Elderslie Finance Corp Ltd v Australian Securities Commission

COLVIN J: 1 Stapled securities have been issued by ADF Limited and Dairy Fund Management Limited as trustee of the Australian Dairy Farms Trust (ADF Trust). They comprise one share in ADF and one unit in the ADF Trust. On 25 September 2018, an offer was made to the holders of stapled securities (about 3,500 in number) to subscribe for the issue of further stapled securities in order to raise $6,000,000 (Offer). 2 The Offer was made on the misapprehension that exemptions applied which meant that the disclosure requirements in respect of the issue of securities set out in Chapter 6D and Part 7.9 of the Corporations Act 2001 (Cth) did not apply. The relevant exemption was stated in ASIC Class Order [CO 09/425]. It included a requirement that in order for the exemption to apply a notice setting out certain specified matters must have been given to ASX Limited within the 24 hour period before the offer. The Offer was made without giving such a notice. 3 The issue was identified. The consequence was that ADF and Dairy Fund Management believed there had been a breach of s 727(10) and s 1012C(1) of the Corporations Act. Prompt steps were taken to apply to the Court to seek orders remedying the position. In particular, orders were sought pursuant to s 1322(4) extending the time specified in the Class Order and to declare that the Offer was not invalid by reason of the contraventions.

Disclosure requirements and remedial orders 4 The nature of the legislative scheme for disclosure in relation to an offer of securities was summarised by McKerracher J in Sprint Energy Limited, in the matter of Sprint Energy Limited [2012] FCA 1354 at [17]-[21]. 5 There is provision for the making of remedial orders in s 1322(4) of the Corporations Act. Relevantly, it provides for the making of orders declaring that 'any act, matter or thing purporting to have been done under [the Corporations Act] or in relation to a corporation' is not invalid by reason of a contravention of a provision of the Act. There is also power to extend the period for doing any act, matter or thing. Consequential or ancillary orders to such orders may also be made. 6 Section 1322(6) provides that such orders shall not be made unless the Court is satisfied of certain matters, relevantly for present purposes that it is just and equitable for the orders to be made and that no substantial injustice has been or is likely to be caused to any person. Otherwise, the discretion conferred is unfettered: In the matter of National Roads and Motorists' Association Ltd [2003] FCAFC 206 at [21]. 7 Section 1322 is remedial in nature and is therefore to be given a generous interpretation: Weinstock v Beck [2013] HCA 14; (2013) 251 CLR 396 at [55], [60]. It can be exercised conditionally or unconditionally: at [53]. However, it may only be exercised with respect to particular identified contraventions that are feared or suspected to have occurred: at [40]. It is in the context of those particular contraventions that the Court is to determine whether it is satisfied of the matters stated in s 1322(6). 8 Instructive examples of the application of the relevant principles include Sprint Energy Limited, Wave Capital Ltd [2003] FCA 969 and ICandy Interactive Limited, in the matter of ICandy Interactive Limited [2018] FCA 533 at [43]-[44]. 9 On 10 October 2018, I made remedial orders in respect of the Offer. These are my reasons for making those orders.

Relevant circumstances 10 Mr Michael Hackett, the Chairman of ADF and Dairy Fund Management deposed to the circumstances in which the contraventions had occurred. Although legal advice was taken at the time, it was understood to relate to a different offer and not to include the Offer. Mr Hackett was aware that listed shares could be issued without full disclosure in certain circumstances. However, he did not have a detailed understanding of the provisions and acted on the basis of his incorrect understanding of the legal advice. 11 The affidavit deposed to the applicability of the ASIC Class Order by reason that the stapled securities had been quoted for the requisite period and had not been suspended from trading for more than a total of five days in the 12 month period before the Offer. However, the notice was not issued. Mr Hackett became aware of the consequences of the failure to issue the notice on 1 October 2018 and steps were taken immediately to notify the Australian Securities and Investments Commission and to bring an application in this Court. Further, the affidavit also deposed to compliance with Chapter 2M and that there was no excluded information as defined in the ASIC Class Order that had been withheld from disclosure. There was no suggestion that there had been any dishonesty. By the time of the application the Offer remained open and no stapled securities had been issued under the terms of the Offer. 12 ASIC and ASX were notified of the application. They raised no matters that would be against the grant of the orders sought.

Just and equitable to make the orders 13 Standing to seek the relief was demonstrated. 14 In those circumstances, I was satisfied that it was just and equitable to make the orders sought. The words 'just and equitable' are of the widest significance. They require the exercise of a judgment of a kind that a court would be expected to make in all the circumstances: The Chinese Cultural Club Limited [2004] NSWSC 432. I was also satisfied that there would be no substantial injustice to any person of the orders sought were made. The affidavit referred to prejudice that would arise of there was a delay in the capital raising. There was no evident prejudice to holders of the stapled securities (the recipients of the Offer) if the orders sought were made. There must be real and not merely insubstantial or theoretical prejudice before there is substantial injustice: Elderslie Finance Corp Ltd v Australian Securities Commission (1993) 11 ACLC 787 at 160. Determining whether there is substantial injustice involves a weighing of any prejudice which would be suffered by another person if the order was made: Gangemi v Osborne [2009] VSCA 297 at [62].

The significance of the ASIC Class Order 15 An issue arose as to the significance of the fact that the contravention had arisen because of the failure to meet the conditions for the operation of the exemption afforded by the ASIC Class Order. Under each of s 741(1)(a) and s 1020F(1)(a), ASIC may exempt a person from Chapter 6D and Part 7.9 respectively. The ASIC Class Order was made in the exercise of the power conferred by those provisions. It was the failure to meet the notice requirement necessary to fall within the ASIC Class Order exemption that resulted in the contravention. As I have noted, s 1322(4)(a) empowers the Court to make a declaration that an act is not invalid by reason of a contravention of a provision of the Corporations Act. As there was a contravention arising from the failure to fall within the ASIC Class Order I was satisfied that the declaration to the effect that the Offer was not invalid could be made. Then there was a separate question as to the extension of time to provide the notice to meet the requirements of the ASIC Class Order. As I have noted, s 1322(4)(d) empowers the Court to extend time for doing any act, matter or thing under the Act or in relation to a corporation. The issue was whether the Court was empowered to extend the time for giving the notice required to bring ADF and Dairy Fund Management within the exemption afforded by the ASIC Class Order and thereby in compliance with the requirements of Chapter 6D and Part 7.9 respectively. 16 In Elderslie Finance Corp Ltd at 161, Owen J dealt with a similar situation. His Honour held that the lodging of a directors' report that was necessary to bring the company within the exemption was something which is required to be done in relation to a corporation. However, the requirement to lodge the notice in this case (and the requirement to lodge the directors' report in Elderslie) was not a direct requirement of the Corporations Act. Nor was it a matter that the constitution of the company required. It is to be noted that s 1322(4)(a) deals with contravention of a provision of the Corporations Act and a contravention of a provision of the constitution of a corporation. I note that orders have been made in relation to schemes of arrangement on the basis that they amount to matters in relation to a corporation: In the matter of Commonwealth Steel Pty Ltd [2013] NSWSC 1983 at [22]. However, it may be that s 1322(4)(d) reflects the same dichotomy as in s 1322(4)(a) and is more confined. Even if that be so, I was satisfied for the following reasons that a failure to do that which is required to be done in order to come within an exemption under s 741(1)(a) or s 1020F(1)(a) with the consequence that the exemption did not apply and there was a contravention, was something that could be the subject of an order under s 1322(4)(d) on the basis that it deals with a contravention of the Corporations Act. 17 I note that s 1322(4)(d) expressly provides for the making of an order extending time after the period concerned has ended. The nature of the order sought was not to alter the terms of the exemption (the making of which was a power entrusted to ASIC and not to the Court), but rather was a form of order nunc pro tunc with the result that the satisfaction of the condition required to fall within the exemption (and thereby not contravene the Corporations Act) was met by an order that had the effect of extending the period within which a notice could be given that would satisfy the requirement that it be given within 24 hours. Put another way, the 24 hour requirement of the ASIC Class Order remained unchanged but a notice given at a later time was, by force of the order, to be treated as if it had been given within the 24 hour period. By reason that the giving of the notice was the means by which a person was brought within the exemption under s 741(1)(a) or s 1020F(1)(a) it was an act 'under the Act'.

Part 7.9 18 By reason that the securities were stapled securities that included units in the ADF Trust then it was the financial products provisions of Part 7.9 that applied. On my review the decided cases in which powers under s 1322(4) have been exercised to grant remedial relief in respect of a failure to meet the disclosure requirements have concerned Chapter 6D. However, I was satisfied that a similar approach was required in considering remedial orders in respect of a feared or suspected contravention of Part 7.9.

Conclusion 19 Accordingly, I made orders substantially in the terms sought by the applicants. I formed the view that there was no need to provide for an opportunity for holders of the stapled securities to be given an opportunity to apply to set aside or vary the orders given the time at which the application had been made and the fact that stapled securities had not been issued. 20 I made no order as to costs as I would distinguish the present case from a case such as Wave Capital Ltd at [32] where there was blame to be attributed to a particular party in circumstances where the company should not bear the costs of the application: see also ICandy Interactive Limited. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Colvin.