Harman v Energy Research Group Australia Limited

LEE J: 1 This is an application for remedial orders under s 254E and s 1322 of the Corporations Act 2001 (Cth) ("the Act"). 2 In May 2002 the applicant ("GGP"), then known as Valdera Resources Limited ("Valdera"), was admitted to the official list of Australian Stock Exchange Limited ("the ASX") and the securities of GGP quoted on the ASX market. 3 In June 2003 Valdera was merged with a Canadian registered company, Golden Gate Resources Limited. The latter became a wholly owned subsidiary of Valdera. The name Valdera was then changed to GGP. 4 As a result of the merger, GGP acquired an interest in a joint venture formed to explore for oil and gas on tenements in North America. Participation in that joint venture became GGP's principal activity. Prior to the merger GGP carried on the business of exploring for and mining minerals in Australia. Pursuant to the ASX Listing Rules the ASX considered that the business of GGP had undergone a substantial change by reason of the merger and it suspended trading in GGP securities on the ASX market. 5 To obtain "re-listing" of its securities GGP was required to make "a new listing application" to the ASX and satisfy the ASX that current listing requirements were satisfied, in particular, that GGP had net tangible assets of at least $2,000,000. 6 As at June 2003 GGP could not meet that requirement. It resolved to increase its capital base by offering shares to the public for subscription. By a prospectus dated 7 July 2003 ("the 1st Prospectus") GGP offered 5,000,000 shares at 20˘ with an attaching option granted free for every share subscribed, the options being exercisable on or before 31 December 2006 at a price of 65˘. 7 The 1st Prospectus provided that if the offer was oversubscribed GGP could issue a further 2,500,000 shares and 2,500,000 options. Therefore, if the maximum number of shares available under the 1st Prospectus, including oversubscriptions, were issued, the amount of additional capital subscribed would be $1,500,000. The 1st Prospectus stated that the minimum subscription required was $500,000. 8 The 1st Prospectus informed investors that within 7 days of the date of the prospectus GGP would make an application for the shares and options to be issued thereunder "to be admitted to quotation on [the] ASX". 9 GGP lodged that application on 15 July 2003. 10 On 31 July 2003 the 1st Prospectus closed oversubscribed and GGP duly issued 7,500,000 shares and 7,500,000 options. The applications for shares and options in GGP were not satisfied in full and GGP resolved to offer a further 2,500,000 shares and 2,500,000 options to the public on the same terms as the previous offer. By a prospectus dated 11 August 2003 ("the 2nd Prospectus") the further offer was put to the public. The 2nd Prospectus informed investors that within 7 days of the date of the prospectus GGP would make an application for the shares and options issued thereunder "to be admitted to quotation on [the] ASX". 11 On the same day, 11 August 2003, GGP gave notice to the ASX of the issue to the public of the 2nd Prospectus . Attached to the notice was a form under the ASX Listing Rules for "application for quotation of additional securities". In that form GGP gave notice to the ASX of the total number of shares and options, including oversubscriptions, that had been issued pursuant to the 1st Prospectus. 12 On 13 August 2003 the ASX issued a "Market Release" which gave notice to the public of "Reinstatement To Official Quotation" of GGP securities and advised that "suspension of trading in the securities [would] be lifted" from the commencement of trading on 15 August 2003. The securities identified as reinstated to official quotation included all shares and options issued pursuant to the 1st Prospectus. 13 The 2nd Prospectus, fully subscribed, closed on 19 August 2003 and 2,500,000 shares and 2,500,000 options were duly issued. 14 It is not disputed by the applicant that an application to have securities admitted to quotation on the ASX market was not lodged "within 7 days after" the date of the 1st Prospectus. To meet that requirement it was necessary that the application be lodged by 14 July 2003. As noted above, the application was not lodged until the following day. (See: Morton v Hampson [1962] VR 364, 365). No application for the securities issued pursuant to the 2nd Prospectus to be admitted to quotation was lodged with the ASX by GGP. The securities issued pursuant to the 1st and 2nd Prospectuses were traded on the ASX market after issue. The evidence before the Court indicated that at all material times the securities traded at prices that exceeded the issue price. 15 An affidavit sworn by the secretary of GGP deposed that the failure of GGP to comply with the obligations undertaken in the 1st and 2nd Prospectuses, to make timeous applications for admission to quotation on the ASX market of the securities to be issued pursuant to those prospectuses, occurred by reason of oversight and inadvertence. The affidavit conceded that the application lodged on 15 July 2003 was also deficient in that it "did not address the possibility of oversubscriptions pursuant to the [1st] Prospectus". 16 The secretary deposed that in February 2004 GGP lodged a further prospectus with the ASX giving notice of the intention to raise further share capital. The ASX informed GGP that the number of quoted securities set out in the prospectus could be not reconciled with the records maintained by the ASX. In May 2004 the ASX advised that the GGP securities admitted to quotation by the ASX did not include the securities issued pursuant to the 2nd Prospectus, and further advised that no application to list those securities for quotation had been received by the ASX. 17 To avoid the operation of the provisions of Chapter 6D of the Act upon the issue of the securities pursuant to the 1st or 2nd Prospectuses, GGP now seeks orders under s 254E(1) of the Act to validate the share issues made pursuant to the 1st and 2nd Prospectuses and like orders under s 1322 of the Act in respect of the issue of options. Notice of the application was given to the Australian Securities and Investment Commission ("ASIC") and to the ASX, neither of which opposes the orders sought by GGP. The ASX has informed GGP that if an application to have the securities issued pursuant to the 2nd Prospectus admitted to quotation is lodged with the ASX the ASX will list those securities. 18 The relevant provisions of Chapter 6D are ss 723 and 724 of the Act which read as follows: "723(1) If an offer of securities needs a disclosure document, the securities may only be issued or transferred in response to an application form. The securities may only be issued or transferred if the person issuing or transferring them has reasonable grounds to believe that: (a) the form was included in, or accompanied by: (i) the disclosure document; or (ii) if subsection 721(2) allows a profile statement to be used - the prospectus or the profile statement; when the form was distributed by the person issuing or transferring the securities; or (b) the form was copied, or directly derived, by the person making the application from a form referred to in paragraph (a). (2) If a disclosure document for an offer of securities states that the securities will not be issued or transferred unless: (a) applications for a minimum number of the securities are received; or (b) a minimum amount is raised; the person making the offer must not issue or transfer any of the securities until that condition is satisfied. For the purpose of working out whether the condition has been satisfied, a person who has agreed to take securities as underwriter is taken to have applied for those securities. (3) If a disclosure document for an offer of securities states or implies that the securities are to be quoted on a financial market (whether in Australia or elsewhere) and: (a) an application for the admission of the securities to quotation is not made within 7 days after the date of the disclosure document; or (b) the securities are not admitted to quotation within 3 months after the date of the disclosure document; then: (c) an issue or transfer of securities in response to an application made under the disclosure document is void; and (d) the person offering the securities must return the money received by the person from the applicants as soon as practicable. (4) Strict liability offences. An offence based on subsection (1), (2) or (3) is an offence of strict liability. 724(1) If a person offers securities under a disclosure document and: (a) the disclosure document states that the securities will not be issued or transferred unless: (i) applications for a minimum number of t he securities are received; or (ii) a minimum amount raised; and that condition is not satisfied within 4 months after the date of the disclosure document; or (b) the disclosure document states or implies that the securities are to be quoted on a financial market (whether in Australia or elsewhere) and: (i) an application for the admission to quotation is not made within 7 days after the date of the disclosure document; or (ii) the securities are not admitted to quotation within 3 months after the date of the disclosure document; or (c) the person becomes aware that: (i) the disclosure document contains a misleading or deceptive statement; or (ii) there is an omission from the disclosure document of information required by section 710, 711, 712, 713, 714 or 715; that is materially adverse from the point of view of an investor; or (d) the person becomes aware of a new circumstance that: (i) has arisen since the disclosure document was lodged; and (ii) would have been required by section 710, 711, 712, 713, 714 or 715 to be included in the disclosure document if it had arisen before the disclosure document was lodged; and (iii) is materially adverse from the point of view of an investor; the person must deal under subsection (2) with any applications for the securities made under the disclosure document that have not resulted in an issue or transfer of the securities. For the purpose of working out whether a condition referred to in paragraph (a) has been satisfied, a person who has agreed to take securities as underwriter is taken to have applied for those securities. (1A) An offence based on subsection (1) is an offence of strict liability. (2) The person must either: (a) repay the money received by the person from the applicants; or (b) give the applicants: (i) the documents required by subsection (3); and (ii) 1 month to withdraw their application and be repaid; or (c) issue or transfer the securities to the applicants and give them; (i) the documents required by subsection (3); and (ii) 1 month to withdraw their application and be repaid.