By Originating Process filed on 9 August 2019 the Plaintiff, Sandon Capital Investments Limited ("Sandon") applies for orders under ss 1322(4)(a), 1322(4)(d), 1325A and 1325D of the Corporations Act 2001 (Cth) in respect of an extension for the time for compliance with s 625(3)(c)(i) of the Act and also seeks an order, initially under s 1325A(2) of the Act but potentially also under the other sections to which I have referred, extending the time for the dispatch of the bidder's statement to the shareholders of Mercantile Investment Company Limited ("MICL") whose shares are listed on the New Zealand Stock Exchange ("NZX"). These orders are sought by reason of two difficulties which have arisen in respect of a takeover bid made by Sandon in respect of shares in MICL.
The background to the application emerges from affidavits dated 8 August and 9 August 2019 of Sandon's solicitor, Mr Andersen. The first issue is parallel to that which I have addressed in an earlier judgment today: Re Clime Capital Limited [2019] NSWSC 1479. The second arises only in respect of this application.
Mr Andersen's evidence is that Sandon is a public company and its shares are quoted for trading on Australian Securities Exchange Limited ("ASX"). MICL is also a public company and its shares are quoted for trading on ASX, and it is also admitted to the official list of NZX. Mr Andersen's evidence, on information and belief, is that some 2,726 persons hold MICL shares quoted on ASX and 54 persons hold MICL shares quoted on NZX.
On 18 July 2019, Sandon lodged a bidder's statement with ASIC and provided that bidder's statement to MICL, and also announced the bid to ASX. Those steps commenced the "bid period" for the purposes of the Act. On 1 August 2019, Sandon dispatched the bidder's statement and offers in respect of shareholders whose shares were quoted on the ASX. That commenced the "offer period" for the purposes of the Act. On 6 August 2019, Sandon lodged an Appendix 3B New Issue Announcement and application for quotation of additional securities with ASX. Those events give rise to a difficulty in respect of s 625(3)(c) of the Corporations Act which relevantly provides that, where the consideration under an off-market bid is or includes securities, the offer is subject to a condition that an application for admission to quotation be made within seven days after the start of the bid period. Here, the application for quotation was made within seven days after the start of the offer period but not within seven days after the start of the bid period.
Mr Andersen in turn refers to the circumstances in which this issue has arisen, where a transaction timetable incorrectly specified the time for lodgement of the application for quotation as within seven days of the commencement of the "offer period" rather than within seven days of the commencement of the "bid period", and that error occurred due to an inadvertent oversight in identifying the applicable period. As the narrative above indicates, the Company Secretary of Sandon lodged the application for quotation within the seven days after the start of the offer period, but not within the seven days after the start of the bid period, reflecting the error in that transaction timetable. That error was discovered on 6 August 2019; apparently prior to lodgement of the application for quotation with ASX, but after the seven day period for lodgement after the start of the bid period had expired. This application was then promptly brought. The error which occurred here is identical to that which has occurred in earlier cases, including FE Ltd v Padbury Mining Ltd [2010] FCA 1207, and is identical with that which occurred in Re Clime Capital Limited above.
By his second affidavit dated 9 August 2019, Mr Andersen indicates that the Australian Securities and Investments Commission ("ASIC") and the target, MICL, have both been advised of this application. By letter dated 9 August 2019, ASIC indicated that it neither supported nor opposed the application and did not intend to appear at the hearing. It also observed that:
"In reaching this position, ASIC has considered a number of factors, including that the Application does not seek relief in respect of any contraventions of the law committed by [Sandon], its directors or secretary. ASIC reserves its rights in respect of such contraventions (if any)."
I will address that observation below. Mr Tam also fairly draws to the Court's attention, in an ex parte application, the fact that ASIC has also raised a question whether Sandon would consider extending its offer to allow a full 28 days to MICL shareholders whose shares are listed on the NZX to consider that offer, and whether Sandon will issue a supplementary bidder's statement. I will also return to those matters below. By email dated 9 August 2019, the solicitors for MICL in turn indicated that it did not intend to be heard, but requested a copy of any orders that were made by the Court.
[3]
Whether the Court may hear this application during the bid period
Two issues arise in respect of the application, as Mr Tam with whom Mr Rogan appears, points out. The first is whether the Court may hear the application during the bid period notwithstanding s 659B of the Act. For the reasons set out in Re Venturex Resources Ltd (2009) 72 ACSR 358 and in my judgment in Re Clime Capital Limited above, it seems to me that the Court has power to entertain that application, and to grant relief under s 1325A of the Act in an appropriate case, notwithstanding s 659B of the Act.
[4]
Whether the Court should extend the time for lodgement of the application for quotation
The second question is whether this is an appropriate case for the grant of such relief under s 1325A(2) of the Act. That section relevantly provides that the Court may make an order it considers appropriate if, inter alia, offers under a bidder's statement state that securities will be able to be traded on a financial market and an application for quotation is not made within seven days after the start of the bid period, as occurred here. Relevant factors in dealing with such an application include whether the error was made innocently; the impact upon third parties; and whether the application was brought promptly: see FE Ltd above; Re Activistic Ltd [2016] FCA 1520; Re Clime Capital Limited above.
The evidence to which I have referred indicates that the error was in this case made innocently and by inadvertence; the interests of third parties, including shareholders in Sandon, would be promoted by preserving the ability for them to receive and consider the takeover bid; and this application was made promptly. It seems to me that, consistent with the approach adopted in the earlier cases in similar circumstances, and by me in Re Clime Capital Limited above, the relief that is sought under s 1325A(2) of the Act should properly be granted in respect of the time for compliance with s 625(3)(c) of the Act.
[5]
Late dispatch of bidder's statement to some MICL shareholders
A further difficulty has arisen in this matter, namely that the bidder's statement and offers were dispatched to MICL shareholders whose shares were quoted on ASX on 1 August 2019 and to MICL shareholders whose shares were quoted on NZX on 7 August 2019. Mr Andersen's evidence is that this arose due to a communication error made by a third party service provider in respect of the bid. That course did not comply with item 6 of the table in s 633(1) of the Corporations Act which provides that a bidder must, inter alia, send the bidder's statement and offers to each person (other than the bidder) who holds securities in the bid class within a three-day period and within 14-28 days after the bidder's statement is sent to the target. I will refer further to the proper construction of that section below. Mr Andersen recognises, in his first affidavit, that the 54 shareholders in MICL who hold shares quoted on NZX were sent their offers up to six days after the 2,726 shareholders who hold their shares quoted on ASX.
This issue raises questions which are, perhaps, more complex than those which arose under s 1325A of the Act and which, it appears, have not been addressed in any earlier case. As I noted above, s 633(1) of the Act sets out the steps in an off-market bid. The sixth of those steps is that the bidder must send the bidder's statement and offers to each person other than the bidder who holds, relevantly, securities in the bid class, and that is to be done within a three-day period and within 14-28 days after the bidder's statement is sent to the target. I read the first requirement in that section, that the bidder dispatch the bidder's statements and offers to all shareholders who hold securities in the bid class within that three-day period, as requiring that the dispatch of those materials to the first and last persons to whom they are dispatched must occur within that three-day period. That requirement obviously avoids the risk that there could be a longer delay between the time which the bidder's statement was sent to the first and last shareholders to receive it, potentially up to the 14-28 day period specified in the second requirement. Here, that requirement is not satisfied in respect of shareholders whose shares were quoted on NZX.
A question then arises as to whether the Court has jurisdiction to make an order which either validates the steps which were taken by Sandon, or extends the time for the taking of those steps in respect of Sandon shareholders whose shares were quoted on NZX. Although the Originating Process referred to s 1325A(2) of the Act, it appears that section would not be available in these circumstances. However, ss 1322(4)(a), 1322(4)(d) or 1325A(1) of the Act would potentially apply in these circumstances.
Section 1322 of the Act reflects a broad 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 honesty or inadvertence and where the Court can avoid its effects without prejudice to third parties or the public interest in compliance with the law, and the Court will have regard to the purposes of the Act; the interests of all affected persons; and the public interest in exercising its powers under the section: Re Wave Capital Ltd [2003] FCA 969; (2003) 47 ACSR 418. The width of the Court's powers under that section was confirmed by the High Court of Australia in Weinstock v Beck [2013] HCA 14; (2013) 93 ACSR 231, where French CJ observed (at [39]) that the section is to be "construed broadly and applied pragmatically, principally by reference to considerations of substance rather than those of form." Hayne, Crennan and Kiefel JJ also there observed (at [55]) that that power is not to be hedged by any implied limitation, and Gageler J referred (at [60]), with apparent approval, to an observation in the Court of Appeal in that case that the section was to be construed with all the liberality that its language permits.
Section 1322(4)(a) of the Act in turn allows the Court to declare that an act, matter or thing purported to have been done, or any proceedings purporting to have been instituted or taken, under the Corporations Act are not invalid by reason of a contravention of a provision of the Act. The reference to a "contravention" in that paragraph is given a wide meaning, given the remedial nature of the section, and extends to a situation which falls short of an infringement of the Act, and a validating order can also be made in that situation: Sheahan v Londish [2010] NSWCA 270; (2010) 80 ACSR 337. That power may be exercised where, relevantly, the contravention is essentially procedural, or the persons concerned had acted honestly, or it is just and equitable that the order be made, and provided that no substantial injustice has been or is likely to be caused to any person: s 1322(6). The conditions imposed in s 1322(6) are alternatives, so that only one of them needs to be satisfied in order to allow an order to be made under s 1322(4)(a).
It seems to me that the requirements for a declaration under s 1322(4)(a) are satisfied in this case. It can at least be said, on the evidence before the Court, that the persons concerned acted honestly, where there is no suggestion that Sandon, its officers or the third party service provider had any improper intent in the error which occurred in the dispatch of the bidder's statement and offers to MICL shareholders whose securities were quoted on NZX. It seems to me that it also can be said that no substantial injustice has been or is likely to be caused to any person, including shareholders on NZX, from the grant of relief. It seems likely that such shareholders would prefer to receive an offer, albeit that they have a somewhat shorter time to consider it, than that the takeover bid not proceed by reason of the difficulty which has now arisen. I also bear in mind, in assessing the extent of injustice that has occurred, the fact that the offer period will remain open until 2 September 2019, allowing a significant further period for shareholders whose shares are quoted on NZX to consider that offer, albeit that period is shorter than they would have had had this error not occurred.
In these circumstances, I am satisfied that an order can be made under s 1322(4)(a) of the Act and that it should be made in the relevant circumstances. An order under that section is consistent with ASIC's understanding of the scope of the relief sought, as set out in its letter to which I referred above, since it does not extinguish any contravention of the Act that may have occurred, but validates the transactions notwithstanding any such contravention.
I should also refer, for completeness, with the other matters which ASIC has raised, namely the question whether Sandon would consider extending its offer to allow shareholders whose shares are quoted on NZX the full 28 day period, and whether it would issue a supplementary bidder's statement. I do not consider the Court need address those matters. It is no doubt open to ASIC to continue any dialogue with Sandon in respect of those matters, and if that dialogue does not reach a satisfactory resolution, then the provisions in the Act which allow matters to be raised before the Takeovers Panel could potentially be invoked. It seems to me that those matters are not reasons why the Court would decline to grant relief in these circumstances.
[6]
Relief under other provisions
I should now turn, also for completeness, to the potential relief under s 1322(4)(d) of the Act or s 1325A of the Act, although it is not strictly necessary that I express a view, given the conclusion that I have reached in respect of s 1322(4)(a) of the Act. I note that relief under those sections would not necessarily be consistent with ASIC's understanding of the nature of this application, so far as it would potentially extinguish any contravention of the Act, or avoid any contravention of the Act arising, rather than merely validating the relevant transactions.
Section 1322(4)(d) of the Act relevantly provides that the Court may extend the period for doing any act, matter or thing or taking any proceedings under the Act in an appropriate case, again by reference to the factors specified in s 1322(6) of the Act. It seems to me that s 633(1) step 6 does specify a period, namely a three day period running from the period on which the first of the bidder's statement and offers has been dispatched to shareholders in the target and, in those circumstances, the Court has jurisdiction to extend that period in an appropriate case under s 1322(4) of the Act. The conclusion that I have reached above in respect of the factors specified in s 1322(6) of the Act means that I would also have made such an order, had it been necessary to do so, under s 1322(4)(c) of the Act, in respect of shareholders whose shares were quoted on NZX.
A further question arises as to whether such an order could have been made under s 1325A(1) of the Act which relevantly provides that the Court may make an order that it considers appropriate if a person has contravened a provision of Chapter 6 of the Act. Section 1325A(3) relevantly provides that an order under that section may be made on an application by, inter alia, a person whose interests are affected by the contravention. Sandon plainly falls within that category. It seems to me that, absent any relief granted by the Court, Sandon would have contravened a provision of s 633(1), being step 6 specified in the table in that section. I there have regard to the fact that that step is described as a step that the bidder "must take" to make an effective off-market bid, imposing an obligation to take that step. It is not necessary, in those circumstances, to deal with the relatively complex penalty provisions found in s 1311 and Schedule 3 of the Act, although I note that there is no specific penalty imposed for a contravention of step 6, as distinct from other steps in s 633, in Schedule 3 of the Act. It is also not necessary to determine whether any general penalty provision would be applicable in those circumstances. It seems to me that the power to make an order in respect of a contravention of the provision is available, even if no penalty is specified for that contravention.
On balance, given the conclusions which I have reached above that the contravention was inadvertent, and that it is in the interests of target shareholders generally that the bid proceed, including those shareholders who hold shares in MICL that are quoted on NZX, I would have made an order under s 1325A of the Act had it been necessary for me to do so. It is not necessary for me to do so given the findings which I have reached in respect of s 1322(4)(a) of the Act.
[7]
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Decision last updated: 05 November 2019