Hall v Poolman

COLVIN J: 1 Part 6D.2 of the Corporations Act 2001 (Cth) imposes disclosure requirements in respect of the issue of securities. In some circumstances, those requirements may be met by the issue of a notice that complies with s 708A(6) (generally known as a cleansing notice): s 708A(5). More generally, if a prospectus has been lodged in accordance with s 708A(11) then no further disclosure is required under Part 6D.2. 2 Some provisions allow securities the subject of the regulation in Part 6D.2 to be issued without disclosure. However, if that is done then the party to whom the securities are issued may not be able to on-sell the shares within 12 months without that party itself providing disclosure. 3 So, if the issuer does not issue a valid cleansing notice or a prospectus at the time of issue then there is a prospect that the party to whom the securities are issued must itself cause such disclosure if it wishes to on-sell those securities within 12 months.

The disclosure issue in these proceedings 4 Between 17 December 2013 and 1 December 2017, Poseidon Nickel Ltd made 40 securities issues (Share Issues) without making disclosure by way of notice or prospectus. There was trading in securities the subject of the Share Issues within 12 months of the issue dates which was not exempt from disclosure under the Corporations Act. As a result, it appears that there may have been a considerable number of contraventions of s 707(3) and s 727(1) in Part 6D.2 of the Corporations Act. Accordingly, issues arise as to the validity of share sales in respect of a considerable number of shares in Poseidon. 5 Trading in securities issued by Poseidon was suspended on 22 March 2018 following requests made by Poseidon. Poseidon lodged a prospectus with the Australian Securities and Investments Commission on 5 April 2018 providing disclosure. So, future trading of the securities if and when the suspension is lifted will take place in a context where the disclosure required by the Corporations Act has been provided. 6 Poseidon applies under s 1322(4) of the Corporations Act for orders that dealings in shares the subject of the Share Issues were not invalid by reason of the failure by those who have sold the shares to comply with s 707(3) and s 727(1) of the Corporations Act and that the sellers be relieved from any civil liability in respect of the contravention of those provisions.

Decision 7 I am satisfied that relief should be granted. It should be confined to that which is reasonably necessary to protect the interests of current holders of the shares the subject of the Share Issues, and those who participated innocently, as well as to maintain the integrity of future dealings in shares in Poseidon. The orders should be framed so as to protect any interest that current holders of Poseidon shares may have in raising any complaint or claim concerning the matters that led to the contraventions of the Corporations Act. In particular, the orders should reserve to those shareholders the right to apply to the Court for different orders in the next 12 months provided they continued to be the holders of the shares at that time. There should be general liberty to any interested party who claims to have suffered substantial injustice by the making of the orders to apply to vary or vacate the orders within 28 days. 8 Further, an appropriate announcement should be required to be made to the Australian Securities Exchange. 9 I decline to grant orders extending relief to certain parties who were involved in the conduct that may have resulted in contraventions. I note that no relief was sought by Poseidon or its present or former officers in respect of their own conduct.

The power of the Court to grant relief 10 Section 1322(1), (2), (3), (3AA), (3A) and (3B) confers upon the Court powers to determine the consequences for validity of proceedings under the Act, meetings held for the purposes of the Act and the exercise of voting rights where there have been a failure to comply with the Act of a kind specified in the section. Then, s 1322(4) confers a power, on the application of an interested person, to make all or any of the following orders either unconditionally or subject to conditions: (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 rectification of any register kept by ASIC under this Act; (c) an order relieving a person in whole or in part of 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… 11 Section 1322(6) of the Corporations Act provides: 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. 12 In Re Wave Capital Ltd [2003] FCA 969 at [29], French J observed that s 1322, together with s 1318 (conferring a power to excuse officers, auditors, expert or insolvency administrators from liability for negligence, default or breach in certain circumstances) and s 1325D (conferring a power to excuse the consequences of a contravention of Chapter 6, 6A, 6B or 6C having regard to whether it was caused by inadvertence or mistake, a lack of awareness or circumstances beyond the control of a party): may be taken to reflect 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 honest error or inadvertence and where the court can avoid its effect without prejudice to third parties or the public interest in compliance with the law. That broad policy does not authorise the court lightly to set aside the requirements of the Act where they have not been observed. 13 Section 1322(4) is remedial in nature and is, therefore, to be given a generous interpretation: Weinstock v Beck [2013] HCA 14; (2013) 251 CLR 396; and NMRA Ltd v Gould (1995) 18 ACSR 290, 292. Orders can be made with retrospective effect: Re Golden Gate Petroleum Ltd [2010] FCA 40 at [42]. 14 Even so, as I noted in Re EHR Resources Ltd [2018] FCA 997 at [7]: care must be taken to confine relief in a manner which is consistent with the justification for the application. Ordinarily, it will not be appropriate for relief to be granted protecting those who have been involved in the breach of the disclosure provisions, unless it is necessary in order to protect the interests of current shareholders who hold shares. An order that any offer for sale or sale of shares is not invalid by reason of the failure to comply is of this character. In making such orders, there must be due regard for the interests of current shareholders who usually are not heard on the application due to the impracticality of giving separate notice to all such parties. 15 Finally, it is to be noted that the power conferred by s 1322(4)(a) is not to declare that an act, matter or thing is valid for all purposes. It is a power to declare that an act, matter or thing done, or any proceeding taken under the Corporations Act or in relation to the corporation, is not invalid by reason of any contravention of a particular provision of the Corporations Act or the constitution of the corporation: Weinstock v Beck at [40]. In those circumstances, it is appropriate to identify in any order the particular contravention that is the reason for the making of the order. Proof of actual contravention is not a condition for the grant of relief.

Relief sought in this case 16 The orders sought on the present application would, in substance, protect the validity of trading in shares notwithstanding the failure to comply with the disclosure requirements. Significantly, save for only about 200,000 shares, all the shares the subject of the Share Issues were traded within 12 months. Indeed, it appears that many of the shares were traded within three months as required by the terms of a subscription deed entered into by the plaintiff with Petra Capital Pty Ltd, a matter addressed in more detail later in these reasons. 17 Having regard to the nature of relief sought, I must not make an order that the sale of shares is not invalid by reason of any contravention unless satisfied that the persons concerned acted honestly or that it is just and equitable that the order be made. Insofar as the orders seek relief from civil liability, I must be satisfied that the person subject to the civil liability concerned acted honestly. In both cases, I must be satisfied that no substantial injustice has been or is likely to be caused to any person. 18 Poseidon has standing to seek relief: Re EHR Resources Ltd at [5]. It is an interested person, by reason at least of the concern for the integrity of ongoing dealings in securities issued by Poseidon.

The Share Issues 19 The Share Issues by Poseidon are described as falling into four categories, namely: (1) shares issued to Jefferies LLC a global investment banking firm in lieu of interest payable under a convertible note agreement (said to apply to 18 of the Share Issues); (2) shares issued to Pershing Australia Nominees Pty Ltd (Pershing) pursuant to the terms of a subscription deed dated 11 September 2015 between Poseidon and Petra Capital (said to apply to 18 of the Share Issues); (3) shares issued to employees (said to apply to five of the Share Issues); and (4) shares said to have been issued to sophisticated investors (said to apply to nine of the Share Issues).

Convertible note agreement with Jefferies 20 On 3 November 2015, Poseidon entered into a convertible note agreement with Jefferies in respect of a principal amount of US$17.5 million. The agreement provided that the liability to pay interest may be discharged by Poseidon issuing shares (at its election and subject to the Corporations Act) at a price determined under the relevant provision of the agreement. The agreement also contained a provision requiring Poseidon to do all things necessary to ensure that each share issued to Jefferies would be freely tradable without restriction on the day of issue, including by providing 'a notice in accordance with s 708A(6) of the Corporations Act'. Further, if such a notice was not issued or if issued would not be effective to meet disclosure obligations then Poseidon was required to lodge a prospectus and do all things necessary to satisfy s 708A(11) of the Corporations Act. 21 Therefore, the terms of the convertible note agreement expressly contemplated compliance with the relevant disclosure obligation. Given its terms, Poseidon and Jefferies must be taken to have knowledge of the relevant disclosure requirements as they applied to share issues under the agreement.

Subscription deed with Petra Capital 22 Petra Capital conducts a stockbroking business and often acts as manager in placements, rights issues, initial public offerings and other fund raisings. It uses Pershing to settle share trades arranged by Petra Capital. 23 On 11 September 2015, Poseidon entered into a subscription deed with Petra Capital. Under the deed, Petra Capital was required to make an initial subscription for shares in Poseidon and deliver a promissory note to the Poseidon for the initial subscription amount, being $300,000. Then, Poseidon was required to issue the shares on the initial subscription and, in particular: do all things necessary to ensure that the Initial Subscription Shares can be transferred by Petra (or its nominee) without the need for disclosure under the Corporations Act (or other applicable law), including by giving to ASX a notice in accordance with section 708A(5)(e) and (6) of the Corporations Act that complies with the requirements of s 708A at the time of issue of the Initial Subscription Shares or lodging a disclosure document with ASIC in accordance with Chapter 6D of the Corporations Act. 24 The deed then provided for Petra Capital to use its best endeavours to sell the shares issued at fair market value and in the ordinary course of the market within three months of issue. Petra Capital was required to provide details of the gross sale proceeds and pay to Poseidon the proceeds less certain agreed fees, costs and expenses. Upon payment of the sale proceeds to Poseidon the promissory note was deemed to be discharged even if the principal amount was less than the amount of the promissory note. Further, Poseidon was entitled to be paid any excess proceeds received from the sale of the shares above the value of the promissory note. 25 The deed allowed for further subscriptions on a rolling three month basis. Those subscriptions occurred with shares being issued to Pershing as the nominee of Petra Capital. 26 Both the initial subscription and 19 further subscriptions occurred under the terms of the subscription deed with Petra Capital. In relation to most or possibly all of those subscriptions, Poseidon did not issue a formal subscription notice. Further, despite the structure of the subscription deed, the only promissory note that was issued by Poseidon in relation to the subscription deed was the promissory note for the initial subscription. 27 In an affidavit sworn by Conrad Anderson, an employee of Petra Capital who has been in charge of its corporate finance division since late 2015, it is deposed that his understanding was 'that the parties were content to rely on the Promissory Note dated 5 October 2015'. 28 It appears that in two cases, there was a cleansing notice before the issue of shares under the subscription deed leaving 18 occasions when there was a failure to comply with the disclosure obligations. 29 Again, given the terms of the deed, Poseidon and Petra Capital must be taken to have knowledge of the relevant disclosure requirements. This is all the more so given that the deed required Petra Capital to on-sell shares within three months of issue. Otherwise, I express no view as to the nature of the arrangements implemented by the deed.

Affidavits 30 Poseidon relies upon affidavits sworn by Terence Ross Kestel, Gareth Jones and Eryn Cecille Kestel who were successively the company secretary of Poseidon over the period when the Share Issues occurred. It also relies upon an affidavit of Christopher Charles Indermaur, currently the non-executive chairman of Poseidon. Some formal matters are deposed to by a solicitor engaged in the matter. 31 When the matter first came on for hearing, there was no evidence as to the state of knowledge of relevant officers of Jefferies or Pershing or Petra Capital as to the failure to comply with the disclosure provisions under the Act, yet the orders sought would protect those parties from liability. Given the extent of non-compliance, and the terms of the convertible note agreement with Jefferies and the subscription deed with Petra Capital I made orders requesting the Australian Securities and Investment Commission to appear as amicus curiae to assist the Court. I also made provision for Poseidon to file and serve affidavits concerning the state of knowledge of relevant officers of Petra Capital, Pershing and Jefferies. 32 Further affidavits have been filed as to the knowledge of certain officers of Petra Capital, Pershing and Jefferies. Mr Kestel, Mr Jones and Ms Kestel have also provided further affidavits dealing with the issue of shares under the terms of the convertible note agreement and the subscription agreement.

Shareholders in respect of Share Issues 33 Letters have been sent to each of the shareholders who were issued with shares pursuant to the Share Issues and who on-sold their shares within 12 months of the date of issue. Also, a public announcement to the Australian Securities Exchange has been made advising that the present application has been brought. 34 Poseidon has received no communications from shareholders in response to these letters and announcement. 35 In that context I deal with the affidavit evidence.

Terence Ross Kestel 36 Mr Kestel was the company secretary of Poseidon from 20 February 2004 to 27 November 2015. During that time he was responsible for arrangements in relation to 15 of the Share Issues. Since the 1990s he has undertaken company secretarial and non-executive director roles for a number of companies listed on the Australian Securities Exchange. He deposed to his general understanding that listed companies would often have to issue a full prospectus when offering shares to the public. However, there were some situations where this was not required, for example when an issue was made to sophisticated investors. He states that he dealt with capital raisings where a cleansing prospectus was required under s 708A(11) (prepared by solicitors) and occasions where a cleansing notice was given under s 708A(5) (which he normally prepared). He then deposed: I understood that these documents were sometimes required to be issued so that shareholders could trade in shares issued to them within 12 months. However, I did not have a detailed understanding of all of the circumstances where a cleansing notice should be issued. 37 Given the experience to which Mr Kestel deposed and the extent of his knowledge including a lack of a detailed understanding, it is to be expected that he would obtain advice or make the necessary enquiries in order to determine the nature of disclosure required where shares were issued in contemplation that shareholders could trade in the shares within 12 months. 38 He deposed to the following explanation for the failure to provide disclosure in respect of the 15 Share Issues in which he was involved for Poseidon: (1) As to shares issued to Jefferies, he first deposed to his understanding that a cleansing notice was not required because it was a long-term shareholder and was not intending to sell shares for at least 12 months. I note that there were four Share Issues to Jefferies in which Mr Kestel was involved and on all occasions all shares were traded within 12 months. (2) In a second affidavit he said that his understanding was that Poseidon could issue shares to Jefferies in lieu of interests payments under a convertible note agreement but he was not given a copy of that agreement and was not aware of any of its other terms. (3) As to shares issued to Pershing, the first share issue occurred approximately six weeks prior to Mr Kestal's resignation as company secretary and at that time there was a transition period when Mr Jones was becoming more involved in the issue of securities by Poseidon. He deposed, by way of conjecture, that there may have been confusion that may have contributed to the failure to prepare a cleansing notice. (4) In his additional affidavit he says that he was not aware of the subscription deed or its terms save that it provide for Petra Capital to subscribe for shares. (5) As to shares issued to employees, Mr Kestel deposed to his understanding that a cleansing notice was not required because the issue of shares was not being made as part of an offer to the public. He gave no basis for that understanding. (6) As to the issue of shares to sophisticated investors, Mr Kestel deposed to his understanding that disclosure was not required. He believes he would have formed that view based on conversations with the then chief executive officer, David Singleton. Again by way of conjecture he states that he may have had the belief that the investors were not intending to sell the shares for at least 12 months and that may have been part of the reason why he did not prepare cleansing notices. (7) He asserts that he did not knowingly fail to follow the requirements under the Corporations Act in relation to cleansing notices. 39 Mr Kestel has never held any shares in Poseidon.

Gareth Jones 40 Mr Jones was the company secretary of Poseidon from 27 November 2015 to 1 September 2017. Between June 2007 and September 2017 he was the chief financial officer and company secretary of Poseidon. He says that he relied upon Mr Kestel, and his assistant Ms Kestel to provide guidance and advice in relation to securities issues and he had a limited knowledge of the disclosure requirements when the Share Issues occurred. These statements appear to suggest that Mr Kestel continued to have some responsibility for share issues after he ceased to be the company secretary for Poseidon. However, from other statements in Mr Jones' affidavit it appears that his reference to assistance from Mr Kestel is a reference to what he learned from assisting Mr Kestel prior to Mr Jones becoming company secretary and their involvement in implementing share issues under the convertible note agreement during the time Mr Jones was company secretary. 41 As to shares issued to Jefferies and Pershing he says, in effect, that he followed what had been done by Mr Kestel. He also says that his understanding was that a cleansing notice was not required in the case of Jefferies because it was considered to be a long-term shareholder that would not be considering selling shares in the 12 month period after issue and that in the case of Pershing a cleansing notice was not required because the shares would be sold 'through an on-market channel'. He did not consult the convertible note agreement when shares were issued to Jefferies. 42 As to shares issued to employees he understood that there was a lock for a time of three years to prevent their sale that the share registry manager had been instructed to impose. 43 As to the other share issues, he said that he understood that cleansing notices were not required for shares issued to sophisticated investors. Of course, this is correct. The issue arises because those sophisticated investors have on-sold the shares within 12 months. Significantly, Mr Jones does not depose to an understanding that the sophisticated investors would not on-sell their shares within that time-frame. 44 Mr Jones was issued with shares as part of the share issue on 12 July 2016, but did not on-sell any of those shares within 12 months of issue.

Eryn Cecille Kestel 45 Ms Kestel is the current company secretary of Poseidon. For much of the relevant period before commencing as company secretary she provided assistance to Mr Kestel and Mr Jones. 46 The only Share Issues that have occurred during Ms Kestel's time as company secretary have been to Pershing. As to those issues she deposed to her understanding that a cleansing notice was not required, in part because Pershing was in the business of providing services for the securities market and it understood the implications of a securities issue. Also, she says she had a conversation with Mr Jones in April 2016 and she has some recollection that he had been advised that a cleansing notice would not be required because Pershing would be granting a promissory note and this was 'outside of a normal issue to raise capital'. 47 Her explanation for the failure to issue the cleansing notices is that she had previously worked under the direction and supervision of Mr Kestel and Mr Jones and she followed their practice. 48 She said that she was not aware of the terms of the convertible note agreement with Jefferies or the subscription deed with Petra Capital.

Christopher Charles Indermaur 49 Mr Indermaur is a non-executive director of the plaintiff and is its non-executive chairman. He says that he has a limited understanding of the fund raising provisions of the Corporations Act and relied on Ms Kestel, Mr Jones and Mr Kestel in relation to the steps required to be taken for the Share Issues. He deposed to the steps taken by Poseidon as soon as he became aware of the issue which included notifying the market by way of announcement and arranging a voluntary suspension in trading in securities in Poseidon followed by the preparation of a prospectus lodged on 5 April 2018. 50 Mr Indemaur explained that during the 12 month period ending on 24 February 2015, Poseidon was not qualified to issue a cleansing notice under s 708A(5)(e) of the Corporations Act because trading in its securities had been suspended for more than five days during that period. This applies to three of the Share Issues. If those Share Issues were to take place on the basis that the party to whom the shares were issued could trade the shares within the next 12 months then a prospectus was required. 51 Mr Indemaur deposed to the fact that he has satisfied himself that on all the dates of the Share Issues there was no excluded information that had not been provided to the market. He makes that statement on the basis of his review of ASX announcements made by Poseidon on or around the dates of each of the Share Issues. 52 Therefore, for the most part, the relevant regulatory requirements under Part 6D.2 could have been met by Poseidon issuing cleansing notices at the time of each of the Share Issues. If that had occurred, then on-sales by the parties to whom the shares were issued would not have occurred in contravention of the disclosure requirements. 53 Mr Indemaur says that he has given directions to Ms Kestel about future securities issues and is going to arrange for external training for the directors and company secretary of Poseidon as to compliance requirements.

Jefferies 54 Mr De Spirito is a lawyer who works for Jefferies. He is certified to practice in the State of New York. His responsibilities include the arrangements and steps involved in Poseidon issuing shares to Jefferies under the convertible note agreement. He says that shortly after the agreement was made he noted the provisions of the agreement in relation to free tradability. He also noted that Poseidon was required to do that which was necessary under the Corporations Act to allow Jefferies to be able to freely trade shares issued to it under the terms of the agreement. 55 Otherwise, his evidence is to the effect that he expected Poseidon would comply with its obligations and did not know that Poseidon had not taken the required steps. If he had known he would have raised the matter with Poseidon and informed his superiors that shares issued to Jefferies by Poseidon should not be traded if a cleansing notice or prospectus had not been issued by Poseidon at the time of issue of the shares. 56 However, even though the agreement imposed obligations on Poseidon to comply with disclosure requirements so that the shares were freely tradable, it remained the position that if Poseidon did not comply then Jefferies was obliged to do so before it sold its shares. This is a form of anti-avoidance provision to ensure that the disclosure obligations are met. In the particular circumstances, on the evidence before me, any disclosure obligation was on Jefferies if it on-sold within 12 months. In my view, it was for Jefferies to take affirmative steps to confirm the position before it on-sold the shares. 57 This has particular significance in relation to the issue of shares on 1 October 2014 and 10 January 2015. On those dates, Poseidon was not in a position to issue a compliant cleansing notice because of the length of time that its shares had been suspended from trading in the previous 12 months. In those circumstances, disclosure required the issue of a prospectus. It appears that the protection that ought to have been afforded to the market by the issue of such a prospectus did not occur.

Petra Capital 58 Three employees of Petra Capital at the relevant time have provided affidavits. Mr Anderson says that he read the terms of the subscription deed at the time of its negotiation. He noted the requirement upon Poseidon to provide disclosure such that Petra Capital could transfer shares issued under the deed without the need for it to provide disclosure. He says that when shares were issued under the terms of the deed his understanding was that the shares would be freely tradable based upon his knowledge of the terms of the deed. 59 However, he does not depose to any steps taken by way of enquiry of Poseidon to ascertain whether there had been compliance. This was despite the fact that, by the terms of the deed, and the matters stated in Mr Anderson's affidavit it is clear that he was aware of the disclosure obligations. Further, those obligations fell upon Petra Capital (or possibly its nominee Pershing) in the event that there was a failure to comply by Poseidon. The legislation imposes an obligation upon a party on-selling shares within 12 months to provide the requisite disclosure if it had not been provided by Poseidon at the time of issue. 60 The fact that the deed was expressly structured to require on-selling within three months, and the statements by Mr Anderson as to the extent of experience of Petra Capital in providing services in capital markets are important matters to be brought to account in deciding whether it should receive the benefit of relief on the present application. 61 The other employees deal with the manner in which shares were issued to Pershing and sold in accordance with the deed.

Three aspects to the relief sought 62 It is important to distinguish between three different aspects of the relief sought. First, orders are sought in order to remove any uncertainty as to the validity of the title to the shares so as to enable them to be offered for further sale. If orders are not granted then the integrity of future dealings in the shares by current holders may be called into question. Relief of this kind is sought under s 1322(4)(a) to declare that the dealing by which the current shareholder acquired the shares is not invalid. 63 Second, orders are sought that other prior dealings are not invalid by reason of any contravention of the disclosure requirements. Relief of this kind is also sought under s 1322(4)(a). It provides an assurance of continuity of title and would also protect past holders from claims that earlier on-selling was invalid by reason of any failure to comply. 64 Third, orders are sought relieving parties from civil liability in respect of any contravention or failure to meet disclosure requirements in relation to offering and selling shares the subject of the Share Issues. Relief of this kind is sought under s 1322(4)(c). 65 Relief of the third kind is not required in order to ensure the ongoing integrity of the market. However, it may be justified to provide an assurance to innocent parties, particularly where their contravention arises from a failure to disclose consequent upon the issuing company creating the impression that the shares were freely tradable at any time. 66 In the third case there is a requirement that the person the subject of the civil liability acted honestly. In the first two cases, the order can be made if it is just and equitable to do so or if the persons concerned in or a party to the contravention acted honestly. (There was no claim that the failure to comply in this instance was essentially of a procedural nature). The wider public interest in maintaining the integrity in the market in the shares supports the making of orders of the first and second kind in most cases like the present. 67 However, in my view, considerable care must be taken in granting an order of the third kind for the benefit of parties who are not before the Court presenting evidence and submissions as to their state of knowledge. It is preferable, in cases like the present, that general relief under s 1322(6)(c) be confined to cases where it is clear that the parties who will be protected by the relief are innocent third parties whose involvement in any contravention has been brought about by the conduct of the company who has issued the shares or other parties. 68 In Re Golden Gate Petroleum Ltd, relief was initially sought that would afford protection from liability for the issuing company and its officers. After concerns were raised by ASIC, the application was amended to exclude the company and its officers from the protections afforded by the orders sought. 69 In my view, that is an approach that generally should extend to cases where the parties who on-sold the shares were parties with actual knowledge (or should have known) of the disclosure requirements and their potential application to them if there had not been disclosure when the shares and who took no steps to inquire as to whether there had been disclosure at the time of issue of the shares. 70 Significantly, an order under s 1322(6)(c) operates only for the benefit of the party concerned and will not require a consideration of wider public interest issues of a kind that may support the making of an order under s 1322(6)(a) on the basis that it is just and equitable.

No evidence of dishonesty 71 As to dishonesty in cases of this kind, the relevant authorities were carefully considered by Banks-Smith J in Re ICandy Interactive Ltd [2018] FCA 533 at [54]-[106]. As noted by her Honour, considerations of honesty also arise when the court is considering whether to grant relief under s 1318 from liability for negligence, default, breach of trust or breach of duty as an officer, auditor, expert or insolvency administrator. In that context, Palmer J stated in Hall v Poolman [2007] NSWSC 1330; (2007) 215 FLR 243 at [325] that one of the matters that the court should be concerned with in considering whether a person has acted honestly is whether the person acted 'without carelessness or imprudence to such a degree as to demonstrate that no genuine at all has been made to carry out the duties and obligations of his or her office'. Conduct of that character would amount to dishonesty because there could be no genuine performance of the office at all by such a person. 72 Mere carelessness or imprudence in respect of the performance of disclosure obligations will not amount to dishonesty. However, an awareness of the obligations coupled with a complete disinterest in, or lack of concern as to, whether they have been met in the particular case may do so. 73 Applying those principles, I infer that the current holders of the shares the subject of the Share Issues have acted honestly. Almost all of the shares have been publicly traded. There is no reason to believe that the parties who acquired those shares on-market did so with any inkling that there may have been a failure to comply with disclosure obligations in respect of the Share Issues, or indeed that the particular shares had been the subject of the Share Issues. The same may be said of any intermediate parties who purchased shares from the parties to whom shares were issued and then on-sold them. 74 Further, on the evidence before me there was no dishonesty by those who participated in the making of the Share Issues. Rather, the failure to provide disclosure arose from the conduct of those responsible for the Share Issues at Poseidon and was due to an absence of any proper care or consideration of the issues, a willingness to proceed with the Share Issues without any consideration of the legal requirements, a poor understanding of the legal requirements, a failure to take any advice or a combination of those matters. 75 In other cases where the Court has granted relief it has been on the basis that the failure to comply was due to inadvertence or a lack of blatant disregard of the provisions or an absence of 'substantial misconduct, serious wrongdoing or flagrant disregard' of the applicable law: Re Clancy Exploration Ltd [2018] FCA 569; Re Castillo Copper Ltd [2018] FCA 602; Re Caeneus Minerals Ltd [2018] FCA 560; Re ICandy Interactive Ltd; Re Spectrum Rare Earths Ltd [2017] FCA 883; Re European Lithium Ltd [2017] FCA 894; Re EHR Resources Ltd; and Re Wangle Technologies Ltd [2018] FCA 864. 76 In the case of Mr Kestel, the failure to consider the disclosure requirements occurred despite his professed experience in undertaking company secretarial functions. The practices he established were followed by others. There appears to have been an awareness of the need to consider the disclosure requirements, but very little regard to what they may require in the context of a particular share issue. However, some explanation has been provided and I would not describe his conduct as being in blatant or flagrant disregard of the provisions. 77 Also, Mr Kestel was the company secretary when Share Issues took place in circumstances where a prospectus was required and shares were issued by Poseidon on the basis that they were freely tradable. 78 Mr Jones appears to have been aware of the consequence for on-selling within 12 months of Poseidon issuing shares without disclosure. In the case of Petra Capital shares were issued on the basis that they were required to be traded within 12 months. Nevertheless, he has provided some explanation for his conduct which shows that he did not act in blatant or flagrant disregard of the provisions. 79 However, given that almost all of the shares issued were traded within 12 months, the evidence of Mr Kestel and Mr Jones of a belief that shares were expected to be held by certain of the parties to whom shares were to be issued for more than 12 months was unsatisfactory. 80 Ms Kestel followed practices established by Mr Kestel. For that reason she thought the shares could be issued without a cleansing notice. I would not describe her conduct as being in blatant or flagrant disregard of the provisions. 81 As to most shareholders to whom shares were issued as part of the Share Issues, there is no suggestion that Poseidon informed any party who was issued with shares that they were not freely tradable. Rather, the issue of disclosure was not addressed in their dealings. 82 The position in relation to Share Issues to Jefferies and Pershing as nominee for Petra Capital is materially different. In the case of Jefferies and Petra Capital, there was actual knowledge of the requirements, in particular the need for a cleansing notice or a prospectus. No steps were taken to check that Poseidon had provided the required disclosure. Unless that was the case, Jefferies and Petra Capital were required to undertake disclosure before the shares were on-sold. Jefferies and Petra Capital proceeded on the basis that Poseidon had complied with its obligations under the convertible note agreement and subscription deed respectively. However, no inquiries were made in that regard. In those circumstances, there was no blatant or flagrant disregard by them of the provisions. Even so, compliance with disclosure requirements is an important matter. Shares should not be issued on the basis that they are freely tradable unless that is the case. Experienced parties like Jefferies and Petra Capital should be aware of the requirements and seek actively to comply with them.

Just and equitable 83 Even if (contrary to the views I have expressed) there was dishonesty, it would be open to make orders under s 1322(4) if it was just and equitable to do so (and no substantial injustice has been or is likely to be caused to any person, as to which see below). For reasons I have given it would be just and equitable to grant relief to the extent necessary to reasonably protect the interests of current holders of shares that formed part of the Share Issues and the integrity of future trading in Poseidon shares. It would also be appropriate to grant relief for the benefit of those who became holders by acquiring shares on-market as a result of an on-sale by a party to whom shares were issued as part of the Share Issues.

No substantial injustice 84 However, just because there was an absence of dishonesty (or it is just and equitable) does not mean that the orders sought should be made. As I have mentioned there is a requirement that there be no substantial injustice before I make any orders under s 1322(6). This requires attention to be directed to whether there would be substantial injustice to any party if orders were granted and directs attention to conditions that may be fashioned to ensure that substantial injustice may be avoided: Trevor v Southern Equities Corporation Ltd [1998] WASC 149. It must be the case that there is no substantial injustice to any person: Re Allied Resources Partners Pty Ltd [2017] FCA 1451 at [171]. 85 The usual approach is to require the orders to be published in an appropriate way and to provide a period of time for any party who claims to have suffered substantial injustice to make application to vary or discharge the orders. This enables the substantial injustice of not granting relief to be avoided, while preserving the position for those parties who may claim substantial injustice (even though none is apparent on the application) to make application for different relief. As a balance between providing the certainty for future trading a relatively short period of 28 days is usually expressed: see, for example, Re Golden Gate Petroleum Ltd at [54]-[55]. 86 The concern that may arise in cases of this kind is that there may be parties who wish to raise complaint or press a claim in respect of the conduct the subject of the proposed order. If the order is made under s 1322(4)(a) then a claim of invalidity based upon the particular contravention could not be advanced. The position is more significant when it comes to orders under s 1322(4)(c) because it would relieve a party from all civil liability. 87 Therefore, in order to ensure that there was no substantial injustice to any person I would not extend the relief sought under s 1322(4)(a) beyond that which is necessary to protect current shareholders and those who were not involved as recipients of shares as part of the Share Issues. There should be liberty to apply on the basis that there was substantial injustice confined to the period of 28 days from the date of the order. 88 Further, I would not extend the relief under s 1322(4)(c) to Jefferies, Petra Capital or Pershing. Having regard to the circumstances in which the Share Issues to Jefferies and Pershing (as nominee for Petra Capital) occurred, the question whether such relief ought to be granted in favour of those parties should be considered if and when those parties seek such relief on their own behalf. At that time, the Court will have the benefit of submissions and further evidence as to any other matters that may bear upon whether to grant the relief. 89 In making these orders I note that ASIC having appeared as amicus curiae does not consent to or oppose the proposed orders. The ASX has been notified of the application and does not seek to participate. Finally, as I have noted, shareholders who participated in the Share Issues have been notified of these proceedings and none of them have communicated any concern to Poseidon or the Court.

Costs of the application 90 As to costs, I have received submissions from Poseidon as to the correct approach to costs having regard to the costs orders made in Re Wave Capital Ltd. In that case French J made an order that the costs of bringing the application for orders under s 1322 were not to be paid out of the company's funds. On the facts in Re Wave Capital Ltd, shares in the company had been sold to interests associated with the former directors after the business of the company had been sold under a deed of company arrangement. There was then a capital raising arranged by the new board. The prospectus for the capital raising committed to seeking quotation on the stock exchange within seven days. The matter was overlooked and orders were sought extending the time. In those circumstances, there were reasons why those behind the restructuring of the company, who were also its directors, should bear the costs of the application. 91 In other cases to which I have referred no order was made as to costs. Difficulties that may arise if costs were to be considered against other parties were identified by Banks-Smith J in Re ICandy Interactive Ltd at [31]-[33]. 92 In the present circumstances Poseidon brings the application in the company's interests. The company is in a position to consider the appropriate course for the company to take in relation to costs. There is no reason to question whether the interests of the company as to costs have been properly and independently addressed. The need for the application arises from the failure by those responsible at the relevant time to take the appropriate steps in relation to disclosure. Save for exceptional circumstances, it is properly a matter for Poseidon as to the approach that should be taken in relation to costs. It does not seek costs in the proceedings. In those circumstances I am satisfied that it is appropriate that I make no order concerning the costs of the application. I certify that the preceding ninety-two (92) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Colvin.