportunity to participate by way of the proposed supplementary prospectus; and
17.14.5.the proposed supplementary prospectus would likely close on or about 1 December 2014, after payment of the deposit and due diligence sign off by the purchaser of the 74% interest in CCLSA.
Annexed hereto and marked 'RMH-20' is a copy of the announcement dated 31 October 2014 and titled 'Corporate Update - Sale of 74% Interest in South African Subsidiary';
17.15. On 3 November 2014 the Defendant also released its Quarterly Operations Report for the quarter ended 30 September 2014. The report noted subsequent to the end of the quarter that ABSA had closed out a hedging contract reducing some debt by about one third. The report also indicated CCC was negotiating with ABSA and EDF on the payout of their debt indicating if the sale process (as announced on 3 November 2014) did not proceed in the time frames required 'ABSA and EDF would most likely call in external administrators to secure payment of the facilities by way of a managed tender process.' Annexed hereto and marked 'RMH-21' is a copy of CCC's Report for the Quarter ended 30 September 2014 released on 3 November 2014.
17.16. On 20 November 2014 Business Rescue Practitioners (BRP) appointed by ABSA and EDF took control of the major mining assets owned by CCC through CCLSA and its subsidiaries.
17.17. On 27 November 2014 the Defendant released on MAP a supplementary prospectus dated 26 November 2014 (the Supplementary Prospectus). The Supplementary Prospectus reported on a number of matters, including:
17.17.1.a conditional agreement for the sale of the Defendant's 74% shareholding in CCLSA;
17.17.2.the closing date for further applications under the Supplementary Prospectus, being 24 December 2014; and
17.17.3.that applicants for shares under the CCC Rights Issue may withdraw their applications (Withdrawal Rights). Specifically:
[Page 4]
An Applicant who wishes to withdraw their application and obtain a refund must submit a written request to the Company at either of the addresses set out below so that it is received within 1 month of the date of this Supplementary Prospectus (i.e. by close of business on 29 December 2014)…
17.18. The Supplementary Prospectus referred to the proposed sale and that if the sale did not proceed and the Defendant was unable to negotiate an extension to standstill agreements with creditors, it will most likely be unable to remain a going concern, which would empower creditors to take enforcement action including by appointing administrators, and that the Defendant may be insolvent [see page 2]. The Supplementary Prospectus did not mention that the BRP had in fact already been appointed to CCC's core assets held through CCLSA, nor the consequent loss of control over those assets.
Annexed hereto and marked 'RMH-22' is a copy of the Announcement attaching the Supplementary Prospectus dated 26 November 2014 and titled 'Supplementary Prospectus'
17.19. On 27 November 2014 the Defendant released on MAP the results of its Annual General Meeting. That announcement did not mention the appointment of the BRP to CCC's core assets, nor the consequent loss of control over those assets.
Annexed hereto and marked 'RMH-23' is a copy of the announcement dated 27 November 2014 and entitled 'Results of Annual General Meeting'
17.20. On 9 January 2015 the Defendant released an announcement on MAP which stated:
[Page 1]
[the Defendant]… had accepted an offer… from a consortium headed by LSP Energy (Pty) Ltd to acquire its 74% interest in South African Subsidiary Continental Coal Limited SA… it has agreed to revised terms with a new purchaser consortium headed by Ivory Mint Holdings Corp…
[Page 2]
The Board is firmly of the view that the transaction would leave the company debt free with excess cash reserves at its disposal and the ability to pursue new opportunities.
Completion of Rights Issue
The Company is pleased to advise the completion of the Rights Issue Supplementary Prospectus with 800m ordinary shares being issued at $0.005 raising AUD$4.0m before costs. Ivory Mint Holdings and investors introduced by them subscribed for 400m shares as part of the transaction.
(the January 2015 Announcement).
The January 2015 Announcement did not mention the appointment of the BRP to CCLSA or the loss of control over the assets held by CCLSA.
Annexed hereto and marked 'RMH-24' is a copy of the January 2015 Announcement dated 9 January 2015 and titled 'Sale of 74% Interest and Completion of Rights Issue'.
17.21. On 2 February 2015 the Defendant released on MAP its Report for the Quarter ended 31 December 2014 which was dated 31 January 2015 (the Quarterly Report). In the Quarterly Report, the Defendant announced for the first time the appointment of the BRP by ABSA and EDF without mentioning the date that they were appointed. It was noted:
As announced during the quarter ABSA closed out the forward hedging contract at Penumbra which netted ZAR 104,596,479 (A$10,740,300) and was applied towards the total indebtness of ZAR259,466,455 (A$26,642,900) hence now reduced to ZAR 154,869,976 (A$15,902,600) with ABSA requiring the balance to be paid out.
The Company is negotiating with the Business Rescue Practitioners appointed by ABSA and EDF the conditions of paying out the debt facilities in conjunction with the 74% sale process. If the Company does not complete the Ivory Mint sales process in the time frames provided and generally on the same terms, the Company will have to proceed to secure payment of the existing ABSA and EDF facilities by way of a managed tender process to be undertaken by the Business Rescue Practitioners.
… the Company announced the completion of its Rights Issue Supplementary Prospectus with 800m ordinary shares being issued at $0.005 raising AUD$4.0m before costs. Ivory Mint Holding and investors introduced by them subscribed for 400m shares as part of the transaction.
Annexed hereto and marked 'RMH-25' is a copy of the announcement dated 31 January 2015 and titled 'Report for the Quarter Ended 31 December 2014'.
17.22. On 24 February 2015 the Defendant released an Appendix 3B 'New issue announcement', which announced the issue of 800,000,000 Fully Paid Ordinary Shares pursuant to CCC's Rights Issue.
Annexed hereto and marked 'RMH-26' is a copy of the Appendix 3B dated 24 February 2015 released by the Defendant on MAP on that day.
17.23. On 25 February 2015 the Defendant announced on MAP funding of US$5m from Ivory Mint to assist the sale process.
Annexed hereto and marked 'RMH-27' is a copy of the announcement dated 25 February 2015.
17.24. On 2 March 2015 the Defendant released on MAP its interim (audited) financial report for the half-year ended 31 December 2014. The announcement disclosed an audited net loss of $26.091m, net assets of $8.449m, and that the BRP had 'management control' of CCC's South African subsidiaries:
[Page 7]
As part of the Business Recue process, the Business Rescue Practitioners appointed by ABSA and EDF have taken over the management control of the Groups' South African subsidiary operations… The parent entity maintains protective rights over the subsidiary.
Annexed hereto and marked 'RMH-28' is a copy of the announcement dated 27 February 2015 and titled 'Interim Financial Report for Half-Year ended 31 December 2014'.
17.25. Between 5 February 2015 and 20 May 2015, the Plaintiff received 14 complaints from shareholders of CCC who had exercised their withdrawal rights under the Supplementary Prospectus and claimed that CCC had failed to refund the Application Monies.
17.26. On 16 March 2015 the Plaintiff sent a letter to the Directors of the Defendant requesting information relating to the CCC Rights Issue, such as the number of applications, total monies received, the number of withdrawal requests, and details of the funds that had been returned to applicants.
Annexed hereto and marked 'RMH-29' is a copy of a letter from the Plaintiff to the Defendant dated 16 March 2015.
17.27. On 23 March 2015 the Defendant replied to the Plaintiff's letter of 16 March 2015 advising that:
17.27.1.737 applicants subscribed to the initial offer, via the Prospectus, totalling $3,275,843;
17.27.2.36 applicants subscribed to the supplementary offer, via the Supplementary Prospectus, totalling $2,686,290;
17.27.3.there were 773 applicants in total, representing subscriptions totalling $5,962,133;
17.27.4.82 withdrawal requests, totalling $1,962,133, had been received;
17.27.5.$1,150,088.01 of the $1,962,132.74, the subject of the withdrawal requests had thus far been returned to applicants;
17.27.6.all withdrawal requests had been processed, but CCC had experienced issues with the funds going through a UK-based USD denominated bank account; and
17.27.7.all remaining refunds, in respect of withdrawal requests, should be received by 'refundees' by week ending 27 March 2015.
Annexed hereto and marked 'RMH-30' is a copy of the Defendant's letter to the Plaintiff dated 23 March 2015.
17.28. On 1 May 2015 the Defendant released on MAP its Report for the Quarter Ended 31 March 2015. The report mentioned a US$5m facility which could be utilised to provide additional funding to CCLSA to ensure the process for the sale of CCLSA to Ivory Mint could proceed, and to negotiate with the BRP appointed by ABSA and EDF the conditions of any settlement.
Annexed hereto and marked 'RMH-31' is a copy of the Report for the Quarter Ended 31 March 2015 and dated 1 May 2015.
17.29. On 9 June 2015 the Defendant requested a trading halt on its shares pending an announcement regarding a material acquisition. The trading halt was granted by the ASX. On 11 June 2015, trading in CCC's shares was voluntarily suspended.
Annexed hereto and marked 'RMH-32' is a copy of the announcements regarding the trading halt and the voluntary suspension dated 9 and 11 June 2015 respectively.
17.30. On 7 July 2015 the Defendant released an announcement on MAP which noted:
• the Company has been advised by the Business Rescue Practitioners administering Continental Coal South Africa, that they have conditionally sold two of the Company's projects Vlakvarkfontein and Penumbra…
….
• Continental has received legal advice that the conditional sale by the Business Rescue Practitioners is potentially voidable and will consider legal action…
Annexed hereto and marked 'RMH-33' is a copy of the announcement dated 6 July 2015 and titled 'Update on Voluntary Suspension' uploaded by the Defendant on MAP on 7 July 2015.
17.31. On 3 August 2015 the Defendant released on MAP its Report for the Quarter Ended 30 June 2015 which noted the same information disclosed in the 7 July 2015 announcement under the heading 'Corporate'. Annexed hereto and marked 'RMH-34' is a copy of the announcement dated 31 July 2015 and titled 'Report for the Quarter Ended 30 June 2015' and released by the Defendant on MAP on 3 August 2015.
17.32. On 1 September 2015 the Defendant released on MAP unaudited accounts for the 2014-2015 financial year. The unaudited 2014-2015 accounts noted that:
[Page 7]
• In June 2015 the Company was advised by the Business Rescue Practitioners administering Continental Coal South Africa, that they have conditionally sold two of the Company's projects Vlakvarkfontein and Penumbra…
• Continental has received legal advice that the conditional sale by the Business Rescue Practitioners is potentially voidable and will consider legal action…
….
Subsequently in June 2015, the Company was advised by the Business Rescue Practitioners administering Continental Coal South Africa (CCLSA), that they had conditionally sold the two of the Company's projects Vlakvarkfontein and Penumbra…
[Page 20]
On 20 November 2014, Business Rescue Practitioners were appointed by ABSA and EDF over Continental Coal Limited (South Africa), Mashala Limited and Penumbra Coal Limited (Pty) Ltd.
As part of the Business Rescue Process, the Business Rescue Practitioners appointed by ABSA and EDF has taken over the management of the Groups' South African subsidiary, however, the Group maintains its protective rights.
As a result, the Group has lost management control of the following companies:
Continental Coal Limited (South Africa)
Mashala Limited
Penumbra Coal Mining (Pty) Ltd
Annexed hereto and marked 'RMH-35' is a copy of the 'Appendix 4E Preliminary Final Report for the year ended 30 June 2015' (Unaudited June 2015 Accounts).
17.33. On 2 November 2015 the Defendant released its Report For The Quarter Ended 30 September 2015 on MAP which noted:
Vlakvarkfontein Coal Mine
As previously announced, this mine has been conditionally sold by the Business Rescue Practitioners. The mine's 40% joint venture partner has exercised its rights of pre emption in respect of the sale however full details are subject to confidentiality provisions until formal completion or such other alternative action in respect of the sale process.
With the sale process almost finalised, no mining activity update was provided by the business rescue practitioners. Funds raised from the sale will be applied to reduce the current EDF debt position within Continental Coal SA.
Penumbra Coal Mine
… As set out in the last quarterly operations report, the Company decided due to the current depressed export coal prices and high production costs… to place the mine on care and maintenance during the sale process and conserve cash… As previously announced, this mine has been conditionally sold by the Business Rescue Practitioners. Relevant Section 11 approval has not been received to date and Continental believes that the sale potentially will be the subject of legal challenge given the process undertaken and the status of the other sale/refinancing alternative sat the time.
De Wittekrans Coal Project
The project is in the process of being tendered for sale to reduce current debt levels owing to EDF and ABSA. Continental has taken on active role in the process which is continuing….
Annexed hereto and marked 'RMH-36' is a copy of the report dated 30 October 2015 and titled 'Report for the Quarter ended 30 September 2015' released by the Defendant on the MAP on 2 November 2015.
Other matters considered by ASIC
18. The evidence collated by the Plaintiff shows that:
18.1. The bank statements for the Defendant's accounts dated 7 March 2016 indicate that there is:
18.1.1. $1,896.33cr in the Defendant's operating account; and
18.1.2. $35.89cr in the Defendant's shareholder account.
Annexed hereto and marked 'RMH-37' is a copy of the bank account statements.
18.2. One of the subscribers to the CCC Rights Issue, a company called, Fanchel Pty Ltd ACN 128 926 983 (Fanchel), has not yet received its refund:
18.2.1. Fanchel is owed $342,000 by the Defendant;
18.2.2. on 1 December 2015 Ian Stolyar (Mr Stoylar) the son of Faina Stolyar (Mrs Stoylar), the sole director and shareholder of Fanchel, provided a statement. Mr Stoylar stated that:
18.2.2.1. in mid-December 2014 Fanchel wrote to the Defendant seeking to withdraw its application and requesting a refund of the Applications Monies;
18.2.2.2. in mid-July 2015 Fanchel was issued a cheque by the Defendant for $342,000. The cheque was not honoured on presentation due to insufficient funds;
18.2.2.3. on 28 September Fanchel issued a letter of demand for the return of the Application Monies;
18.2.2.4. the Application Monies remain unpaid; and
18.2.2.5. Fanchel intends to commence recovery proceedings against Mr Landau and CCC early in 2016.
Annexed hereto and marked 'RMH-38' is a copy of Mr Stolyar's Statement.
18.3. in an examination under section 19 of the ASIC Act, Mr Landau stated in relation to the Defendant's failure to refund Fanchel his application monies:
[Page 13]
Q A few preliminary matters. In relation to Fanchel Pty Ltd, you said to me last week I believe when you called in to arrangement of the section 19 examination that Fanchel Pty Ltd would be paid. Since that time I spoke to you, what steps have been taken to try and achieve the repayment of Fanchel Pty Ltd the amount of $342,000?
A Privilege. I've been in the United Kingdom over the last three business days… Basically, one of the purposes was confirming the final instruction of funds direct to Fanchel in the amount of $342,000.
….
Q Did he make any representations to you that the amount of $342,000 would be paid to Fanchel Pty Ltd?
A Privilege. Yes, he did.
…
A Privilege. The representations were that they would be receiving or had received an amount in excess of US$10m, of which Continental and other transactions that I'm involved with would be the beneficiary of at least $US3m. Obviously those funds were sitting in an account and that they'd confirm that they would be transacted to Fanchel. I had obviously been communicating with Ian Stolyar as well.
[Mr Landau's First Transcript at annexure 'RMH-5']
[Page 17]
Q In relation to Ian, can you, just so we're clear, explain to us the nature of the comments that you made on the last occasion here where you indicated that you'd paid him a sum of money?
A Privilege. Yes, he's been paid, I think its either $48,000 or $50,000.
Q He has been paid.
A Yes.
Q So has that debt reduced from $340,000?
A No, I paid that. Privilege. No, I paid that just as an interest component.
Q As an interest component?
A Well, again, as a personal obligation.
Q It was transferred from your personal account to him?
A Privilege. I can't remember where it came from.
…
Q … But it wasn't in discharge of the debt that's owed to Mr Stolya?
A Privilege. No.
…
Q In relation to wearing your director of Continental Coal hat, do you accept that Continental Coal in a legal sense owes that money to Stolyar?
A Privilege. Yes, I do.
Q Right
A Or to Fanchel.
[Mr Landau's Third Transcript at annexure 'RMH-7']
18.4. On 22 March 2016 I had a conversation with Mr Stolyar in which he said to me that he still intends to commence recovery proceedings against the Defendant and Mr Landau with respect to the $342,000 that had not been refunded to him following his exercise of withdrawal rights under the Supplementary Prospectus dated 26 November 2014.
19. Other information obtained by ASIC in the course of the investigation includes that:
19.1. on 19 November 2015 the Defendant's auditor, BDO, lodged a report with ASIC pursuant to s311 of the Act (the BDO Report). The BDO Report identified that the Defendant had not had its accounts audited:
Continental Coal Limited may be contravening the following relevant sections of the Corporations Act:
• For the year ended 30th June 2015, the Company (in accordance with Section 319 of the Corporations Act) has failed to prepare financial statements and lodge them with the ASX and ASIC by 30 September 2015.
• The Company (in accordance with Section 250N of the Corporations Act) has failed to send out its notice of meeting for its annual general meeting within the required timeframes.
• The Company may be trading whilst insolvent.
Annexed hereto and marked 'RMH-39' is a copy of the BDO Report.
19.2. the BDO Report stated further that:
19.2.1. the Defendant may not be in a position to meet its creditors' payment on a timely basis;
19.2.2. the Defendant has failed to pay outstanding audit fees to BDO;
19.2.3. the Defendant's subsidiaries in South Africa have been placed into 'business rescue' in South Africa, meaning that the prospect of proceeds being recovered from those subsidiaries' assets have diminished accordingly; and
19.2.4. there may be reasonable grounds to suspect that the Defendant may be trading whilst insolvent.
19.3. According to BDO's statement of account provided to ASIC dated 30 November 2015, the audit fees referred to in the BDO Report in the amount of $148,459.32 remain unpaid (BDO Account).
Annexed hereto and marked 'RMH-40' is a copy of the BDO Account.
19.4. An ASIC officer, Ms Ingrid McCormick, has since contacted Mr Phillip Murdoch of BDO on 23 March 2016. Mr Murdoch informed Ms McCormick that CCC has not yet paid the audit fees referred to in the BDO Report of about $150,000, that its 30 June 2015 and 31 December 2015 accounts have not been audited, and that BDO will not do any further work for CCC until its fees are paid.
Annexed hereto and marked 'RMH-41' is a copy of Ms McCormick's filenote of the conversation with Mr Murdoch of BDO on 23 March 2016.
20. On 24 December 2015, the Plaintiff sent a letter to the Defendant expressing its concerns that it may be trading whilst insolvent, having regard to:
20.1. the Defendant's failure to refund to Fanchel Pty Ltd the $342,000 following its exercise of withdrawal rights under the Supplementary Prospectus dated 26 November 2015; and
20.2. the outstanding liability to its auditor, BDO, in the sum of $148,459.32, which had been due and payable since at least 9 September 2015;
Annexed hereto and marked 'RMH-42' is a copy of a letter from the Plaintiff to the Defendant signed by me.
21. On 4 January 2016, the Plaintiff received a response from the Defendant to its letter of 24 December 2015 signed by three of the directors and confirming that they are satisfied that CCC as at that date is able to pay all its debts as and when they fall due and attaching a Circular Resolution of Directors in which it was stated:
taking into consideration certain arrangements with creditors and potential transaction as represented by the executive team with Ivory Mint and its investment network, the directors are able to issue the letter.
Annexed hereto and marked 'RMH-43' is a copy of a letter from the Defendant addressed to the Plaintiff signed by Mr Schernikau, Mr Landau and Mr Buthelezi.
22. As referred to in paragraph 11, on 4 January 2016 the Defendant released an announcement on MAP dated 31 December 2015 that Mr D'Sylva had resigned (See 'RMH-4').
23. On 4 January 2016, I also received an email from Mr D'Sylva in which he stated 'As per today's ASX announcement (attached below), I am no longer a director of Continental Coal. As such, I will not be party to any declaration of solvency at this time.'
Annexed hereto and marked 'RMH-44' is a copy of the email from Mr D'Sylva to the Plaintiff.
24. In the ASX Announcement of 4 January 2016 referring to Mr D'Sylva's resignation, CCC also stated that an update regarding the company would be released in the week commencing 4 January 2016.
25. As at the date of swearing this affidavit, CCC has not release any further announcements on the ASX, other than on 28 January 2016, in which it confirmed its change in registered address to Suite 5, 531 Hay Street, Subiaco.
ASIC's examinations
26. On 15 January 2016 in his examination under s19 of the ASIC Act, Mr Landau stated:
26.1. in relation to the failure to provide any update on MAP following CCC's announcement on 4 January 2016:
[Page 41]
Q. I'll come back to that in a second, but in that document of 31 December relating to the resignation of Mr D'Sylva, the last line says that an update regarding the company will be released in the week commencing 4 January. Has there been an update?
A. Privilege. No, there hasn't.
Q. Can you explain to us why that's the case?
A. Privilege. Because I was hoping to have it done and it hasn't been transpired yet. Privilege. I'm also waiting for - I was attempting to have draw down, De Witterkrans, terms sheet and funding and a position from the BR people on where De Witterkrans is at.
26.2. in relation to the non-receipt of $2 million from Ivory Mint in payment of its application for 400,000,000 shares under the Supplementary Prospectus dated 26 November 2014:
[Page 52]
A There is still a genuine belief that if they [Ivory Mint] get the funding that they will certainly support it and give the money to not only allow Continental to proceed but other deals that we're working on. I've mentally - and with the board, we've set the date, and that's the date.
[Page 53]
Q …What sort of correspondence is there that might be to the effect of, 'can Ivory Mint please pay us $2m? Do you have this in cash?'
A Privilege. Of course I've asked that question.
Q Yes.
A As you know, if they did have it, they haven't told me and its not forthcoming…
Q So why haven't you sued Ivory Mint for the $2m to this time?
A Privilege. It's a very good question. With what money?
[Mr Landau's Third Transcript annexed at 'RMH7']
26.3. in relation to the sale of assets under the control of the BRP:
26.3.1. two core mining assets known as Penumbra and Vlakvarkfortein which had previously been announced as conditionally sold, had now been sold and the consideration paid to ABSA and EDF:
[Pages 18 to 19]
A Well, as you're aware, the business rescue has sold both Penumbra and Vlakvarkfontein.
Q I wasn't aware, sorry. So they've sold Penumbra? I don't think its been announced yet -
A Yes, there was an announcement.
Q Was there? When?
A Yes, there was. Both last two quarterlies made reference to a sale of both Penumbra and Vlakvarkfortein.
Q So those assets gone from CC -
A Vlakvarkfontein and Penumbra - privilege - yes.
…
A Privilege. The payment would have gone obviously direct to ABSA or EDF, because they were the secured creditor.
26.3.2. another core mining asset known as De Witterkrans was out for tender:
[Pages 20 t0 21]
Q. And so what's left in CCLSA?
A. Well, as I said - privilege - De Witterkrans, the purchaser is going to be in conjunction with CCC.
Q. I see.
A. They've put it out for tender. Our guy will match or beat the tender price and that will be because what we can bring to the table is obviously an Eskom off take, the claim against Project X, which is 100 million rand as well as - there's other non-core assets sitting in there as well.
Q. Okay. So this is a transaction which you consider is a viable transaction - namely, that you consider that CCC is in a position to be able to arrange finance to purchase that asset from the secured creditors?
A. That's correct. Privilege. That's correct.
26.4. in relation to Mr D'Sylva's resignation from the board of CCC:
[Page 36]
Q. Did you speak to Mr D'Sylva about the solvency of the company before he resigned?
A. Privilege. Yes, I did.
Q. And what was his view?
A. Privilege. There are two - Paul, as you or may not know, has been involved in I think it's now three companies that have gone into administration. His view was he was very supportive of me but in the event - he said in the event that it doesn't - he obviously had been speaking to Bryan - in the event that this does not transpire, he doesn't want to be involved in a fourth one from a - you know, it's not a good look to be on your fourth one that's gone into administration.
26.5. in relation to the consideration given by the board to the issue of whether CCC was solvent on 4 January 2016 and the threshold by which the directors would decide whether to appoint an administrator:
[Page 6]
Q We've received this letter from you on 4 January 2016. I'm sure your know what it says. Was it you who wrote the letter to ASIC confirming your view that Continental Coal remains solved ton 4 January?
A Well, the board - I did one - sorry, privilege.
Q Yes.
A I did a letter, but the board also considered the matter and signed off on the same letter.
Q Okay. All right. What steps did you take to satisfy yourself that Continental Coal was solvent.
A Privilege. We obviously - there were a couple of things. I met with an administrator to discuss the position.
Q Which administrator?
A. Bryan Hughes.
…
[page 7]
Q And what did you discuss with him?
…
A privilege - discussed at what point in time should we look at, genuinely look at, putting company into administration.
…
[Page 8]
A Privilege. Obviously I've been working on drawn down of a number of facilities in respect of both Continental and others, and we did not receive confirmation that a company associated with Ivory Mint was receiving a significant draw down facility and they would be providing funds to the company which cover both the immediate and short term needs -
…
[Page 9]
Q …Did you tell him how much Ivory Mint - what sort of funds Ivory Mint would provide to Continental Coal and the nature of any agreements surrounding the provision of those funds?
A Yes. Privilege. So it was looking at that AUD$2.
Q The $2m. So it was just the $2m. In this respect are you talking about the $2m that is owed by Ivory Mint for the shares that were issued to it on 23 February 2015?
[Page 10]
A Privilege. Yes, that is the quantum, yes.
Q Okay. But no more than the $2m?
A No. Privilege. More than the $2m, but in the first instance, $2m to begin with.
…
A We're also in negotiations with another group in South Africa in terms of acquiring the De Witterkrans asset with a facility, and that was obviously part and parcel of the deliberations.
[Page 14]
A … I certainly understand the position that Continental is, and its fair to say - and the board as you've seen - that we're on our last legs as in weeks not months in terms of seeing if we can complete this opportunity. And after that the board is of the view that, given if this doesn't happen, there won't be any choice other than administration.
[page 24]
A … if we haven't got it done by - what's today, the 15th - the 20th , by next Friday, I think we lose out basis for having a rational belief that we can square this away.
Q … So your position at this moment is that you anticipate the short-term funding coming by the 20th of -
A January.
…
A Privilege. 2016.
Q Yes. And if that doesn't occur, what will you do?
A Privilege. I don't see any other choice but we'd have to appoint an administrator.
[page 103 to 104]
Q If Fanchel is not paid by the close of business on Friday next week, would you appoint an administrator?
A Privilege. Yes, I would.
Q …What figure do you require in terms of the short-term funding to satisfy you that the short-term liabilities of Continental Coal can be met and the solvency - sorry, and then Continental Coal is solvent?
A Privilege. Again, this is based on previous discussions with the secured creditor group, I would suggest number is AUD $1m minimum.
Q Right. So if less than $1m is received by next Friday?
A Privilege. Well, as we said before, if it's 340 grand it's not going to cut it, but if it was 750-plus, maybe, but that would obviously be a board discussion, a BDO discussion, a creditor group discussion.
….
A Privilege. Well, in terms of - if you ask me immediately what I need, based on my ability to manage Continental in terms of the creditor group, BDO getting the audit done and everything, as an absolute minimum, you're going to need to see, you know a minimum $550,000, $600,000 through the door.
Q Okay.
A As a minimum. But I don't want to set that as the threshold because, you know, I'd prefer to set it at $1m. Because obviously in my discussions with Ivory or anyone, it's $1m - well, I've said 2 million is the number I'm speaking with them about it.
Q I can understand a suggestion that you have a threshold in talking to them and you have a threshold for the directors. What we're really concerned about is the threshold with the directors because we understand that your dealings with Ivory Mint are your dealings with Ivory Mint. That's fine. What is the directors' threshold? At what point will you go to the board and say, 'We got X dollars here, and that's not enough. We need to appoint an administrator?
A Anything less than $600,000 wouldn't do it.
…
[page 107 to 108]
Q Okay. All right, no problem. In the series of questions that were asked of Mr Landau by Tom in the last session just then since the adjournment, Tom asked the threshold question and at the conclusion of it, Peter, your gave an answer to the effect that a sum of $600,000 must be received by Friday, next Friday, and unless that is received into Continental Coal's bank account then you will place the company into administrator, is that correct?
Q In his opinion an administrator should be appointed. Is that correct?
A Privilege. That's correct, and I would communicate the same to the other board members.
[Mr Landau's Third Transcript annexed at 'RMH 7']
27. By close of business on Friday 22 January 2016:
27.1. Fanchel Pty Ltd had not been repaid (see paragraph 18.4); and
27.2. CCC had not been put into administration.
28. On 28 January 2016, the Plaintiff sent a letter to the directors of the Defendant regarding the solvency of CCC, noting that:
28.1. the board of directors in their letter to the Plaintiff dated 4 January 2016 considered the Company was solvent as a result of the possibility of a transaction with Ivory Mint (see 'RMH-43');
28.2. the announcement on MAP of 4 January 2016 had stated that CCC would update the market in the coming week (see 'RMH-4');
and stating that:
28.3. the Plaintiff is concerned about the apparent failure by the Company to keep the market informed in a timely way;
28.4. it appears to the Plaintiff that the solvency of the Company is reliant on a transaction involving a foreign entity called Ivory Mint, details of which have not been provided to the market in a fulsome fashion.
28.5. the Plaintiff is concerned as to the solvency of the Company in light of:
28.5.1. the matters raised in the Plaintiff's letter dated 24 December 2015 (See 'RMH-42');
28.5.2. the content of the letter provided by the board of directors to ASIC dated 4 January 2016 (See 'RMH-43') containing the reference to the transaction with Ivory Mint, and CCC's announcement of the same date promising an update to the market in the coming week (see 'RMH-4'); and
28.5.3. the passage of time since the board promised an announcement updating the market.
Annexed hereto and marked 'RMH-45' is a copy of the Plaintiff's letter to the directors of the Defendant dated 28 January 2016.
29. In its letter to the Defendant dated 28 January 2016, the Plaintiff again requested that the directors of CCC confirm by 5pm on 2 February 2016 that they are satisfied that the Company is currently able to pay all of its debts as and when they fall due.
30. On 2 February 2016, I received from Mr Landau a letter of that date in response to the Plaintiff's letter of 28 January 2016 stating that 'as a Director of Continental Coal Limited' he was satisfied that CCC is currently able to pay all of its debts as and when they fall due and that:
An updated announcement will made on or before Friday 5 February 2016 with completion of a key refinancing initiative.
Annexed hereto and marked 'RMH-46' is a copy of the letter from Mr Landau to the Plaintiff.
31. The Plaintiff did not receive any response from any of the other directors to its letter of 28 January 2016 in relation to its concerns regarding the solvency of CCC.
32. On 4 February 2016 the Plaintiff sent another letter to the directors of the Defendant in response to the letter it had received from Mr Landau dated 2 February 2016. The Plaintiff advised that it had concerns about the Company's ability to effectively update its shareholders, and the market in general, in relation to any refinancing initiative in circumstances where the Company had failed to release to the market any audited financial statements for the 2014-2015 financial year. Further, that the Company had failed to announce the following key events relevant to an assessment of the Company's current financial position:
32.1. by 15 January 2016, being the date that Mr Landau was examined under s19 of the ASIC Act, the BRP had completed the sale of the Company's core mining assets, namely the projects, Vlakvarkfontein and Penumbra;
32.2. the asset sales referred to in paragraph 32.1 undermine the proposed sale of the Company's 74% interest in CCLSA to Ivory Mint which was announced on 9 January 2015 and which, according to an announcement on 25 February 2015, was expected to complete 'over the coming weeks'; and
32.3. Ivory Mint has not yet paid the Company the $2 million in consideration which it owed in respect of the 400,000,000 shares that were issued to Ivory Mint (and investors introduced by Ivory Mint) on 23 February 2015 under the Supplementary Prospectus dated 26 November 2014, which shares were subsequently quoted on the ASX.
Annexed hereto and marked 'RMH-47' is a copy of the letter from the Plaintiff to the Defendant dated 4 February 2016.
33. In its letter of 4 February 2016, the Plaintiff advised the directors of the Defendant that it considers a clarifying announcement covering the events and circumstances referred to in its letter of 4 February 2016 (see paragraph 32, above) should be made to the market as a matter of urgency along with any other information that the Directors consider is required to be announced on MAP to ensure a fully informed market.
34. On 10 February 2016, the Plaintiff received a response from Mr Landau on behalf of the Defendant in which Mr Landau stated 'please see attached the draft ASX announcement to be uploaded on Friday 12, February 2016 which addresses your queries.' Annexed hereto and marked 'RMH-48' is a copy of the Letter dated 10 February 2016. The draft ASX announcement which was attached to it stated:
as previously announced on a conditional basis, the sale of two (2) of the Company's key assets - Vlakvarkfontein and Penumbra went unconditional and was recently completed. Proceeds reduced Continental Coal's (SA) - (74% owned by CCC) liabilities to ABSA and EDF by approximately 130m rand.
the $2m equity position subscribed for by Ivory Mint and another introduced party (stock held under holding lock) was not fully funded at the time of issue but has been part funded in tranches over the last 12 months by way payments on behalf of the subscribing entities into the Company totalling approximately $1.7m. A further payment of $300k has been received which will be used to complete the Company's audited Annual Report for June 2015 and Half Year Report for December 2015 expected to be completed in April 2016.
35. On 11 February 2016, the Plaintiff responded to the Defendant's letter of 10 February 2016 raising a number of concerns that it had with the proposed draft announcement.
Annexed hereto and marked 'RMH-49' is a copy of the letter from the Plaintiff to the Defendant setting out the concerns that it had with the Defendant's proposed draft announcement.
36. CCC has, at the date of swearing this affidavit:
36.1. made no announcements on MAP since 28 January 2016 when it announced its change of registered office; and
36.2. not had its accounts audited (see paragraph 19.4); even though it stated in the proposed draft announcement that it had received $300,000 at least partially for this purpose.
37. Further to the matters set out in paragraphs 32 to 36, above, which raise concerns regarding the Defendant's current ability to keep the market fully informed, in my view, the Defendant has failed in the following significant respects to inform shareholders and investors of material events that have occurred since mid-2014.
The ASIC's concerns with CCC's Announcements on MAP and its Compliance with its Continuous Disclosure Obligations under s674(2) of the Act
38. In my view:
38.1. the appointment of the BRP to the assets held through CCLSA was material given that these were the Defendant's cores assets ;
38.2. the Defendant was aware of the appointment of the BRP to CCLSA by 20 November 2014;
38.3. the Defendant failed to release any supplementary prospectus for the CCC Rights Issue regarding the appointment of the BRP to CCLSA, or to release this information on MAP until 2 February 2015, approximately 10 weeks later, despite:
38.3.1. the Supplementary Prospectus closing on 24 December 2014; and
38.3.2. Withdrawal Rights closing on 31 December 2014;
38.4. this effectively failed to draw to shareholders attention information that was highly likely to influence their decision to invest further in CCC under the Supplementary Prospectus;
38.5. when disclosure is made by the Defendant on MAP regarding the appointment of the BRP, the significance of the appointment was not emphasised;
38.6. the Defendant should have made disclosure of the appointment of the BRP as soon as it became aware of their appointment to:
38.6.1. participants to the Rights Issues;
38.6.2. participants to the Rights Issues who had Withdrawal Rights but did not exercise that right;
38.6.3. participants under the Supplement Prospectus; and
38.6.4. the holders of the Defendant's shares who were entitled to invest under the CCC Rights Issue.
The Sale of CCLSA's Vlakvarkfontein and Penumbra Mines
39. I have formed the view that the Defendant may have failed to disclose the unconditional sale of CCLSA's mines, Vlakvarkfontein and Penumbra.
Ivory Mint Failed to Pay $2million
40. I have formed the view that the Defendant may have failed to disclose that despite 400m shares being issued to Ivory Mint the Defendant has not yet received payment of $2 million dollars owing to it as consideration for those shares.
The Defendant's failure to comply with legislation
41. I have formed the view that the Defendant may have failed to arrange the audit of the 30 June 2015 accounts contrary to section 301 of the Act.
42. I have formed the view that the Defendant may have failed to arrange for the audit of its 31 December 2015 accounts contrary to section 302 of the Act.
43. I have formed the view that the Defendant has not issued a notice to convene its annual general meeting contrary to section 250N(2) of the Act.
44. I have formed the view that the Defendant has failed to appoint another Australian resident director contrary to section 201A of the Act.
The Suspected Contravention of s722
45. I have formed the view that the Defendant may have contravened s722 of the Act.
Mr Landau is the subject of an injunction
46. The CCC Investigation appears to show that some of the Application Monies were directed - without authorisation - by Mr Landau to himself and to his related companies: OKAP and Doull Holdings Pty Ltd (125 475 167) (Doull). Annexed hereto and marked 'RMH-50' is a copy of historical company extract for OKAP. Annexed hereto and marked 'RMH-51' is a copy of historical company extract for Doull.
47. Given the above, on 7 December 2015, the Plaintiff commenced proceedings, WAD717/2015, against Mr Landau, OKAP and Doull in the Federal Court of Australia seeking asset preservation orders, and in respect of Mr Landau, travel restraint orders. The Plaintiff was successful in respect of the former. The matter is listed for a final hearing on 26 April 2016. Annexed hereto and marked 'RMH-52' are copies of the Court Orders in this matter dated 7 December 2015, 8 December 2015, 14 December 2015, 22 December 2015 and 22 January 2016.
Suspected Insolvency
48. I have formed the view that the Defendant may be insolvent. I base my views on the on the following:
48.1. on 2 October 2014 the Defendant released on MAP its Amended Financial Report for the year ending 30 June 2014 Accounts (the 2014 Accounts). The 2014 Accounts reveal that the Defendant had on a consolidated basis:
48.1.1. total assets to the value of $149,899,000 [Page 35];
48.1.2. total liabilities of $157,003,000 [Page 35];
48.1.3. $9,312,000 in current assets [Page 35];
48.1.4. $96,562,000 in current liabilities [Page 35], comprising $69,531,000 of borrowings [Page 35], including:
• $26,048,000 owed to ABSA [Page 75];
• $14,678,000 owed to EDF [Page 75]; and
48.1.5. total loss for the year of $34,526,000 [Page 33].
(See 'RMH-19' for a copy of 2014 Accounts).
48.2. the 2014 Accounts revealed that as at 30 June 2014, the Defendant had suffered losses of $35 million and had subsequently:
[Page 39]
• extended standstill arrangements with unsecured convertible note holders totalling $15 million as well as other unsecured short term loans; and
• agreed to undertake a fully underwritten rights issue to raise $35 million.
However, without:
• the successful capital raising from the rights issue;
• additional funds being raised through equity issues;
• the repayment or renegotiation of existing credit and debt facilitates of the Group;
• the negotiation of new debt facilities;
• the Group generating profitable operations with positive cash flows; and/or
• the realisation of assets at amounts great than their values
The group may not be able to continue as a going concern and therefore it may be required to realise its assets and extinguish its liabilities other than in the ordinary course of business, and at the amounts that differ from those in the financial statement.
On this basis and considering the options available to the Group, the directors' declared on page 107 that there are reasonable grounds to believe that the Group can pay its dents when they fall due….
[Page 77]
…the ABSA Capital project finance facility occurred 12 December 2012 … The facility is secured over all assets of Penumbra Coal Mining (Pty) Ltd… The facility is guaranteed by Continental Coal Ltd ('CCC'), the Group's South African subsidiary Continental Coal Ltd ('CCL') and Mashala Resources (Pty) Ltd… the Group received notice from ABSA that a default event had occurred in March 2015, therefore the loan has been classified as current. The directors are working with ABSA to rectify the default as part of the recapitalisation process.
…the EDF coal prepayment facility was restricted into a f financial loan repayable through 24 monthly instalments commencing in July 2014… Executing biding legal agreements for this restructure are dependent on the recapitalistin of the Group and EDF being provided a second ranking security over the Penumbra underground coal mine and its assets. EDF has retained its security over the Group's South African mining interests (apart from Penumbra).
On 10 February 2014 the Company negotiated a 90 day standstill period, subsequently extended to 15 October 2014, with these parties and certain trade and other creditors of the Company. The Company must meet the specified recapitalisation milestones to ensure the standstill arrangements are in place during he standstill term.
[Page 94]
No matters or circumstances have arising since the end of the financial year which significantly affected or may significantly affect the operations of the Group, the result of those operations, or the state of affairs of the Group in future financial years except as follows:
…
• Notification of breach was received from ABSA Capital Limited in respect of the Completion test and EDF Trading Limited in respect of the Financial Loan Agreement. Negotiations to restructure the loans with ABSA Capital Limited and EDF Trading Limited are still in initial stages.
• The Group has obtained a further extension to the standstill arrangements.
48.3. the Unaudited June 2015 Accounts revealed that the Defendant had on a consolidated basis:
48.3.1. total assets to the value of $65,101,000 [Page 12], which includes the value of the mines that have been sold, Vlakvarkfoentein and Penumbra, on a 'available-for-sale' basis [Page 19 to 20];
48.3.2. total liabilities of $57,146,000 [Page 12];
48.3.3. $65,101,000 in current assets [Page 12];
48.3.4. $57,146,000 in current liabilities [Page 12], comprising $36,307,000 of borrowings [Page 12] including:
• $15,902,600 owed to ABSA [Page 26] (which is reduced by the amount received by ABSA); and
• $8,803,000 owed to EDF [Page 25] (which is reduced by the amount received by ABSA); and
48.3.5. total loss for the year of $28,435,000 [Pages 10 and 11].
(See the Unaudited June 2015 Accounts annexed at 'RMH-35')
48.4. on 28 August 2015 the Defendant released an announcement on MAP titled 'Company Notice' and dated 27 August 2015, which noted that a winding up application referred to on ASIC's website had been resolved prior to the hearing proceedings.
Annexed hereto and marked 'RMH-53' is a copy of the announcement dated 27 August 2015 and titled 'Company Notice'
49. Based on the above, and:
49.1. the statements by Mr Landau that if the Defendant would most likely need to be placed into administration if it did not receive $600,000 by 22 January 2016, and at a minimum if Fanchel Pty Ltd was not repaid its Application Monies by that date (see extracts of transcripts at paragraph 26.5, above);
49.2. the fact that the Defendant has not received any significant funds;
49.3. the fact that BDO is yet to have its account paid; and
49.4. the fact that its 30 June 2015 and 31 December 2015 accounts have not yet been audited:
I have formed the view that the Defendant is insolvent.
The Appointment of a Liquidator to the Defendant on Just and Equitable Grounds
50. The CCC Investigations have revealed that the Defendant may have breached s674 and s722 of the Act, such that it may be appropriate for a provisional liquidator (and perhaps later an official liquidator) to be appointed to the Defendant on just and equitable grounds.
Suspected Contraventions of s674
51. I have formed the view that the Defendant's contraventions are likely to continue given its financial circumstances and the unreliability of Mr Landau, its only Australian resident director, as evidenced by the correspondence and examination of Mr Landau referred to in paragraphs 20 to 36 between the Plaintiff and the Defendant regarding, among other things, the need for the Defendant to update the market.
12 On 18 April 2016, Mr Harrison made a second affidavit in the proceeding, in which he refers to the March 2016 affidavit as his first affidavit, and relevantly states (not including the eight attachments) as follows:
9. I refer to the CCC Investigation defined in paragraph 13 of my First Affidavit. The CCC Investigation includes an investigation into suspected contraventions of s722 of the Act by the Defendant (the s722 Breach).
10. Section 722 of the Act requires a company to hold application monies for shares to be issued under a disclosure document on trust until the shares are issued.
11. As set out in paragraphs 17.6 to 17.10 of my First Affidavit, the Plaintiff alleges that the s722 Breach occurred as result of the Defendant withdrawing and spending $3.26 million in Application Monies between 18 September 2014 and 13 October 2014, prior to the Defendant issuing any shares to the applicants (the Applicants).
12. I refer to paragraph 17.17 of my First Affidavit, which states that on 26 November 2014, the Defendant issued a Supplementary Prospectus which offered the Applicants the right to withdraw their applications and be refunded the Application Monies (Withdrawal Rights).
13. The Plaintiff alleges that as a consequence of the s722 Breach, the Defendant owed money to the Applicants who had exercised their Withdrawal Rights.
14. I refer to paragraph 17.27 of my First Affidavit, which refers to the Defendant's letter of 23 March 2015 advising the Plaintiff inter alia that, as at that date:
14.1.1. 82 withdrawal requests, totalling $1,962,133 had been received;
14.1.2. $1,150,088,01 of the $1,962,132.74, the subject of the withdrawal requests had thus far been returned to applicants; and
14.1.3. all remaining refunds, in respect of withdrawal requests, should be received by 'refundees' by week ending 27 March 2015.
15. I refer to paragraph 18.2 of my First Affidavit in relation to the $342,000 in Application Monies which the Defendant owes to Fanchel. I spoke with Mr Ian Stolyar at approximately 11am on 18 April 2016 and he confirmed that he has not yet received the $342,000 from the Defendant.
16. In the course of the CCC Investigation, the Plaintiff traced the funds used by the Defendant to repay Applicants who exercised their Withdrawal Rights (the Tracing Evidence).
17. Based on the Tracing Evidence, the Plaintiff believes that some of the monies used to repay Applicants may have originated from Citation Resources Limited (ACN 118 710 508) (CTR). Mr Landau was director of CTR.
Annexed hereto and marked 'RMH-54' is a copy of CTR's short-form historical company extract.
18. The Tracing Evidence shows that between 1 June 2015 to 7 August 2015:
18.1. CTR transferred $1,577,855.17 to Mr Landau's private company, OKAP Ventures Pty Ltd (ACN 131 358 266) (OKAP) (out of a total of $2,140,202,09 received by OKAP from various sources);
18.2. OKAP transferred $486,800.00 to the Defendant; and
18.3. the Defendant transferred $468,969.73 to applicants who had exercised their Withdrawal Rights.
Annexed hereto and marked as 'RMH-55' is a copy of a flow chart prepared by the Plaintiff illustrating the flow of funds from CTR to OKAP to the Defendant, and thereafter to applicants who had exercised their Withdrawal Rights, together with the supporting documentation used to create the flow chart.
19. Of the $1,577,855.17 which OKAP received from CTR, $1,329,304 of those monies came from CTR's Westpac Account (036406 230644) (the CTR Westpac Account).
20. Mr Vitorio Vincenzo Turco, CTR director, has advised the Plaintiff that:
20.1. there are no accounting records held by CTR for the transactions in the CTR Westpac Account; and
20.2. he was not made aware of the $1,329,304 in transfers from CTR to OKAP, despite having undertaken due diligence in relation to CTR on behalf of an acquiring entity in September 2015, nor was he made aware of them on 1 December 2015, following completion of the acquisition and his appointment to the board of CTR.
21. Mr Turco has sworn an affidavit dated 12 April 2016 in the related proceedings, WAD717 of 2015, in which he alleges that monies may have been misappropriated from the CTR Westpac Account (the Turco Affidavit).
22. Based on the Tracing Evidence and the Turco Affidavit, the Plaintiff suspects that the $468,969.73 which the Defendant paid to Applicants who had exercised their Withdrawal Rights may be funds misappropriated from CTR by OKAP and/or Mr Landau. Further, the Plaintiff suspects that these funds are owed to CTR.
23. The descriptions contained in the bank account statements for the CTR Westpac Account record $440,000 of the $486,800.00 which OKAP paid to the Defendant as a 'loan', and hence the Plaintiff suspects, at a minimum, that the Defendant owes these funds to OKAP.
Just and Equitable Grounds
24. As stated in my First Affidavit, I have formed the view that the Defendant has contravened various sections of the Act, including:
24.1. s201A - failure to maintain two directors who are Australian residents;
24.2. s250N(2) - failure to convene an annual general meeting;
24.3. s301 - failure to arrange an audit of the 30 June 2015 accounts;
24.4. s302 - failure to arrange an audit of the 31 December 2015 accounts;
24.5. s674 - failure to comply with continuous disclosure obligations; and
24.6. the s722 Breach.
25. I continue to be of the view that the Defendant should be wound up on just and equitable grounds.
The Defendant is Insolvent
26. The Plaintiff continues to believe that the Defendant is insolvent or so close to insolvent that it is unable to conduct its business and for that reason ought to be wound up.
Notice of Application for Winding Up
27. On or about 1 April 2016 the Plaintiff published on its 'Published notices' website a Notice of Application For Winding Up Order (the Published Notices Website). Annexed hereto and marked as 'RMH-56' is a copy of the notice.
28. Following the hearing in this matter on 8 April 2016, on 8 April 2016 the Plaintiff published on its Published Notices Website, a Notice for Application For Winding Up Order. Annexed hereto and marked as 'RMH-57' is a copy of the notice.
ASIC Search
29. I requested that a search be conducted in respect of the Defendant. Annexed hereto and marked as 'RMH-58' is a copy of a historical extract for the Defendant. ASIC's register relevantly revealed that:
29.1. on 19 March 2016, the Defendant lodged a Company Statement. Annexed hereto and marked as 'RMH-59' is a copy of the Company Statement;
29.2. on 21 March 2016, the Defendant lodged a form 484 stating that Ashley Paul D'Sylva ceased being a director of the Defendant on 31 December 2015. Annexed hereto and marked as 'RMH-60' is a copy of the announcement; and
29.3. on 30 March 2016, the Plaintiff lodged an application to wind up a company. Annexed hereto and marked as 'RMH-61' is a copy of the application.
Provisional Liquidator
30. On 31 March 2016 the Plaintiff filed a Form 8, in which Robert Michael Kirman agreed to act as the provisional liquidator of the Defendant.
13 Having regard to Mr Harrison's affidavit evidence, ASIC submits, in relation to the application for the appointment of a provisional liquidator, that there are good grounds and reasonable prospects for the application to wind up the defendant based on:
(1) The conduct of an investigation into the affairs of the defendant.
(2) The breaches of the Corporations Act provisions on raising funds from the public.
(3) The breaches of the regulatory or governance provisions of the Corporations Act.
(4) The absence of any confidence in the management of the defendant.
(5) The inference of insolvency of the defendant.
14 ASIC submits, in short, that while in this case the need to preserve the status quo in terms of preserving assets of the defendant is not paramount, the regulatory failures of the defendant referred to by Mr Harrison, the absence of any confidence in the management of the defendant, having regard to the history of its management set out by Mr Harrison, and the inference of insolvency that may be made, should lead to the appointment of a provisional liquidator.