Diversified, in the matter of Diversified United Investment Limited ACN 006 713 177 [2008] FCA 720

REASONS FOR JUDGMENT 1 This is an application under s 1322(4) of the Corporations Act 2001 (Cth) ("the Act"). I have decided that the relief sought by the Plaintiff should be granted. I propose to give reasons for decision immediately. Necessarily, they will be brief. Their brevity does not detract from the seriousness of the application or the reasons for it. 2 The application arises out of the failure of the company secretary of Diversified United Investment Limited ("the Plaintiff"), a publicly listed entity, to comply with s 708A(6)(a) which required a notice to be given to the Australian Securities Exchange Limited ("the ASX") in relation to a placement of securities by the Plaintiff. The placement was made by the Plaintiff on 5 March 2008. 3 Section 707 of the Act contains the relevant general disclosure provision. The placement was made to sophisticated and professional investors to whom disclosure was not required: see ss 708(8) and (11). Section 707(3) addresses the disclosure requirements upon the subsequent sale of the securities sold within 12 months after their issue. Put simply, an offer of a body's securities for sale within 12 months after their issue needs disclosure to investors unless s 708 or s 708A says otherwise. In the present case, the critical reference in s 707 is to the exclusion in s 708A. 4 Section 708A is headed "Sale offers that do not need disclosure". It relevantly relates to offers for sale of securities by persons such as sophisticated or professional investors who acquired the securities in circumstances that did not require full disclosure under the Act. The sale offer of securities the subject of the present application did not require a disclosure statement: ss 708A(1) and (5). However, for the exemption to apply, the Plaintiff was required to give to the ASX a notice (known as a "cleansing notice") which complied with ss (6). The notice had to include what is described as "excluded information". The expression "excluded information" is defined in s 708A(7) and (8). No such notice was given. 5 The failure to comply with ss 708A(6)(a) of the Act has certain consequences. In short, if no cleansing notice has been given, a placee cannot on-sell their shares without themselves issuing a disclosure statement. In the present case, there is a further consequence because some of the securities the subject of the sale offer may have been traded without the placee themselves issuing a disclosure statement. 6 The Plaintiff first applied to the Australian Securities and Investments Commission ("ASIC") for an exemption under s 741 of the Act. Unsurprisingly, ASIC was unwilling to grant an exemption. The Plaintiff then filed the current Originating Process. A copy of the Originating Process and the supporting affidavit were served on ASIC, the ASX and Dixon Advisory & Superannuation Services Pty Ltd ("Dixon"). Dixon had been retained by the Plaintiff to assist with the placement. None of ASIC, ASX or Dixon opposes the application or, I was informed, intends to appear. 7 In Charter Hall Limited, in the matter of Charter Hall Limited ("Charter Hall") [2007] FCA 1316, Gyles J considered a similar application and described the relevant provisions and resolution of the issue in the following terms: 3. The purpose of the provisions in question is to ensure that, where what might be called the prospectus obligations in relation to the issue of securities are sidestepped by reason of appropriate circumstances, the purchasers of such securities receive the same relevant level of disclosure as might have been achieved by other means but without the more stringent and costly requirements of a prospectus and prospectus type provisions. 4. It is submitted, and I accept, that the critical matter in a case of this kind is that circumstances which would call for disclosure in the interests of purchasers, but which might not be caught by the continuous disclosure regime, which are called "excluded information", should be disclosed. I am satisfied on the evidence, albeit, of course, this is done ex parte, that there was no "excluded information" which should have been, and was not, disclosed in the present case. So, if the time limits had been met, that would not have altered the information base of those concerned. 5. That being the case, it is difficult to see that there is any substantial injustice to any party occasioned by regularising the situation save for the possibility that a purchaser may be able to prove that there was "excluded information" which should have been disclosed. However, it is submitted that a purchaser who was able to prove such circumstances would have independent causes of action available and, indeed, the causes of action which would have been available would have regard to these particular provisions. Put shortly, compliance in the circumstances here would not have improved the position of such a purchaser. Furthermore, as will be noted, there is a proviso to the order which gives some limited protection in relation to that situation. I might say that the evidence is that the great bulk of, perhaps all of, the persons who received placements are what might be called professional or sophisticated investors. Furthermore, the orders provide that each of those parties will receive notice of these orders and of the proviso which these orders contain. 6. The orders sought to be made will be made pursuant to s 1322(4) and therefore subsection (6) is applicable and provides a barrier to the making of orders subject to the satisfaction of the Court as to the matters there listed. Counsel has referred me to a number of authorities as to the application of these provisions which establish that the provisions are remedial and are meant to have regard to the substantive effect of what is done and, in certain circumstances, may involve balancing interests which are affected (Super John Pty Ltd v Futuris Rural Pty Ltd (1999) 32 ACSR 398; Re Insurance Australia Group Ltd [2003] FCA 581; (2003) 128 FCR 581; Re Westpac Banking Corp (2004) 53 ACSR 288; Re Wave Capital Limited (2003) 47 ACSR 418; and Re Bounty Industries Ltd [2007] FCA 956). 7. I am satisfied that the provisions in s 1322(6)(a) are disjunctive and not cumulative. In the present case, I am quite satisfied that all of the conditions are met no matter how the section is read. There is no question, in my view, of any dishonesty. I am satisfied that no substantial injustice has been, or is likely to be, caused to any person by reason of the making of an order. I am also satisfied that in the circumstances it is just and equitable that the order be made. 8. I have indicated the extent to which I think there may be any disadvantage to any person which is not met by the orders and I weigh against that the severe effect upon those who have taken the placement. That effect is hardly a reasonable result bearing in mind that the default was not by those parties. All in all, I am satisfied that it is a very strong case for the application of these provisions. … 11. … I referred earlier to a proviso. That proviso appears in a decision of Hely J in Re Australian Wealth Management Pty Ltd [2005] FCA 311. It gives liberty for a party, who claims to have suffered substantial injustice by reason of the orders, to apply to vary or discharge them within a limited period. That is a prudent proviso in matters dealt with ex parte and there are no other parties albeit that many of the people concerned have notice of the proceeding. 8 Applying those principles and method of resolution to the facts in this case, it is appropriate that the Plaintiff be granted the relief that it seeks. There is no doubt that the Court has power to make the orders sought: see s 1322 of the Act and Re Insurance Australia Group Ltd (2003) 128 FCR 581 at [27] and [28] and Re Golden Gate Petroleum Ltd (2004) 50 ACSR 659 at [35]. 9 The failure to give the requisite cleansing notice was inadvertent and within a few days of the defect being detected, steps were taken to regularise the defect. It is difficult to foresee that there would be substantial injustice to any party from granting the relief sought except for the possibility that a purchaser may be able to prove that there was "excluded information" which should have been disclosed. In the present case that is unlikely because the cleansing notice that ought to have been issued would not have conveyed any information to prospective purchasers from placees that was not already in the market by way of continuous disclosure. However, as in Charter Hall, if there are any such purchasers, they are protected - they would have independent causes of action available and, as proposed by the Plaintiff, it is appropriate to make an order that any interested party have liberty to apply within 28 days of the entry of these orders to revoke or vary them. 10 Accordingly, I will make the following orders in accordance with the short minutes of orders which I have initialled and placed on the court file. I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon.