- Car Buyers Australia Pty Ltd v Australian Securities and Investments Commission

Supreme Court of NSW|2021-05-05|Before: Black J

Solicitors: King&Wood Mallesons (Plaintiff) File Number(s): 2021/97110

Nature of application

By Originating Process filed on 8 April 2021, the Plaintiff, Bremick Pty Ltd ("Bremick"), applies, under s 1322(4) of the Corporations Act 2001 (Cth) for an order extending the time for it to lodge with the Australian Securities and Investments Commission ("ASIC") a notice to cause the application of s 317B(3) of the Corporations Law, as previously in force, to apply to it to seven days after the date of the order. Bremick also seeks an order, under s 1322(4)(c) of the Corporations Act, relieving it and its current and former directors and officers from any civil liability in respect of any failure to lodge that form with ASIC within the requisite time (although no liability would arise from that matter) and, more significantly, from a failure to lodge financial accounts with ASIC in the years 30 June 1996 to 30 June 2020.

Affidavit evidence

Bremick relies on several affidavits. By his affidavit dated 7 April 2021, Mr Hawksford gives evidence that he is Bremick's managing director and company secretary and has been a director since 1968, and took on the role as managing director in the 1970s. Bremick is a manufacturer and wholesaler of construction fasters such as bolts and screws and has no other significant business operations, and has eleven distribution centres in Australia and New Zealand, a manufacturing operation in Australia and two company-owned manufacturing operations in China, and employs around 160 staff in Australia. Mr Hawksford refers to the shareholders in Bremick, and to a trust which is the indirect beneficiary of some of the shares in the Company. His evidence is sufficient to demonstrate that Bremick meets the description of an exempt proprietary company.
Mr Hawksford also refers to the circumstances in which he became aware in the mid-1990s of a proposal that large proprietary companies would have to lodge their financial results with the then Australian Securities Commission ("ASC"); to meetings with Bremick's advisers at that time regarding that requirement and to his becoming aware of the "grandfathered proprietary company" exemption; and to his signing the forms to be filed with the ASC during the mid-1990s to seek that exemption. His evidence is that he believed that Bremick had taken the steps required to obtain the "grandfathered proprietary company" exemption from late 1995 until December 2020, when he became aware of advice received from ASIC that ASIC did not hold a copy of the notice required to be given by Bremick to obtain that exemption. He refers to the searches which have since been made by Bremick's staff, without success, to obtain a copy of the notification which he believes was lodged with the ASC and to events which may have affected the ability to retrieve that copy, including Bremick's relocation of its main warehouse in September 2020, and the disposal of a large volume of its older records from the 1990s and early 2000s at that time. Mr Hawksford also leads evidence to establish that there would be no substantial injustice as a result of making the orders sought, including that information released by Bremick's competitors in the fastening business does not provide detail as to the competitive businesses, because they are companies within larger corporate groups.
By his affidavit dated 7 April 2021, Mr Macourt, Bremick's chief financial officer, also describes Bremick's business and refers to the audit of the financial reports of Bremick undertaken throughout the relevant period. He notes that Bremick has been unable to locate records of its statutory accounts or audit reports for the years 1997 to 2001, a matter which would give rise to difficulty if it was now required to reconstruct financial reports for those years. He refers to his having become aware of the introduction of a requirement that large proprietary companies lodge financial statements with the then ASC in 1995, and to discussions with professional advisers at that time as to the availability of the exemption and to the steps he believes he would then have taken, a matter of his usual practice, for the lodgement of the relevant form with the ASC. Mr Macourt also refers to having been made aware by ASIC in early December 2020 that it had no record of receiving that form from Bremick, to the steps which have been taken to locate a copy of that form, without success, and to correspondence between ASIC and Bremick. Mr Macourt then returns to the difficulties in locating underlying documents to prepare financial statements back to 1997 to 2001 and notes that Bremick has located draft financial statements for the period to 2002 to 2010, but no longer holds underlying financial records which form the basis for those draft financial statements, a matter which would also give rise to difficulty if it were now required to lodge financial reports for that earlier period.
Bremick also relies on an affidavit dated 30 March 2021 of Mr Carroll, an accountant who was an adviser to Bremick in 1995, who gives evidence of the consideration of the "grandfathered proprietary company" exemption at that time and Bremick's then decision to rely on it. Bremick also relies on the affidavit dated 3 May 2021 of its solicitor, Ms Saville, who refers to correspondence with ASIC in respect of this application and to the position in respect of the shareholding in Bremick which is, as I noted above, relevant to its entitlement to the "grandfathered proprietary company" exemption.

The statutory and factual background to Bremick's reliance on the "grandfathered proprietary company" exemption

Mr Jackman, who appears for Bremick, points out that, by the First Corporate Law Simplification Act 1995, the concept of a "large proprietary company" was introduced into the then Corporations Law and provision was made for large proprietary companies to lodge financial accounts with ASIC, subject to an election that permitted a large proprietary company not to do so if it satisfied five criteria, one of which was to lodge a specified notice with ASIC. As Mr Jackman also points out, a proprietary company was a "large proprietary company" if it met at least two of specified criteria, namely that the consolidated gross operating revenue for the financial year of the company and the entities it controlled (if any) was $10 million or more; the value of the consolidated gross assets at the end of the financial year of the company and the entities it controlled (if any) was $5 million or more; and/or the company and the entities it controlled (if any) had 50 or more employees at the end of the financial year.
Subsection 317B(3) of the then Corporations Law provided an exemption from the requirement for a large proprietary company to lodge financial documents with the ASC, if (1) the company was an exempt proprietary company on 30 June 1994; (2) the company had continued to meet the definition of an exempt proprietary company (as in force at 30 June 1994) at all times since that date; (3) the company was a large proprietary company at the end of the first financial year after commencement of the section; (4) the company's financial statements for the financial year ending 1993 and each later financial year had been audited before the deadline for that year; and (5) within 4 months after the end of the first financial year of the company ending after 9 December 1995, the company lodged with the ASC a notice that the company wanted s 317B(3) to apply to it.
Mr Jackman also points out that, when the Company Law Review Act 1998 (Cth) repealed and replaced s 317B (as contained in Ch 3, Pt 3.6) of the Corporations Law with s 319 (as contained in Ch 2M, Pt 2M.3) on 1 July 1998, s 319 was in similar terms to former s 317B and preserved both the requirement for a large proprietary company to lodge financial documents with ASIC (after it replaced the ASC in 1998) and the exemption applying to large proprietary companies under s 317B(3). Relevantly, s 319(4) provided that the requirement for a company to lodge reports with ASIC did not apply to large proprietary companies which were not disclosing entities if (1) the company was an exempt proprietary company on 30 June 1994; (2) the company had continued to meet the definition of an exempt proprietary company (as in force at 30 June 1994) at all times since that date; (3) the company was a large proprietary company at the end of the first financial year ending after 9 December 1995; (4) the company's financial statements and financial reports for the financial year ending 1993 and each later financial year had been audited before the deadline for that year; and (5) within 4 months after the end of the first financial year ending after 9 December 1995, the company lodged with the ASC a notice that the company wanted s 317B(3) to apply to the company.
Mr Jackman also points out that, when the Corporations Act was introduced in 2001, s 319(4) was omitted. However, s 319(4) of the Corporations Law continued to have the same effect as it would have if it was part of the Corporations Act, and produces the same results or effects for the purposes of the Corporations Act as it produced for the purposes of the Corporations Law, by reason of the transitional provision in s 1408 of the Corporations Act. The relief that Bremick seeks under s 1322 of the Act is therefore directed to an extension of time for a notice which will have continuing effect under the Corporations Act, so far as the transitional provisions continue to preserve the effect of that notice.
Mr Jackman submits, and I accept, that the evidence establishes that Bremick was eligible for the "grandfathered proprietary company" exemption, if it lodged the requisite notice with the ASC. I am satisfied that Bremick was an exempt proprietary company (within the then definition of that term in s 69 of the Corporations Law, as a proprietary company no member of which is, and no share in which is owned by, a non-exempt person as defined) on 30 June 1994 and has continued to meet the requirements to fall within that category since that date. The evidence establishes that the members of Bremick have been, since its incorporation in 1965, natural persons and a proprietary company, B.M.B. Investments Pty Ltd ("BMBI"). The members of BMBI have included natural persons (including the trustee for an estate) and three private companies, Heads & Thread Pty Ltd ("HTPL"), Calm Family Investments Pty Ltd ("CFI") and Brett Hawksford Management Pty Limited ("BHM"). The members of HTPL have been natural persons; the members of CFI have included a natural person and two proprietary companies, including Analuke Pty Ltd ("Analuke"); and the members of BHM have also been natural persons. CFI, HTPL and Analuke have at various times acted as trustees of a trust called The Calm Trust. Mr Jackman points out that, for the purposes of s 69 of the Corporations Law, a person owns shares if they hold a beneficial interest in those shares, but the trustees of the Calm Trust from time to time have not granted a beneficial interest in BMBI or Bremick to any person other than Australian natural persons who are members of the Hawksford family. Mr Jackman submits, and I accept, that BMBI is not a "non-exempt person" (as defined) for the purposes of s 69 of the Corporations Law, where it is a private company (in the language of the section) and not within the relevant exclusions. Mr Jackman points out that the shares in HTPL are also owned by natural persons and, on that basis, Bremick is and has since June 1994 been an exempt proprietary company.
The evidence also indicates that Bremick was a large proprietary company (within the meaning of s 45A(3) of the then Corporations Law) at the end of the 1996 financial year, which gives rise to the need for the "grandfathered proprietary company" exemption. The evidence also indicates that Bremick's financial statements and reports have been audited before the deadline for reporting to members, and KPMG have been the auditors of Bremick since 1978 and have audited Bremick's accounts every year since at least 1993. Mr Jackman in turn points to the evidence, to which I have referred above, that Bremick knew of the introduction of the requirement for large proprietary companies to lodge financial statements, and other statements and reports, with the ASIC in 1995, and also knew that an exemption was available for a "grandfathered proprietary company" and determined to rely on that exemption, and Bremick's managing director and chief financial officer believed that they had taken all steps necessary to obtain the benefit of that exemption.
As I have also noted above, Mr Hawksford and Mr Macourt both give evidence of discussion of the need, for commercial reasons, for Bremick to take advantage of the "grandfathered proprietary company" exemption when it was introduced in 1995 and Mr Carroll corroborates the fact of those discussions, and the decision which Bremick then made to take advantage of that exemption. It appears that Mr Hawksford and Mr Macourt each understood that a notice in Form 373 had been lodged with the then ASC but that did not occur. Mr Jackman points out that, in 2004, a partner of KPMG (the auditors for Bremick) wrote to ASIC informing it that he believed Bremick had contravened s 319 of the Corporations Act as Bremick had not lodged its annual financial report with ASIC for the year ended 30 June 2003. However, a week later, the same partner of KPMG issued a further letter to ASIC indicating that he had been informed by Bremick's directors that Bremick's annual report for the year ended 30 June 2003 had not been filed "due to [the] application of grandfathering provisions", consistent with the understanding for which Bremick now contends. The question of the availability of the "grandfathered proprietary company" exemption to Bremick again arose when ASIC queried the fact that Bremick had not lodged financial accounts but then appears to have been satisfied with Bremick's response that it relied on the "grandfathered proprietary company" exemption. The issue then arose again in late 2020, when ASIC again queried that matter, and Bremick gave the same response as in previous years, but ASIC then advised, for the first time, that it had no record of a notice in Form 373 being previously given by Bremick.

Scope of relief under s 1322 of the Act

Turning now to the scope of the relief sought under s 1322 of the Act, the Court has power to make orders under s 1322(4) relieving from liability for a contravention of the Act and extending the time in which any act in relation to a corporation may be done. That section 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 … (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"
The Court must not make an order under s 1322(4)(c) relieving a person from liability unless it is satisfied that the person subject to the civil liability concerned acted honestly, and that no substantial injustice has been or is likely to be caused to any person: s 1322(6).
The case law establishes that s 1322 is a remedial provision and should be given a broad construction: Re Wave Capital Limited (2003) 47 ACSR 418; [2003] FCA 969; Weinstock v Beck (2013) 251 CLR 396; (2013) 93 ACSR 231; [2013] HCA 14. As Mr Jackman points out, orders have previously been made under that section to extend the time in which a form is required to be lodged with ASIC, where lodgement within a specified time is a condition of relief from compliance with financial reporting requirements under the Corporations Act: Re Murray River Organics Ltd (2019) 138 ACSR 365; [2019] FCA 1432; Ozito Industries Pty Ltd v Australian Securities and Investments Commission (2020) 148 ACSR 585; Car Buyers Australia Pty Ltd v Australian Securities and Investments Commission [2020] FCA 599; Re ComfortDelGro Corporation Australia Pty Ltd [2020] FCA 378 ("ComfortDelGro"); Re Navitas Bundoora Pty Ltd [2020] WASC 87 ("Navitas"). Mr Jackman also submits, and I accept, that relevant factors in determining whether to extend the time in which a form is to be lodged with ASIC, in order to obtain relief from financial reporting requirements under the Corporations Act and to provide relief from civil liability in respect of any past failure to comply with those requirements include whether the non-compliance arose as a result of imprudence, carelessness, or wilful ignorance of the law; whether the steps taken by the plaintiff were likely sufficient, in substance, for the relevant relief instrument to achieve its object, whether public policy would be undermined by the making of such orders; whether the plaintiff acted reasonably promptly in commencing an appropriate inquiry once it became aware of the error; and whether ASIC opposed the relief sought. Mr Jackman also points out that the cases, including ComfortDelGro and Navitas, indicate that the lapse of a significant time does not prevent the making of orders under s 1322(4)(d) in an appropriate case.
Mr Jackman accepts that, as I noted above, before making an order under s 1322(4)(c) providing relief from civil liability, the Court must be satisfied that the person subject to the civil liability concerned acted honestly. He points to the evidence, to which I referred above, that Bremick's managing director and chief financial officer believed that Bremick had taken all steps necessary to obtain the benefit of the "grandfathered proprietary company" exemption, until ASIC advised in late 2020 that it did not hold a record of a Form 373 in respect of Bremick. He submits that Bremick's failure to lodge a Form 373 was inadvertent and unintentional, given that the persons concerned believed the necessary form had been lodged with ASIC.
Mr Jackman also recognises that, as I also noted above, the Court must not make orders under s 1322(4)(c) or (d) unless it is satisfied that no substantial injustice has been or is likely to be caused to any person. He submits that extending the time in which Bremick was to have lodged a Form 373, and providing the accompanying civil relief sought, has not and would involve substantial injustice to any person, and that it is unlikely any third party could have acted to its detriment as a result of any non-compliance by Bremick, particularly where Bremick has prepared audited statutory accounts as a condition of obtaining finance from its banks throughout the relevant period. He submits that, absent the extension that is sought, Bremick would be required to lodge annual accounts with ASIC for over twenty financial years, from as early as 1996, which would be costly and may be difficult or impossible where Bremick no longer retains the underlying financial documents for earlier years and will likely be unable to obtain an independent auditor's opinion in respect of the accounts for those years.
Mr Jackman submits and I accept that the relevant failure did not arise from imprudence, carelessness, or wilful ignorance of the law, where Bremick had taken both legal and accounting advice as to the availability of the "grandfathered proprietary company" exemption and understood that it had lodged the Form 373 in order to rely on it. He also submits, and I also accept, that the steps taken by Bremick, up to and including completing and signing a Form 373, are likely sufficient, in substance, for the "grandfathered proprietary company" exemption to achieve its object, including recognising established commercial arrangements at the time the First Corporate Law Simplification Act took effect in 1995. Mr Jackman also submits, and I accept, that Bremick acted reasonably promptly in commencing appropriate inquiries and bringing this application after ASIC advised it that it did not hold a record of a Form 373 in respect of Bremick. I recognise, in this respect, that queries raised in earlier years had all been addressed on a basis consistent with Bremick's belief that it had the benefit of the exemption. I also recognise that ASIC has confirmed that it neither consents to nor opposes the application and does not intend to appear at the hearing of the application.

Determination

I am satisfied that I should accept the evidence of Mr Hawksford and Mr Macourt as to what had occurred, corroborated as it was by Mr Carroll's evidence. Although that evidence has not been tested by cross-examination, it seems to me to be intrinsically plausible, given the commercial issues which prompted Bremick to rely on the "grandfathered proprietary company" exemption and the evidence of the discussions which occurred in late 1995. To put that proposition another way, it seems unlikely that Bremick, having identified the relevant issue, as it did, and having identified the availability of the "grandfathered proprietary company" exemption that would address that issue under the then Corporations Law, as it also did, would not then perfect that exemption by taking the simple step of lodging the necessary notice with the ASC at that time. I am satisfied that, to the extent that Bremick failed to lodge that notice, it did so by inadvertence, whether that occurred because the notice was not posted from its office or, possibly, because the notice was posted but not received by ASIC.
It seems to me that the case is analogous with other cases where s 1322 of the Act has been applied, both to extend the time for lodgement of a notice with ASIC which is a prerequisite to an exemption from the requirements as to financial reports under Ch 2M of the Corporations Act and predecessor provisions, and to grant relief to persons involved in any consequential contravention, notably the decisions in ComfortDelGro and Navitas to which I have referred above. In both of those cases, a company appears to have understood that it had given the necessary notice to ASIC to take advantage of an exemption under Ch 2M of the Corporations Act, only to discover some years later, when advised by ASIC, that that had not occurred. In both those cases, the Court was satisfied, as I am here, that any failure arose from inadvertence and that the persons concerned acted honestly and that it would be just and equitable that the relevant orders should be made. I am also satisfied that no substantial injustice has been or is likely to be caused to any person by the making of the order, where the order would simply preserve the position to which Bremick would have been entitled, had it given the relevant notice in 1995, and, so far as it affects the provision of detailed information as to Bremick's earnings to the market, corresponding information is not available in respect of its competitors which have the advantage of being parts of larger corporate groups.
For these reasons, I made the orders sought in paragraphs 1 and 3 of the orders proposed by Bremick at the conclusion of the hearing on 5 May 2021. I also noted that Bremick intends to give notice to ASIC in a Form 373 which is attached to the orders, and I ordered that those orders be entered forthwith.

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: 20 May 2021

Company Law Review Act 1998(Cth)

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