EX PARTE IMDEX LTD [2020] WASC 298 (18 August 2020)

Part 6D.2, Corporations Act

1. Part 6D.2 imposes disclosure obligations in relation to the issue and sale of shares.
2. In certain circumstances, these obligations can be satisfied by lodging what is commonly referred to as a cleansing notice.[3] If disclosure has not been made by the issuer and the shares are on-sold within 12 months, the party to whom the shares are issued may be obliged to make a disclosure.[4]

1. Imdex is an Australian public company whose securities are listed on the Australian Securities Exchange (ASX). It is a technology company which provides services in mining operations from exploration to production.[5] As at 7 August 2020, Imdex had 392,496,108 shares on issue with a market capitalisation of approximately $AUD 537 million.[6]
2. On 6 July 2020, Imdex International Pty Ltd, a wholly owned subsidiary of Imdex, entered into a share purchase agreement with the Gamsons, as vendors, for the purchase of AusSpec International Ltd (AusSpec).[7] Under the share purchase agreement, $AUD 5 million worth of Imdex shares were to be issued to the Gamsons or their nominee.[8]
3. On or about 17 July 2020, the plaintiff was advised by the Gamsons that Atrico was to be issued a portion of these shares as the Gamsons' nominee. Atrico had been engaged by AusSpec as its corporate advisor on the sale.[9] The Gamsons sought to have some of their shares issued to Atrico, as remuneration to Atrico for their services. At this time, the plaintiff was also advised that the Gamsons and Atrico were both intending to immediately sell their shares.[10]
4. The managing director and controlling shareholder of Atrico is Ivan Gustavino. Mr Gustavino is also a director of the plaintiff and has been since 3 July 2015. Mr Gustavino did not participate in board deliberations in respect of the transaction or the approval of entry into the share purchase agreement.[11]
5. On 22 July 2020, the company issued 4,438,851 ordinary fully paid shares (July share issue). 3,655,590 shares were issued to the Gamsons and 783,261 to Atrico.[12] On the same date, Paul Evans, chief financial officer and company secretary of Imdex, was informed by Ruth Milne, the contracts and compliance officer of Imdex, that the July share issue had occurred and confirmation letters were issued to the Gamsons and Atrico by the plaintiff's share registry, Computershare Investor Services Pty Ltd (Computershare).[13]
6. Mr Evans and Ms Milne completed an online Appendix 3B as required by the Listing Rules of the ASX. It was the first time either had completed the Appendix 3B online. Mr Evans deposed that both he and Ms Milne were unsure why the online Appendix 3B did not include the total issued capital on a cumulative basis but otherwise believed that completing the online form would facilitate the application for quotation of shares on the ASX.[14]
7. On 7 August 2020, Mr Evans became aware that the plaintiff had not issued an Appendix 2A or a cleansing notice pursuant to s 708A of the Act. This occurred when Computershare sent an email to Ms Milne (who forwarded it to Mr Evans) informing the plaintiff they had noticed a discrepancy between the issued capital of the plaintiff in their records and the number of quoted shares based on ASX records.[15]
8. On being made aware of the issue, the plaintiff immediately sought legal advice from Ms Robyn Ferguson, a partner of HopgoodGanim, and made enquiries as to whether the shares the subject of the July share issue had been traded.[16]
9. Prior to completion, Mr Milne had introduced the Gamsons to Euroz, a broking firm, to assist them in the sale of their shares. On 7 August 2020, Ms Ferguson spoke with Nick McGlew from Euroz who confirmed they had facilitated the trade of the majority of the July share issue to two institutional buyers (3,774,738 shares) with a small number of shares traded on market (508,523 shares). The Gamsons retained 155,590 shares.[17] The buyers of the on‑market shares were not known and not able to be identified. Ms Ferguson was unable to determine from her conversations with Computershare and Euroz whether the institutional buyers had re‑sold their shares.[18]
10. On 10 August 2020, the plaintiff lodged an Appendix 2A and cleansing notice in respect of the July share issue. Imdex also announced that it had sought orders from this court for the extension of time within which a valid cleansing notice under the Act in respect of the July share issue may be given to ensure that the cleansing notice it had lodged was valid.[19] On the same date, the plaintiff requested their shares be placed in a trading halt and ASX announced the trading halt.[20]
11. On 10 August 2020, Mr Evans received confirmation from the ASX that the shares issued in the July share issue had been quoted.[21] As a result, the discrepancy identified by Computershare was rectified.
12. On 10 August 2020, solicitors for the plaintiff informed this court of its intention to lodge the application and sought a date for the hearing. The originating process was filed on 10 August 2020 and was listed for hearing before me on an urgent basis on the morning of 12 August 2020. When the matter came before me on that date, the company relied on five affidavits being:

(b) an affidavit of Anthony Wooles, the chairman of the plaintiff, filed 11 August 2020;

(d) an affidavit of Ms Ferguson filed 11 August 2020; and

(e) a supplementary affidavit of Ms Ferguson filed 12 August 2020.

1. Mr Wooles' evidence was that he was generally aware that a cleansing notice was an instrument that allows unrestricted trading of shares without a disclosure document and that one is issued if the shares are to be tradeable. He deposed that he relied on the company secretary to ensure that cleansing notices were issued when required.[22] Mr Wooles' evidence was that the failure to lodge a cleansing notice was likely inadvertent and an oversight.
2. Mr Wooles stated that the company has considered its processes for issuing shares and complying with its obligations under the Act. The plaintiff intends to put in place new procedures to ensure that future share issuances occur through a more formalised process involving legal review by either internal or external lawyers.[23]
3. In relation to the other non-executive directors, Mr Wooles deposed that he had been informed by each of them on 11 August 2020 that they had relied upon the company secretary for the July share issue to be carried out in compliance with the Act.[24]
4. Ms Milne's evidence was that this was the first share issue she had been involved in since the amendments to the Listing Rules on 1 December 2019. At the time of completing the new online form, both she and Mr Evans considered why the new online Appendix 3B did not include provision for the insertion of the new total of issued capital of the plaintiff but that she did not appreciate that an Appendix 2A was also required. At that time, she believed that lodging the online Appendix 3B would meet all requirements for the quotation of the July issue shares with the ASX.[25] Her evidence was that the preparation of a cleansing notice was inadvertently overlooked.

The power under Corporations Act s 1322 to grant the relief sought

1. Section 1322 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;

(b) an order directing the rectification of any register kept by ASIC under this Act;

(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;

and may make such consequential or ancillary orders as the Court thinks fit.

(6) The Court must not make an order under this section unless it is satisfied:

(a) in the case of an order referred to in paragraph (4)(a):

(i) that the act, matter or thing, or the proceeding, referred to in that paragraph is essentially of a procedural nature;

(ii) that the person or persons concerned in or party to the contravention or failure acted honestly; or

(iii) that it is just and equitable that the order be made; and

(b) in the case of an order referred to in paragraph (4)(c) - that the person subject to the civil liability concerned acted honestly; and

(c) in every case - that no substantial injustice has been or is likely to be caused to any person.

1. In considering an application under s 1322 of the Act, the essential principles are:[26]

(a) the prescriptive requirements of the wording in s 1322(4)(a) and the pre-conditions in s 1322(6) need to be satisfied;[27]

(b) the Court retains a discretion under s 1322(4)(a) as to whether it makes the orders sought;

(c) the broad powers reflect a legislative policy that the law should not inflict unnecessary liability or inconvenience or invalidate transactions because of non‑compliance with its requirements where such non-compliance is the product of honest error or inadvertence and where the court can avoid its effects without prejudice to third parties or to the public interest in compliance with the law;[28]

(d) implied limitations to the broad powers in s 1322 will not be readily implied.[29] Section 1322 is remedial in character and should be applied broadly;

(e) the Court can make orders under s 1322(4)(a) on conditions and also make such consequential and ancillary orders as it thinks fit; and

(f) an order can be made under s 1322(4)(a) notwithstanding that the contravention or failure concerned resulted in the commission of an offence.[30]

Disposition Application by an 'interested party'

1. I accept that the plaintiff is an interested person who may seek relief, as required by s 1322(4).[31]

1. The ASX has indicated that it did not oppose the application nor intend to appear at the hearing.[32] ASIC indicated that it neither supports nor opposes the application and did not intend to appear at the hearing of the matter. It formed this view taking into account a number of matters, including that the plaintiff did not seek relief as to its own conduct, its directors or company secretary.[33]

Extension of time under s 1322(4)(d)

1. The test under s 1322(4)(d) was set out by Vaughan J in Re Jaxsta Ltd; Ex parte Jaxsta Ltd:[34]

As to s 1322(4)(d), I derived more guidance from the two-stage process embraced by Barker J in Blaze Asset Pty Ltd v Target Energy Ltd.

There Barker J stated:

'[T]he exercise of the power under s 1322(4) [referring to s 1322(4)(d)] involves in effect a two stage process. First, the Court needs to determine whether, having regard to the circumstances of the case and the general objects of the [Corporations Act 2001 (Cth)], it is appropriate to make an order extending a relevant period, or abridging a relevant period. Secondly, if those circumstances are made out, then the Court must address the question whether any substantial prejudice has been or is likely to be caused to any person by the making of such an order.'

Also, the power under s 1322(4)(d) must be exercised having regard to the general objects and purposes of the relevant statutory provision within the Corporations Act 2001 (Cth) - here the statutory purpose evinced by s 723(3). The court's order must not undermine the reasons for the requirements of the Act. The power must be exercised having regard to the interests of all parties affected and the public interest in ensuring compliance with the Act. (footnotes omitted)

1. The period to be extended may be extended even if it has expired. In this case, the period expired on 29 July 2020, five business days after 22 July 2020.
2. For the following reasons, in the circumstances of this case, I was satisfied that it was appropriate to extend the time period within which to lodge the cleansing notice until 10 August 2020 as sought by the plaintiff in their originating process.
3. First, the extension sought is for a short period. This date is approximately 12 days after 29 July 2020; the court has granted much longer extensions previously.[35]
4. Second, the cleansing notice was not lodged due to inadvertence and was promptly rectified upon its discovery by the plaintiff. Mr Evans by his affidavit gave evidence that he did not check with internal lawyers of the plaintiff or external legal counsel whether a cleansing notice was required.[36] As soon as he was informed of the error, he immediately sought the advice of external counsel to rectify the position.
5. Third, in the absence of an extension, there are adverse consequences for the plaintiff and shareholders. Unless the orders are made by the Court, the plaintiff's shares will continue to be suspended from trading which will deny the shareholders of the plaintiff the opportunity to trade their shares. In addition, the company will potentially lose its ability to lodge a cleansing notice under s 708A(5)(b), which requires the preparation of a prospectus for future issues of shares.
6. Fourth, the shareholders who have purchased shares on market since 22 July 2020 may have purchased some of the shares the subject of the July share issue. Given that any such sales will have occurred without disclosure, this potentially means that these transactions are void or voidable creating title issues for these parties.
7. Fifth, as has been previously noted by Vaughan J, in facilitating the transaction as originally contemplated, the making of the orders sought is consistent with the conduct of commerce generally.[37] Section 1322(4)(d) should be exercised in a way which does not unnecessarily stifle corporate and financial activity on technical grounds.[38]
8. Sixth, the plaintiff brought the application without delay. It has been four days since Imdex first realised the issue and approached the court.
9. Seventh, the additional orders sought by the plaintiff provide for notice to be given to all persons affected and the ability for them to apply to raise any matters with the court.
10. Eight, neither ASIC or the ASX oppose the application, nor do any shareholders of the plaintiff.
11. Counsel at the hearing and in their submissions drew to my attention that the plaintiff had committed a 'technical breach' of ASX Listing Rule 10.11. This is because the July share issue included the issue of shares to Atrico of which Mr Gustavino, a director of the plaintiff, is the managing director and controlling shareholder. This matter was raised promptly with the ASX on 9 August 2020 and is being addressed separately.[39] I note that the plaintiff does not seek any orders for the removal of any consequences for Atrico or any director as a result of the breach of the Listing Rules or otherwise. I do not consider that this should prevent the plaintiff from obtaining the orders it seeks.

1. The company submitted that the pre-condition is satisfied in that there is no failure of the persons concerned or the company to act honestly.
2. In Re ICandy Interactive Ltd, Banks‑Smith J undertook a comprehensive review of the relevant principles.[40] Relevantly, Banks‑Smith J considered that:

(a) when determining whether someone has acted honestly for the purposes of section 1322, the courts look to absence of evidence of dishonesty and prompt action to remedy the error;[41]

(b) the concept of acting honestly can embrace:[42]

(i) inadvertence or failure to turn one's mind to an issue;

(ii) active but incorrect consideration of a legal issue;

(iii) failure to consider an issue at all; or

(iv) failure to understand or appreciate the significance of non-compliance; and

(c) when testing for honesty, the authorities reveal that the courts look at the company itself, the directors, the company secretary and others as may be concerned.[43]

1. In respect of the July share issue, I find that the actions of the company in failing to lodge the cleansing notice as required by s 708A(5) of the Act were honest and inadvertent.

1. I have considered the classes of persons who may be impacted by the making of these orders.
2. First, the people who were issued the impugned shares. The prejudice to them is that if they seek to offer to sell or sell the impugned shares, such offers or sales may be void or voidable for want of compliance with the statutory requirements.[44]
3. Second, any people who purchased shares from on-sellers may have on‑sold the impugned shares themselves by trading on the open market of the ASX since their issue on 22 July 2020. Any further sales of shares will have occurred without the requisite disclosure under the Act, pt 6D.2.
4. I find that there is no basis for inferring that substantial injustice has been or is likely to be caused to any person by the making of the proposed orders.
5. I accept that if the orders are not made, then there may be substantial injustice to the plaintiff as the offers of and sales of shares may be void or voidable which could give rise to some commercial uncertainty and expense for the company as it must remain involved in problems caused by void or voidable offers and sales of its shares. I also accept that there may be substantial injustice to the other ordinary shareholders of the plaintiff, as they may not be able to trade their shares on an open market if the ASX does not lift the current suspension from trading.
6. It is usual in cases such as these to provide an opportunity for shareholders or other parties to raise a complaint about the proposed orders. The usual timeframe is that there be liberty to apply within 28 days from the date of the order. I accept that this is an appropriate timeframe in this case.

1. There is no evidence of any substantial misconduct, serious wrongdoing or flagrant disregard of the corporate law or the company's constitution so as to warrant refusal of the relief sought.[45]
2. There is nothing in the evidence before me that suggests that any minority shareholder interest might be oppressed or any other interest might be affected. I am satisfied that all shareholders impacted by the contravention as well as the ASX and ASIC have been given notice of this hearing.[46] No shareholder or either regulator has sought to intervene in the hearing or given notice that they want to be heard on the application.
3. In exercising the discretion to grant relief under s 1322(4), a relevant factor is the promptness with which the plaintiff has sought to remedy the irregularity once it has been identified.[47] In this case, I accept that the plaintiff acted diligently after discovering a cleansing notice should have been issued on 7 August 2020.[48]

1. Even if I was not satisfied that the company and the relevant parties had acted honesty (which I have found to be the case), it is open to me to make orders under s 1322(4) if it is just and equitable to do so and no substantial injustice has been or is likely to be caused to any person. For the reasons set out above, I consider that it would be just and equitable to grant relief to the extent necessary to reasonably protect the interests of current shareholders and for the integrity of future trading in the plaintiff's shares.

1. The company also seeks two declarations under s 1322(4)(a) of the Act. First, a declaration that the cleansing notice be deemed to take effect as it if had been given to the ASX on 22 July 2020 and second, that any act, matter or thing purporting to have been done under the Act or in relation to a corporation is not invalid by reason of any contravention of a provision of the Act.
2. I note that:

(a) the proposed validation orders are framed in a declaratory form;

(b) the act, matter or thing, are the lodgement of the notice and the offers and sales of securities; and

(c) the contravention is the offering of securities for sale or sales without proper disclosure in contravention of s 707(3) of the Act.[49]

1. In respect of the first order, courts have on a number of previous occasions made similar orders.[50] It is not in doubt that the court has power to make orders that are consequential or ancillary to an order extending the period for doing an act, matter or thing under the Act.
2. The question as to whether the court should make such a deeming order was discussed by Colvin J in Re Spectur Limited as follows:[51]

Spectur also sought orders to the effect that when cleansing notices are issued in accordance with the orders extending time that the notices be deemed to take effect as if they had been given within the period of five business days specified in s 708A(6)(a). The effect of such an order would be to go further than extend the period after the time for compliance had passed (which is a possibility that is expressly contemplated by s 1322(4)(d)). It would give the cleansing notice retrospective operation.

The Court has power to make orders that are consequential upon or ancillary to an order extending the period for doing an act, matter or thing under the Corporations Act. There may be circumstances in which a period may be extended to a date which has already passed by the time of the application so as to bring an act that has occurred outside a period specified by the Corporations Act within the specified period. In such a case, there may be an ancillary order to the effect that the act which had already occurred was to take effect as if performed when time had been extended. However, the proposed order would go further and give a future act retrospective effect. In particular, it would seek to authorise the service of cleansing notices with retrospective effect. It is an order which would make the extension of the period of time unnecessary. As indicated in the course of submissions in support of the application I am not presently persuaded that such an order would be within the scope of s 1322(4)(d) or the power to make consequential or ancillary orders. In those circumstances, counsel for Spectur did not press for the making of those additional orders.

1. In that case, at the time of the hearing, there was no evidence that there had been any trading in the shares nor had a cleansing notice been lodged. I accept that in such a case, there was no utility in making any orders for declarations of validity nor a deeming order.
2. In Re Micro-X Ltd, Moshinsky J expressed the view that 'deeming orders' were a corollary of the orders seeking an extension of time.[52]
3. In my view, for the following reasons, I consider it is appropriate in this case to make the ancillary orders sought by the plaintiff, including the 'deemed order'. First, the evidence before me is that the shares the subject of the July share issue have been sold and it cannot be discounted that there have been resales of these shares. In these circumstances, I consider that it is appropriate to make the orders sought to remove any question as to title in the shares of the plaintiff. Second, at the time the application came on for hearing, the cleansing notice had already been lodged. For that reason, the order did not concern a future act but a past act. Third, I agree with Moshinsky J that where shares are on‑sold, the 'deeming order' is a corollary of the orders seeking an extension of time.
4. In respect of the second order, for the reasons set out above in respect of the extension of time, I consider that it is appropriate to make the orders sought.

1. The conduct of the plaintiff in failing to lodge a cleansing notice was inadvertent and not in blatant disregard of its obligations under the Act. I do not consider that public policy will be undermined by granting the plaintiff the relief sought.
2. For these reasons, I was and am satisfied that in the circumstances of this case, relief should be granted in the terms sought by the plaintiff. Accordingly, at the conclusion of the hearing, I made orders in the form annexed to these reasons as Annexure 'A'.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

[1] Affidavit of Paul Anthony Evans filed 10 August 2020 [23], [25] - [30], 'PAE-12'.

[2] Affidavit of Paul Anthony Evans filed 10 August 2020 [32].

[3] Corporations Act, s 708A(5).

[4] Corporations Act, s 707(3). See also Re Golden Gate Petroleum Ltd [2010] FCA 40; (2010) 77 ACSR 17.

[5] Affidavit of Paul Anthony Evans filed 10 August 2020 [9].

[6] Affidavit of Paul Anthony Evans filed 10 August 2020 [10].

[7] Affidavit of Paul Anthony Evans filed 10 August 2020 [15], 'PAE-04'.

[8] Affidavit of Paul Anthony Evans filed 10 August 2020, 'PAE4', cl 4.1.

[9] Affidavit of Paul Anthony Evans filed 10 August 2020 [17].

[10] Affidavit of Paul Anthony Evans filed 10 August 2020 [20] - [21].

[11] Affidavit of Paul Anthony Evans filed 10 August 2020 [17].

[12] Affidavit of Paul Anthony Evans filed 10 August 2020 [26].

[13] Affidavit of Paul Anthony Evans filed 10 August 2020 [28], 'PAE12'.

[14] Affidavit of Paul Anthony Evans filed 10 August 2020 [29], 'PAE-13'.

[15] Affidavit of Paul Anthony Evans filed 10 August 2020, 'PAE-14'.

[16] Affidavit of Paul Anthony Evans filed 10 August 2020 [22].

[17] Affidavit of Paul Anthony Evans filed 10 August 2020, 'PAE-16'.

[18] Affidavit of Paul Anthony Evans filed 10 August 2020 [39].

[19] Affidavit of Paul Anthony Evans filed 10 August 2020, 'PAE-18'.

[20] Affidavit of Paul Anthony Evans filed 10 August 2020, 'PAE-19'.

[21] Affidavit of Anthony Wooles filed 11 August 2020, 'AW-01'.

[22] Affidavit of Anthony Wooles filed 11 August 2020 [10].

[23] Affidavit of Anthony Wooles filed 11 August 2020 [13].

[24] Affidavit of Anthony Wooles filed 11 August 2020 [21] - [22].

[25] Affidavit of Ruth Anne Milne filed 11 August 2020 [15].

[26] Re Helios Energy Ltd [2017] FCA 840; (2017) 122 ACSR 174.

[27] Weinstock v Beck [2013] HCA 14; (2013) 251 CLR 396 [43], [53] and [64].

[28] Re Wave Capital Ltd [2003] FCA 969; (2003) 47 ACSR 418, 426 [29].

[29] Weinstock v Beck [43], [55] - [56] and [64].

[30] Corporations Act, s 1322(5).

[31] Re Caeneus Minerals Ltd [2018] FCA 560 [38]; Re Classic Minerals Ltd [2018] FCA 2039 [34].

[32] Supplementary affidavit of Robyn Anne Ferguson filed 12 August 2020, 'RAF13'.

[33] Affidavit of Robyn Anne Ferguson filed 11 August 2020, 'RAF2'.

[34] Re Jaxsta Ltd; Ex parte Jaxsta Ltd [2018] WASC 390 [41] - [43].

[35] Re Austpac Resources NL [2010] NSWSC 1438 (2 months and 8 days extension sought).

[36] Affidavit of Paul Anthony Evans filed 10 August 2020 [54].

[37] Re Jaxsta Ltd; Ex parte Jaxsta Ltd [50].

[38] Blaze Asset Pty Ltd v Target Energy Ltd [2009] FCA 698; (2009) 177 FCR 488 [33].

[39] Affidavit of Paul Anthony Evans filed 10 August 2020, 'PAE-27'.

[40] Re ICandy Interactive Ltd [2018] FCA 533, (2018) 125 ACSR 369 [54] - [104].

[41] Re ICandy Interactive Ltd [54], [106] - [107].

[43] Re ICandy Interactive Ltd [60] - [104].

[44] Re Poseidon Nickel Ltd [2018] FCA 1063; (2018) 129 ACSR 57, 67 [63].

[46] Affidavit of Anthony Wooles filed 11 August 2020 [27], 'AW-02'.

[47] Re G8 Communications Ltd [2016] FCA 297; (2016) 112 ACSR 22, 34 [60].

[48] Affidavit of Paul Anthony Evans filed 10 August 2020 [32].

[49] Re Caeneus Minerals Ltd, [39] ‑ [40]; Re Classic Minerals Ltd, [35] - [36].

[50] Re Charter Hall Ltd [2007] FCA 1316; Re Diversified United Investment Ltd [2008] FCA 720; Re RCR Tomlinson Ltd [2009] FCA 1130; Re Austpac Resources NL [2010] NSWSC 1438; Re Beadell Resources Ltd [2013] FCA 13 and Re Micro-X Limited [2019] FCA 1154.

[51] Re Spectur Limited [2019] FCA 867; (2019) 136 ACSR 542 [11] - [12].