Elderslie Finance Corp Ltd v Australian Securities Commission

REASONS FOR JUDGMENT 1 Section 1322(4)(d) of the Corporations Act 2001 (Cth) confers power upon the court to extend or abridge the period for doing any act "in relation to a corporation". The section does not, however, identify the instrument or authority that has prescribed the period which the court is able to extend or abridge. This has been left for the court to work out having regard to the purpose of the provision. In this case I held that s 1322(4)(d) permitted the court to extend the time for doing certain acts fixed by the Australian Securities and Investments Commission in a class order made under s 341. The times were then extended after I had satisfied myself, as required by s 1322(6)(c), that no substantial injustice would be caused by the order. I indicated that in due course I would give reasons for my decision because the application of s 1322(4)(d) to a class order gave rise to nice questions of construction that had not previously been considered by a court. 2 The Corporations Act contains (and prior Company Acts contained) strict requirements for the preparation, content and auditing of a company's annual financial report, for the distribution of that report to members for their consideration at an annual general meeting and for the lodging of the report with the appropriate regulatory authority. The current provisions are to be found in Part 2M.3. 3 In the case of group companies the reporting obligations can be unduly burdensome. Accordingly ASIC has (and under former legislation its predecessors had) power to relieve a company from the requirement to comply with the provisions. Presently the power is found in s 341. Pursuant to that section ASIC may make an order relieving a wholly owned subsidiary of a body corporate from complying with the reporting obligations. ASIC has made an order under the section which provides that relief but only if certain conditions are satisfied. The most important condition is that the holding company prepare consolidated financial statements that cover the subsidiary. Other conditions are that (1) the holding company lodges its annual report as required by the legislation (s 319(3) provides that the report is to be lodged four months after the end of the financial year); (2) the notes to the financial statements include a short description of the deed of cross guarantee to which the members of the group are required to be a party, and also include a list of the parties to the guarantee; (3) within four months of the end of the financial year the subsidiary lodge a notice that the directors have resolved that the subsidiary remain party to the cross guarantee and take advantage of the order; (4) supplemental financial data be consolidated and filed that does not include data from group members that are not party to the deed of cross guarantee; (5) the holding company state that the members of the group will be able to meet any liabilities arising by virtue of the deed of cross guarantee; and (6) three years before and at all times after the subsidiary takes advantage of the relief given by the order, the subsidiary satisfies each of the obligations under Chapters 2M and 2N of the Corporations Act. 4 The plaintiffs are members of the Dana Australia group of companies. The first plaintiff is the holding company and the other plaintiffs are its wholly owned subsidiaries. The group assembles and distributes drive train products for the automotive industry. On any view it is a sizeable operation. The group's annual operating profit before tax is more than $40 million; its total net equity exceeds $150 million. 5 Since 1993 the subsidiaries have taken advantage of the class orders and have not prepared or lodged any financial reports. Following a recent internal review it has been discovered that the first plaintiff and its subsidiaries have not, however, complied fully with the conditions in the class orders. In particular, annual reports have been filed later than required; notices that the subsidiary has taken advantage of the class order were not filed at all; the directors have not filed resolutions of their intent to remain party to the deed of cross guarantee; there have been no statements ensuring the ability of members of the group to meet any obligations or liabilities arising under the deed of cross guarantee; separate filings have not been submitted which only include financial information from parties to the deed of cross guarantee; there have been no descriptions of the deed of cross guarantee nor lists of its parties that are members of the group. The conditions were not satisfied partly by reason of mistake, partly because of oversight and, to some extent, as a result of neglect. Nonetheless as soon as the problem was discovered the plaintiffs took steps to rectify the position. The appropriate documents were prepared and filed. But the filings were late. The question was whether the prescribed periods could be extended and so validate the filings. To this end the plaintiffs turned to s 1322(4)(d). They said that under this section the court can extend the times fixed by the class order. 6 In considering whether s 1322(4)(d) confers that power it is necessary to distinguish between a period that is fixed by ASIC directly in the class order (for example the obligation to lodge a notice within a set period) and a period that is fixed by the Corporations Act itself but which is picked up by the class order (such as the obligation to lodge an annual report within the time fixed by the legislation). In the latter case the view I take is that if the period fixed by the Corporations Act is extended by an order made under s 1322(4)(d) and the relevant act is then performed within the extended period, the condition of the class order will have been satisfied. Put another way, when a time fixed by the Corporations Act is incorporated into the class order then the incorporation is of that time as may be extended under s 1322(4)(d). That approach does no damage to the language of the existing class order and in any event is, I think, what was intended. On this aspect it must be remembered that ASIC does not have power to extend times prescribed by the class order. 7 The more difficult question is whether the section permits an extension of a period fixed directly by ASIC in the class order itself. Section 1322(4) derives from s 366(4) of the Uniform Companies Acts of 1961. Section 366(4) provided: "The Court (whether the company is in process of being wound up or not) may enlarge or abridge any time for doing any act or taking any proceeding allowed or limited by this Act or any rules or regulations thereunder upon such terms (if any) as the justice of the case may require and any such enlargement may be ordered although the application for the same is not made until after the time originally allowed or limited." It will be noticed immediately that the power of the court to enlarge or abridge time was confined to times that were fixed by the Companies Act or by the rules or regulations made under the Companies Act. The court did not have power to extend the time fixed by any other instrument, for example a class order. 8 Although it is derived from s 366(4), s 1322(4)(d) is cast in different terms. Relevantly it provides that: "the Court may … make … (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". No longer is there a reference to the period that may be extended or abridged as being a period that is fixed by the Act or by the rules or regulations made under the Act. The reason for the change is not clear. It is not discussed in the Explanatory Paper for the State legislation or the Explanatory Memorandum for the Commonwealth Bill. Nevertheless, one thing is certain: Parliament did not intend to narrow the operation of the section. On this basis it is easy to conclude that s 1322(4)(d) allows the court to extend or abridge periods prescribed not only by the Corporations Act and any rules or regulations made under the Act, but also periods prescribed by some other instrument or authority. 9 In Elderslie Finance Corporation Ltd v Australian Securities Commission (1993) 11 ACSR 157 a somewhat similar problem arose. A company had filed a prospectus for the purposes of a capital raising. Under the legislation then in force the company could not issue the securities following the expiration of six months from the date of issue of the prospectus. By s 1084(2) of the Corporations Law the Australian Securities Commission was permitted to "exempt a particular person or persons … either unconditionally or subject to such conditions (if any) as are specified in the exemption" from compliance with provisions regulating securities offerings and from compliance with regulations made in furtherance of those provisions. ASC made a declaration under the section subject to certain conditions. One condition was that within a certain period the directors of the company should submit a report (the content of which is not particularly relevant) to the Commission. The report was not lodged within time and an application for an extension was sought under s 1322(4)(d). Owen J found that he had power to grant the extension. He reasoned (at 160) that the section "is a remedial remedy and should be given a liberal construction". He did not, however, state how the section should be read when given a "liberal construction". Thus, while the case stands as authority for the proposition that the periods fixed by an exemption granted under s 1084 are covered by s 1322(4)(d), it is not clear what other instruments would be covered. 10 What, then, is the ambit of the section? The power which the court is relevantly given is to "make an order extending the period for doing any act … in relation to a corporation." Although poorly drafted I think it is clear that the power cannot be read literally. If read literally it would apply to every period within which a corporation is required to do an act whether that period is prescribed by a public authority (including Parliament) or by private treaty (for example, a contract of sale). That could hardly have been Parliament's intention. 11 Accordingly it is necessary to find some criteria by which to define the instrument or authority that has fixed a period for the doing of an act "in relation to a corporation" to which the section can have application. I have already indicated that the provision will operate in respect of periods fixed by the Corporations Act and by the rules or regulations made under the Corporations Act. It would not be going much further to read the provision as also having application to instruments made under the Corporations Act by a regulatory authority, such as a class order. This is only a small step to take. Whether the section has a wider operation may be left for another day. I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.