Harman v Energy Research Group Australia Limited

(3) The documents to be given are set out in the following table: Documents to be given Circumstances Documents the sole disclosure document is a prospectus a supplementary or replacement prospectus that corrects the deficiency or changes the terms of the offer 1 2 the disclosure documents are a prospectus and a profile statement and subsection (1) applies to the prospectus a statement that sets out the changes needed to the prospectus to correct the deficiency or change the terms of offer; and a statement that the person is entitled to a copy of the prospectus free of charge 3 the disclosure documents are a prospectus and a profile statement and subsection (1) applies to the profile statement a supplementary or replacement profile statement that corrects the deficiency or changes the terms of the offer Note that item 2 and this item may both apply to the offer. 4 the disclosure document is an offer information statement a supplementary or replacement offer information statement that corrects the deficiency or changes the terms of the offer " [Emphasis added].

19 It does not appear that GGP requested ASIC to exercise the power granted to ASIC by s 741 of the Act to exempt a person from a provision of Chapter 6D. 20 The relevant provisions under which the orders are sought read as follows: "254E(1) On application by a company, a shareholder, creditor or any other person whose interests have been or may be affected, the Court may make an order validating, or confirming the terms of, a purported issue of shares if: (a) the issue is or may be invalid for any reason; or (b) the terms of the issue are inconsistent with or not authorised by: (i) this Act; or (ii) another law of a State or Territory; or (iii) the company's constitution (if any). (2) On lodgment of a copy of the order with ASIC, the order has effect from the time of the purported issue. 1322(1) In this section, unless the contrary intention appears: (a) a reference to a proceeding under this Act is a reference to any proceeding whether a legal proceeding or not; and (b) a reference to a procedural irregularity includes a reference to: (i) the absence of a quorum at a meeting of a corporation, at a meeting of directors or creditors of a corporation, at a joint meeting of creditors and members of a corporation or at a meeting of members of a registered scheme, and (ii) a defect, irregularity or deficiency of notice or time. 1322(2) A proceeding under this Act is not invalidated because of any procedural irregularity unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court and by order declares the proceeding to be invalid. ... 1322(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. 1322(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. 1322(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." 21 The securities issued pursuant to the 1st Prospectus, save for those issued for oversubscriptions, were "admitted to quotation with 3 months after the date of the disclosure document". In respect of those securities the overall purpose of s 723(3) was fulfilled, namely, that within the period of 3 months from the date of the prospectus GGP became bound to comply with rules of the ASX in respect of those securities and the securities were admitted to quotation on the ASX market. 22 In the course of the submissions of counsel for GGP, I raised the question whether, in the full context of the Act, the word void was used in s 723(3) with the meaning voidable. Although in respect of the present application it is unnecessary to resolve that question of construction, some comments may be made. 23 It is not obvious why an application to the ASX, lodged outside the period that s 711(5) of the Act requires a prospectus to state, should result in an issue of shares pursuant to the prospectus being void where the securities have been accepted for quotation on the ASX market within the time prescribed in the prospectus, and the time required by s 723(3)(b). Unlike s 723(2), which prohibits the issue of securities pursuant to a prospectus if a condition of the prospectus relating to a minimum subscription has not been satisfied, s 723(3) does not prohibit the issue of securities where an application to the ASX is not made within time, or admission of the securities to quotation by the ASX is not obtained within the prescribed period. It is to be noted that the operation of subsection 723(3) is predicated upon securities having been issued. 24 No doubt the provisions of s 723(3) are intended to reinforce the intent of the Act that a corporation conduct its affairs in a manner that meets the objects of the Act but proper construction of those provisions requires consideration of the content of the Act as a whole. 25 If s 723(3) intends an issue of securities to be void ab initio if an application for admission of the securities to quotation on the ASX market is made out of time, notwithstanding that quotation of the securities is obtained within the prescribed period, it would be expected that the Act would enact consequential provisions in respect of investors who acquire the securities on the ASX market from vendors to whom the securities have been issued. Subscribers to a prospectus to whom securities have been issued, and purchasers of those securities on the ASX market, would be entitled to assume that requirements of the Act had been satisfied if the securities were tradeable on that market. 26 If, in such a circumstance, s 723(3) is to be read as making void the issue of securities pursuant to that prospectus, that construction would leave little room for the operation of ss 724(2), which inter alia, provides that the securities may be issued notwithstanding the default to which s 723(3) applies. 27 Section 724(2)(c) appears to contemplate that in the circumstance referred to above, and where securities have not been issued to a person who has subscribed for securities under the prospectus, the securities may be issued without the issue being treated as void unless the applicant elects within one month of the issue to treat the issue as said by, presumably, returning the securities and requesting repayment of the monies subscribed. 28 It is to be noted that if ASIC is satisfied that an offer of securities is made that contains a misleading statement then, under s 739 of the Act, ASIC may order, inter alia, that no sales of the securities take place for a specified period. 29 The provisions of ss 724(2), (3), which apply to any applications to acquire securities from a corporation raising share capital by subscription which "have not resulted in an issue or transfer of the securities" by the corporation, do not make obvious the purpose to be served in requiring a new prospectus to be issued to enable a further application to be made to the ASX within 7 days of the date of that prospectus in relation to securities already accepted for quotation on the ASX market within the period set out in the original prospectus. In that circumstance a requirement that a "supplementary or replacement prospectus that corrects the deficiency or changes the terms of the offer" be issued would impose on the corporation, and indirectly its shareholders, substantial additional expenditure for no apparent benefit. 30 It may be thought that provisions such as those contained in s 724(2)(c), s 727(4) s 737(1), and s 738, and the absence of any provisions relating to the position of third parties who purchase securities on the ASX market from applicants to whom the securities were issued in a circumstance to which s 723(3)(c) is said to apply, suggest that the word void as used in s 723(3)(c) is to be read as voidable at the election of the applicant for the securities, and that sale of the securities by that party would constitute an election to affirm the transaction. Of course, rights obtained by that party under s 728 of the Act may remain exercisable against the corporation. 31 With regard to the failure by GGP to make application to the ASX by 14 July 2003 for admission to quotation of the securities issued as oversubscriptions, I accept that the default resulted from an innocent oversight that appears to have been corrected serendipitously by the further application lodged on 11 August 2003. It does not appear that any officer of GGP realized that the applications lodged on 15 July and 11 August 2003 failed to satisfy the requirements of the 1st Prospectus under the Act. 32 With regard to the 2nd Prospectus, the failure to lodge within 7 days after 11 August 2003 an application for the securities issued under that prospectus to be admitted to quotation on the ASX market, is more difficult to explain. The lack of awareness of default under the 1st Prospectus was compounded by lack of knowledge or instruction as to what remained to be done by the officers of GGP after it had lodged the application for quotation of further securities with the ASX on 11 August 2003. It does not seem to have been understood by the secretary, for example, that further steps were required by GGP in respect of the 2nd Prospectus. The omission by GGP in that regard was not addressed until approximately 9 months later when GGP sought to raise further capital and found that the number of securities that it understood had been admitted for quotation on the ASX market was less than the number recorded by ASX. 33 Notwithstanding the extent of the default and the period of delay, however, I am satisfied that it is just and equitable, and in the interests of all parties, that remedial orders be made in the terms sought by GGP. 34 I am satisfied that s 254E uses the word "invalid" in a broad sense to encompass not only an issue of shares which is liable to be declared void under the Act but also an issue of shares which the Act stipulates to be void. (See: Swan Brewery Co Ltd (No.2) (1976) 3 ACLR 168 per Gillard J at 171-2; c.f. Harman v Energy Research Group Australia Limited [1986] WAR 123 per Brinsden J at 127). 35 With regard to the declarations and remedial orders sought pursuant to s 1322 of the act, I accept that, as with like provisions in corporations legislation that preceded the Act, s 1322 is to be given a liberal construction, allowing appropriate orders to be made that facilitate the conduct of commerce and serve the interests of the parties concerned where it is just and equitable that such orders be made. (See: Re Insurance Australia Group Ltd (2003) 128 FCR 581 per Lindgren J at [27].) I am satisfied that orders should be made under s 1322 to validate the issue of options pursuant to the 1st and 2nd Prospectuses and avoid the operation of s 723(3). 36 GGP also seeks orders under s 1322 extending the time for application to the ASX for admission to quotation of the oversubscription securities issued under the 1st Prospectus and the securities issued under the 2nd Prospectus. Whether such orders are necessary may be doubted but in the absence of any submissions to the contrary I will grant the orders sought.

37 Consequential orders will also be made preserving the right of any person affected by the orders to apply within 28 days to vary or discharge any order. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lee.

Associate: Dated: 6 September 2004 Counsel for the Applicant: S J Lemonis

Solicitor for the Applicant: Fairweather & Lemonis