Blaze Asset Pty Ltd v Target Energy Ltd

Introduction 1 The applicant seeks relief under s 1322(4) of the Corporations Act 2001 (Cth) (Act) relating to non-compliance with s 708A(5)(e) of the Act. In short, it seeks an extension of time in which to file cleansing notices with respect to two placements of shares. 2 On 13 April 2018 I made orders on the basis I would publish reasons later. These are the reasons for the orders. 3 The Australian Securities and Investments Commission was served with the application and indicated it neither consents to nor opposes the application. The Australian Securities Exchange (ASX) was also served, and indicated through its compliance group that it took no position on the application.

Statutory framework 4 Part 6D.2 of the Act deals with disclosure to investors. The manner of disclosure is prescribed in s 709. 5 Section 707(3) provides that an offer of a body's securities for sale within 12 months after their issue needs disclosure to investors, subject to exceptions provided by s 708 and s 708A. 6 The applicant seeks to rely on the exemption from disclosure provided by s 708A(5), which provides that disclosure is not required if the company issues a notice in a particular form, referred to generally as a 'cleansing notice'. In order to be valid the cleansing notice must comply with s 708A(6). Relevantly, s 708A(6)(a) provides that the notice must be given to the ASX within five business days after the day on which the relevant securities were issued. The applicant failed to lodge notices within that time period. 7 There are other pre-requisites to the validity of a cleansing notice. For example, by s 708A(5)(b), the cleansing notice exception can only be relied upon if the securities are quoted and their trading has not been suspended for more than five days during the shorter of the period during which the class of securities were quoted and the period of 12 months before the day on which the securities were issued. The applicant meets all other prerequisites. It seeks relief only because of its failure to lodge the notices with the ASX during the relevant five day period provided by s 708A(6)(a).

Facts and background 8 The company secretary, Mr Timothy Slate, deposed to the manner in which the compliance issue arose. It was part of Mr Slate's role to manage compliance issues. 9 On 18 October 2017, the applicant received approval to issue 106,250,000 fully paid ordinary shares (First Placement Shares) and, relevantly, 42,500,000 unlisted options (Options) following a general meeting of shareholders. 10 Mr Slate understood the requirements for a cleansing notice and drafted one with respect to the First Placement Shares. He put it aside while he waited for confirmation of the identity of the holders of the Options. However, he did file the Appendix 3B document relating to the First Placement Shares as required by the ASX. 11 He then received instructions from the Board to issue the Options. He considered the position of the Options as to disclosure and formed the view no cleansing notice was required for them. He took no further action as to a cleansing notice for the Options and forgot that one was still required for the First Placement Shares. Mr Slate says his omission was an oversight in the circumstances. 12 During January 2018, Mr Slate received the approval of the Board to issue 375,000 fully paid shares in the applicant (Second Placement Shares) to a third party, TSI Capital Pty Ltd. He understood that a cleansing notice was required with respect to the Second Placement Shares. He prepared an Appendix 3B document and provided it to the ASX, but forgot to provide a cleansing notice. He attributes his omission to a lapse of memory or similar. 13 In March 2018, Mr Slate read about another ASX listed company filing a cleansing notice in circumstances where it was not open to it to do so, and where it should have lodged a cleansing prospectus. That was a catalyst for Mr Slate to check whether the applicant had complied with its disclosure obligations. He then uncovered his omission to lodge cleansing notices with respect to the First Placement Shares and Second Placement Shares. 14 Mr Slate immediately informed the director of the applicant and sought legal advice. He met with the applicant's legal advisors on 5 April 2018 and in accordance with their advice, immediately contacted the ASX. The shares were placed in a trading halt and voluntary suspension, and this application to court was prepared. 15 During the period between the issue of the First Placement Shares and the 6 April 2018 trading halt, approximately 53,188,631 shares were traded. None of the Second Placement Shares were traded.

Relief - section 1322 16 Section 1322 contemplates that there may be instances of non-compliance with the Act and facilitates the validation of non-compliance in certain circumstances. It has been utilised to extend the time for lodgement of a cleansing notice in circumstances where it was otherwise open to a company to lodge such notices: see, for example, Azure Minerals Limited, in the matter of Azure Minerals Limited [2013] FCA 63. An application may be brought under s 1322 by an interested party. Nothing in the wording of the section prevents an order being made nunc pro tunc: Azure Minerals [11]. 17 Section 1322(4) prescribes when any act, matter or thing purporting to have been done under the Act may be validated. Section 1322(6)(a) provides that the court must not make an order under s 1322(4)(a) validating the act, matter or thing unless the court is satisfied: (1) that the act, matter or thing, or the proceeding, is essentially of a procedural nature; (2) that the person or persons concerned in or party to the contravention or failure acted honestly; or (3) that it is just and equitable that the order be made. 18 Only one of those limbs must be satisfied to meet the requirements of s 1322(6)(a). In this case, the applicant relied upon the second and third limbs. 19 Section 1322(6)(c) provides that the court must not make an order in any case unless it is satisfied that no substantial injustice has been or is likely to be caused to any person.

Application 20 The applicant is clearly an interested party and has standing to bring the application. 21 The act, matter or thing that it seeks to validate is the sale or offering for sale of shares in contravention of the disclosure requirements of s 707(3), contraventions that would not have occurred in the circumstances of this matter had cleansing notices been filed within the specified time. 22 I accept Mr Slate's evidence that the omission in filing the cleansing notices was a product of inadvertence rather than any wilful or reckless disregard of the disclosure obligations of Part 6D.2 of the Act. Whilst Mr Slate's conduct is relevant, his conduct does not meet the description of a failure to act honestly: Blaze Asset Pty Ltd v Target Energy Ltd [2009] FCA 698; (2009) 177 FCR 488 [35]; ICandy Interactive Limited, in the matter of ICandy Interactive Limited [2018] FCA 533. 23 Mr Slate (and the applicant generally) moved quickly to take advice, act on that advice and inform the ASX as soon as the omissions were uncovered. I give significant weight to that response. 24 It would seem that a number of shareholders who received shares after the First Placement Shares have traded their shares. In the absence of any evidence to the contrary, it is reasonable to assume that they did so in good faith and on the assumption that the applicant had otherwise complied with Part 6D.2: Re Silver Lake Resources Ltd [2012] FCA 32 [23]. 25 Accordingly, I am satisfied that the relevant persons acted honestly and the second limb of s 1322(6)(a) is met. 26 Further, I am satisfied that it is just and equitable that the orders be made. In particular, I take into account the conduct and interests of the shareholders who have on-sold their shares. I have already found that there was not dishonest conduct on their part. There is no reason that the inadvertence on the part of the applicant should not be remedied by the relief sought so that the shareholders are not left vulnerable to potential claims. The making of the orders sought will serve to give effect to their expectation that the applicant would have taken steps to comply with the disclosure regime. 27 Accordingly, the third limb of s 1322(6)(a) is also met. 28 I do not consider the relief sought would give rise to any substantial injustice to third parties who acquired or on-sold shares. However, I will grant liberty to apply to any person to seek to vary the orders within 28 days. 29 The orders are in my view in the interests of shareholders who offered or on-sold shares in that they reduce their risk of exposure to claims. 30 I am satisfied that in the circumstances of this case the relief should be granted. I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Banks-Smith.