Golden Rim Resources Ltd, in the matter of Golden Rim Resources Ltd [2019] FCA 1206

JACKSON J: 1 The plaintiff (applicant), Golden Rim Resources Limited, is a junior mineral exploration company that is listed on the Australian Securities Exchange (ASX). It seeks relief under s 1322(4) of the Corporations Act 2001 (Cth) in relation to the omission to lodge what is known as a cleansing notice in respect of each of two issues of its shares, one in September 2018 and one in May 2019. This court has jurisdiction with respect to the application by reason of s 1337B(1) of the Corporations Act.

Statutory framework 2 A cleansing notice refers to a notice of the kind contemplated in s 708A(5) of the Corporations Act. That section appears in Part 6D.2, which concerns disclosure to investors about offers of securities (other than crowd-sourced funding offers under Part 6D.3A). 3 Section 704 provides that certain provisions, including s 707 and s 708A, say when an offer of securities needs disclosure to investors under Part 6D.2. 4 Section 707(3) provides that an offer of securities for sale within 12 months after their issue needs disclosure under Part 6D.2 if the securities were issued without disclosure to investors and, (broadly speaking) the securities were issued or acquired with the purpose of on-sale and, relevantly, s 708A does not say otherwise. 5 Section 708A(5) provides that a sale offer of quoted securities does not need disclosure to investors if, relevantly, the body lodges with the market operator a notice complying with s 708A(6), that is, a cleansing notice, before the sale offer is made. 6 Section 708A(11) provides that a sale offer of quoted securities does not need disclosure to investors if a prospectus for the class of securities is lodged at certain relevant times. 7 Section 727(1) prohibits an offer of securities that needs disclosure under Part 6D.2 unless a disclosure document for the offer (such as a prospectus) has been lodged with the Australian Securities and Investments Commission (ASIC). 8 As occurs frequently in the Corporations Act, these provisions present a thicket of defined terms. It is not necessary to venture into the thicket here, however. There is no doubt that Golden Rim is a 'body' (that is, a body corporate), that the shares in question here are 'securities', that they were 'issued' within the meaning of the Act and were at the relevant times 'quoted' on a 'prescribed financial market', being the market operated by ASX. 9 Finally, s 1322(4), s 1322(5) and s 1322(6) provide: (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. (5) An order may be made under paragraph (4)(a) or (c) notwithstanding that the contravention or failure referred to in the paragraph concerned resulted in the commission of an offence. (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.

The facts of this case 10 Hayley Butcher is the General Manager, Corporate of Golden Rim and its company secretary. The following account emerges from her affidavit sworn 30 July 2019 in support of the present application. 11 As is common among junior explorers, Golden Rim does not have an income stream from mining operations, so it makes several securities issues each year in order to raise funds for exploration activities and for working capital.

The September 2018 Shares 12 On 30 July 2018 Golden Rim announced a placement of shares in two tranches. A cleansing notice was issued in relation to one of those tranches. As will appear, there was no cleansing notice in relation to the other tranche, being an offer to participate in a raising of $1 million by issuing 38,461,540 shares at an issue price of 2.6 cents per share. 13 On 13 September 2018 a resolution of shareholders approving the issue of those shares for the purposes of ASX Listing Rule 7.1 and other purposes was passed at a meeting of shareholders of Golden Rim. It passed on a show of hands but with support by a substantial majority indicated by the proxies lodged, which were largely in favour of the resolution, with only a small proportion abstaining or wishing to vote against the resolution. The results of the meeting were announced on ASX. 14 Funds were received from persons participating in the issue and the shares were issued on 21 September 2018 (the September 2018 Shares). Ms Butcher prepared and lodged with ASX an Appendix 3B announcement of the issue on the same day.

The May 2019 Shares 15 In March 2019 two further tranches of shares were offered for issue to unrelated qualified institutional, sophisticated and professional investors. One of those tranches involved the issue of 55,498,960 shares at an issue price of 1.3 cents per share to raise approximately $721,000. Again, there was no cleansing notice lodged in relation to this tranche, but there was in relation to the other tranche that was announced at the same time. 16 On 9 May 2019 the issue of the 55,498,960 shares was approved at a general meeting of Golden Rim's shareholders, once again with substantial support indicated by way of proxies, and the results of the meeting were announced to the ASX. 17 All funds having been received, on 17 May 2019 Golden Rim issued this tranche of shares (the May 2019 Shares) and Ms Butcher lodged the necessary Appendix 3B. 18 A meeting of Golden Rim's board occurred on 27 June 2019 at which the directors ratified the issue of the May 2019 Shares and the issue of a cleansing notice for those shares. At this point neither Ms Butcher nor the directors were aware that a cleansing notice had not in fact been issued. The directors also resolved to approve the issue of a cleansing notice in relation to a different tranche of shares that were to be issued as consideration for the purchase of shares in another company.

Discovery of the problem 19 Ms Butcher deposes that on the morning of Friday 28 June 2019 she was preparing that last mentioned cleansing notice when she realised that the Appendix 3B for the issue of the May 2019 shares had not been accompanied by a cleansing notice. This was at approximately 10.30 am (all times Perth time). Within half an hour she spoke to an experienced corporate lawyer who was acting for the company and told her of this. The lawyer said it was a potential problem, recommended that she contact Bellanhouse Lawyers, the solicitors who are on the record for Golden Rim in these proceedings, and advised her to check whether any on-sales of the May 2019 Shares had taken place. Ms Butcher then told Golden Rim's Managing Director of the problem. While speaking to him, she checked Golden Rim's share register and discovered that one shareholder who had participated in the issue of the May 2019 Shares had since sold shares. 20 Early that afternoon, Bellanhouse Lawyers advised Ms Butcher that trading in Golden Rim's securities would need to be suspended until 'completion of the court process', presumably proceedings such as the present application, which they said would likely take six weeks. 21 A meeting of Golden Rim's directors took place at 9.00 am the following Monday, 1 July 2019. It appears that by about 9.15 am the directors had authorised Ms Butcher to place a voluntary suspension on trading of the company's securities on the ASX. Some 15 minutes after that, Ms Butcher received from Bellanhouse Lawyers a draft letter to ASX seeking voluntary suspension. Some 15 minutes after that, she telephoned ASX asking for voluntary suspension. ASX placed a pause on trading at 9.50 am and released Golden Rim's notice of its request for voluntary suspension, along with a market announcement from ASX confirming the suspension, at 10.26 am.

Subsequent steps 22 At around midday on Monday 1 July 2019, Ms Butcher instructed Bellanhouse Lawyers to review previous share issues, as she was concerned that she may have missed other cleansing notices. Early that afternoon a partner from Bellanhouse advised her that there also had not been a cleansing notice for the September 2018 Shares. 23 There is evidence from a manager at the company that maintains Golden Rim's share registry that 22 shareholders out of a total of 33 who participated in the issue of the September 2018 Shares had sold shares before suspension. 24 On 17 July 2019 a 'cleansing prospectus' was lodged with ASIC. That is a prospectus of the sort contemplated by s 708A(11). Its effect is that persons wishing to sell September 2018 Shares or May 2019 Shares can lawfully do so without contravening s 707(3) or s 727(1) if the offer to sell is made at a time after the lodgement of the prospectus. 25 But that only operates prospectively - validation under s 1322(4) is necessary in relation to shares sold before the suspension. On 23 July 2019 Golden Rim sent letters to all those who had participated in the relevant two issues and subsequently sold shares, informing them of the lack of a cleansing notice and of the lodgement of the cleansing prospectus. The letters were candid, and did not attempt to minimise the fact that there had been sales of the relevant shares that are likely to have involved breaches of the Corporations Act. They stated the company's intention to apply for court orders validating the on-sales. Two shareholders have responded to these letters, neither of which expressed any concern. No shareholder or other person claiming to be interested sought leave to be heard at the hearing of this application.

The explanation for the omission to lodge cleansing notices 26 Ms Butcher's evidence is that the omission to lodge a cleansing notice in relation to the September 2018 Shares and the March 2019 Shares was inadvertent. There is evidence that over her nine years as company secretary of Golden Rim, during which time there have been many share issues, those are the only two occasions on which cleansing notices have been required in order to facilitate lawful on-sales of shares in the company but have not been lodged. 27 Ms Butcher's affidavit contains an explanation of the inadvertence, to the effect that there were many demands on her time on each of the days of issue of the shares. It is not necessary to go into detail. I accept that the omissions were inadvertent. Ms Butcher deposes to having recently introduced a procedure for share issues involving a second person performing a checking role. It has already been successfully implemented once. I am satisfied that the problems that arose here do not point to any systemic deficiencies in Golden Rim's governance practices which might give rise to broader concerns.

Applicable principles 28 The principles to be applied in cases such as the present are not contentious. Banks-Smith J gave them detailed consideration in Re iCandy Interactive Limited [2018] FCA 533; (2018) 125 ACSR 369 and I gratefully adopt her Honour's analysis. The points that are salient for the purposes of this application are as follows: (a) Section 1322 is remedial in nature and is to be given a liberal interpretation: iCandy at [43]. (b) The provision has been used to validate non-disclosure by shareholders who on-sell shares on a number of occasions: iCandy at [44]. (c) The company whose shares were on-sold in breach of the Corporations Act is an interested party with standing to bring the application: iCandy at [46]. (d) In determining whether those concerned in or party to the breaches acted honestly, the court looks to absence of evidence of dishonesty. The court is concerned only with whether those people acted honestly in the ordinary meaning of that term. The concept of honesty can embrace inadvertence: iCandy at [54]-[56]. (e) The honesty of the shareholders who sell shares without disclosure is relevant. It is open to the court to readily infer that those shareholders have acted honestly in on-selling the shares: iCandy at [58]. (f) However the court may also consider the honesty of those responsible for the failure of the company to lodge a cleansing notice, including company officers. That is so even where, as here, the relief sought is framed only in terms of the contraventions committed by on-sellers: iCandy at [83], [87], [101]. (g) The court takes into account whether the plaintiff has taken prompt action to remedy the error: iCandy at [54]. (h) In considering whether it is just and equitable to validate the on-sales (s 1322(6)(a)(iii)), the court will generally focus on the interests and conduct of the shareholders: iCandy at [110].

Consideration 29 Golden Rim seeks declarations that any sale or offer of the September 2018 Shares and the May 2019 Shares is not invalid by reason of the seller's failure to comply with s 707(3) and s 727(1) of the Corporations Act. The court has power under s 1322(4)(a) to make declarations of that sort. 30 There was no relevant cleansing notice satisfying s 708A(5) and s 708A(6) of the Corporations Act, or a cleansing prospectus satisfying s 708A(11), at the time of the issue and subsequent sale, by participants in the issues, of shares in the class of shares that were issued. It is therefore likely that at least some of those sales and the offers leading to them breached the requirement in s 707(3) that an offer of a body's securities for sale within 12 months after their issue needs disclosure to investors under Part 6D.2 in circumstances such as those here. The offers are also likely to have contravened the prohibition in s 727(1) on offers of securities without a disclosure document. 31 The court may not make an order under s 1322(4)(a) unless it is satisfied, relevantly, that the persons concerned in or party to the contravention acted honestly. There is no suggestion that shareholders who have on-sold did not act honestly and I infer that they did. I have described the course of events from the point of view of Golden Rim's company secretary, who is the person responsible for lodging cleansing notices to facilitate the lawful on-sale of the shares. The evidence demonstrates that the omission to lodge notices in relation to the September 2018 Shares and the May 2019 Shares was inadvertent and that Ms Butcher acted honestly. 32 Golden Rim also seeks the orders on the alternative ground that it is just and equitable to make them: s 1322(6)(iii). There is nothing to indicate here that shareholders who on-sold the shares had any knowledge that the sales were, or were likely to be, in breach of the Corporations Act. Each of the issues had been approved by the company in a general meeting and for each an Appendix 3B had been lodged. The on-sellers were likely to have proceeded on the basis that disclosure under the Corporations Act was not required. The inadvertent errors of the company should not expose the shareholders to the consequences of the fact that it was required. It is just and equitable to make the declarations sought. 33 Golden Rim also seeks orders under s 1322(4)(c) relieving any sellers of the relevant shares from civil liability arising out of a contravention of s 707(3) and s 727(1). Section 1322(6)(b) prohibits the court from making such an order unless it is satisfied that the person subject to the civil liability concerned acted honestly. For the reasons I have given, I am satisfied that persons who have on-sold September 2018 Shares or May 2019 Shares acted honestly. 34 Section 1322(6)(c) requires that in every case the court must not make orders under s 1322 unless it is satisfied that no substantial injustice has been or is likely to be caused to any person. In my view, in cases like the present one, this requires the court to consider the possibility of substantial injustice to the persons on-selling relevant shares and to the persons who purchased those shares. 35 There is no reason to think that any substantial injustice has been caused or will be caused to the first class of persons I have mentioned. They simply sold shares on the basis that disclosure was not required, and will clearly benefit from the orders. 36 There is no indication in the evidence that persons who bought September 2018 Shares or May 2019 Shares have suffered any substantial injustice. Golden Rim was listed on the ASX and lodged cleansing notices and prospectuses on a relatively frequent basis, so it is unlikely that there was any deficiency in the information concerning the shares that was generally disclosed to investors at the times that relevant on-sales occurred. It is equally unlikely that any substantial injustice will be caused to persons who bought relevant shares if the orders sought are made. However it is common, and prudent in this case, to make an order providing for a period during which potentially affected persons may apply to vary or set aside the orders (see iCandy at [116]). 37 In all the circumstances I am satisfied that no substantial injustice has been caused to any person, and that no substantial injustice is likely to be caused if the orders sought are made. The relevant preconditions in s 1322(6) to the exercise of the discretion conferred by s 1322(4) have all been established. 38 In the exercise of that discretion I have had regard to the actions that Golden Rim took after it discovered that a cleansing notice had not been lodged in relation to the issue of the May 2019 Shares. The sequence of events I have described above indicates that there was a combined window of approximately one trading day, stretched across Friday 28 June and the morning of Monday 1 July, between that discovery, and the time when the potential to trade shares was suspended. It is crucial that officers of listed companies who discover circumstances such as these act as quickly as possible. Delay in suspension increases the likelihood that shareholders will unwittingly trade shares in contravention of the Corporations Act. 39 Nevertheless, I find that the delay of one day ought not weigh against the exercise of the court's discretion to make the orders sought here. I am satisfied that for a junior explorer with ongoing fund raising needs, a decision to suspend is not one that a general manager and company secretary could make without obtaining legal advice and the authority of the directors. Ms Butcher's affidavit contains evidence supporting that proposition. I am also satisfied that she did all she reasonably could, after discovering the issue, to obtain legal advice about what to do. As it happens, no person who participated in the issue of the May 2019 shares sold any shares between the time when Ms Butcher checked the share register on 28 June and suspension on 1 July. 40 It is also relevant that Ms Butcher's affidavit goes into an appropriate level of detail about the steps she took and what was going through her mind in the period leading up to suspension and I have no reason to doubt that the detail she has disclosed is full and frank. Each case will depend on its particular circumstances. In the circumstances of this case, I do not place weight on the lapse of time between discovery of the issue, and the action taken to suspend trading. 41 I have also taken account of the potential for prejudice to Golden Rim and its shareholders if the orders sought are not made. The possibility of liability for unwitting breach exposes shareholders who on-sold relevant shares to prejudice. More broadly, all shareholders in Golden Rim, and the company itself, are likely to suffer prejudice if the suspension continues for much longer. The orders sought will facilitate the removal of the suspension. The company seeks, and I will make, an order requiring it to request to ASX forthwith that the suspension from quotation of shares in the same class as the September 2018 Shares and the May 2019 Shares be lifted.

Conclusion 42 I am satisfied that all persons concerned acted honestly, and that it is just and equitable that the orders sought are made. I am also satisfied that no person has suffered any substantial injustice, or is likely to do so if the orders sought are made. It is in the interests of Golden Rim and its shareholders that on-sales of the September 2018 Shares and of the May 2019 Shares be validated. I will make orders substantially in terms that the company seeks. 43 In view of the circumstances as I have described them, including that the omission to lodge cleansing notices was inadvertent, it is not appropriate to make any order for costs against the company or its officers. I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jackson.