In the matter of MacMahon Holdings Limited (ACN 007 634 406) [2008] FCA 1079

Federal Court of Australia|2008-07-22|Before: McKerracher J

Introduction 1 The plaintiff (MacMahon) seeks declarations in relation to its compliance with s 625(3)(c)(i) of the Corporations Act 2001 (Cth) (the CA). Alternatively, it seeks an order extending time for compliance with the condition prescribed in s 625(3)(c)(i) of the CA. Relief is required due to inadvertent delay. 2 On the hearing of the application I granted an extension of time pursuant to s 1325A(2) of the CA. I informed counsel that I would publish short reasons briefly after the hearing. These are the reasons.

Position of ASIC and ASX 3 The Australian Securities and Investments Commission (ASIC) has made it clear that it does not oppose relief being granted nor does it wish to be heard. I am satisfied that it has been served with the papers and has had an opportunity to consider its position. 4 Despite MacMahon's failure to make the application for quotation by the time limit of 29 May 2008, the Australian Stock Exchange (ASX) nevertheless has subsequently approved the application subject to certain conditions. Those conditions are not unusual conditions in circumstances similar to the present where shares have not been but are likely to be issued at some future time.

Background 6 MacMahon is a public company admitted to the official list of the financial market conducted by the ASX. On 22 May 2008 MacMahon lodged a bidder's statement as defined in s 9 of the CA with ASIC in relation to its proposed acquisition of all the fully paid ordinary shares in Ausdrill by way of an off-market takeover offer. The bidder's statement was also given to Ausdrill and lodged with the ASX on 22 May 2008. Pursuant to the bid, the bid period (see the definition in s 9 of the CA) was to start when the bidder's statement is given to the target. Therefore it commenced on 22 May 2008. 7 Between 5 June 2008 and 6 June 2008, MacMahon dispatched copies of the bidder's statement, with the relevant dates inserted, to all holders of fully paid ordinary shares in Ausdrill who were recorded on the Ausdrill register of members as at 26 May 2008. 8 The offer period commenced on 6 June 2008 and is currently scheduled to close on 15 August 2008 unless it is further extended. The offer involves an offer of shares in MacMahon to Ausdrill shareholders. It represents that MacMahon would apply to have any MacMahon shares so issued to Ausdrill shareholders under the offer admitted to quotation on the ASX. It does not 'guarantee' admission. 9 As the start of the bid period was 22 May 2008, s 625(3)(c)(i) of the CA requires MacMahon to make an application to the ASX for the quotation of the maximum number of MacMahon shares that MacMahon would be required to issue under the offer by 29 May 2008, i.e. within 7 days. In fact it did not do so until the evening of 10 July 2008 due to inadvertence.

Statutory Background 10 The relevant legislation provides: 625 Conditional offers - general Market bids (1) Offers under a market bid must be unconditional. Off-market bids may generally be conditional (2) Offers under an off-market bid may be subject to conditions that are not prohibited by sections 626 to 629. (3) If: (a) the consideration offered is or includes securities; and (b) the offer or the bidder's statement states or implies that the securities are to be quoted on a financial market (whether in Australia or elsewhere); the following rules apply: (c) the offer is subject to a condition that: (i) an application for admission to quotation will be made within 7 days after the start of the bid period; and (ii) permission for admission to quotation will be granted no later than 7 days after the end of the bid period; (d) the offer may not be freed from this condition. (emphasis added) Note: Section 1325A provides that a Court may make a remedial order if the condition is not satisfied. 1322 Irregularities 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; … (emphasis added) … (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. (emphasis added) 1325A Orders if contravention of Chapter 6, 6A, 6B or 6C 1325A(2) The Court may make any order or orders (including a remedial order) that it considers appropriate if: (a) the consideration offered under a takeover bid is or includes securities; and (b) the offers under the bid or the bidder's statement states or implies that the securities will be able to be traded on a financial market (whether in Australia or elsewhere) and: (i) an application for admission to quotation is not made within 7 days after the start of the bid period; or (ii) permission for admission to quotation is not granted within 7 days after the end of the bid period. (emphasis added) 1325D Contravention due to inadvertence etc (1) The Court may declare that any act, document or matter: (a) is not invalid merely because a person has contravened a provision of Chapter 6, 6A, 6B or 6C; and (b) has had effect at all times as if there had been no contravention; if the Court is satisfied that the contravention ought to be excused in all the circumstances. ... (emphasis added)

Considerations 11 The evidence as to the nature of the oversight is not complex or detailed. There is evidence that 'through an administrative oversight' MacMahon's solicitors did not advise MacMahon of the timing requirements of s 625(3)(c)(i). That omission was discovered on 10 July 2008 when the solicitors did immediately advise MacMahon of the obligations under the section and on the same day at about 5.30 pm, MacMahon lodged the application for quotation with ASX. The application was lodged after trading on the ASX and outside of normal business hours. For that reason the motion refers to 11 July 2008 rather than 10 July 2008 as the relevant proposed date for compliance with the requirements of s 625(3)(c)(i) even though the lodgement was on the evening of 10 July 2008. 12 The date on which the error was discovered and the prompt response that discovery caused have been adequately explained. It was clearly, I think, a situation, as counsel for MacMahon, Mr AJ Power put it, a matter of 'falling through the cracks'. This is a commercial transaction of some significance. There is no evidence or reason to suppose that MacMahon would wish to jeopardise its commercial prospects through deliberate regulatory non-compliance. 13 The primary consideration would appear to be the interest of offerees. The intent of the subsection must be to ensure that investors receive the benefit of that which they have accepted. They should not be left with securities that are unlisted when they have accepted securities with a reasonable expectation they will be listed. As has been observed in other circumstances (see for example Re Pinnacle VRB Ltd (No 9) & (No 10) (2001) 40 ACSR 56), the acceptors would be prejudiced if after acceptance of the offer the bidder did not proceed with an application to have the relevant shares quoted on the ASX. 14 Ausdrill shareholders who have accepted the offer have not yet suffered any real prejudice or loss as a result of MacMahon's delay in making the application for quotation. Their entitlement to receive the quoted shares and to trade them on the ASX has been unaffected by the delay in making the quotation. It is an entitlement which is yet to materialise. 15 The consequences of delay in making the application for quotation is similar to the circumstances in Re Insurance Australia Group Ltd (2003) 128 FCR 581 and in Laserbond Limited (ACN 057 636 692), in the matter of Laserbond Limited (ACN 057 636 692) [2007] FCA 2056. In Re Insurance Australia the purpose and effect of granting the orders was that doing so would simply ensure that investors who had applied for relevant shares would receive securities in accordance with the applications they had made. In Laserbond I expressed the view in the context of s 1322(4)(d) that: 21 A liberal construction is given to s 1322 (per Lindgren J at [27] in Insurance Australia Group Ltd 21 ACLC 1,107 above and as adopted by French J in Re Wave Capital Ltd (2003) 21 ACLC 1,995 at [30]). Using this approach, it follows that s 1322(4)(d) enables the Court to extend the time periods referred to above in ss 723 and 724 even though no absolute positive obligation to make the application for listing and to achieve quotation on the ASX is spelt out in the time periods designated in those sections. 22 In addition to the statutory requirements to be taken into account by the Court pursuant to subs (6) of s 1322, there is, as with the exercise of any discretion, a requirement to exercise it judicially having regard to the subject matter, scope and purpose of the specific provisions and the general legislative framework. As French J observed in Wave Capital 21 ACLC at [29]: Like the discretion to validate invalid share issues under s 254E, the power conferred by s 1322 must be exercised having regard to the requirements of the purposes of the Corporations Act and any other relevant statutes whose application may be in issue. It must also be exercised having regard to the interest of all parties affected and the public interest in ensuring compliance with statute law and company constitutions. Evidence of a blatant disregard of the provisions of the Act or the constitution of the company may lead to refusal of relief.

Sections 1322 and 1325D 16 MacMahon pursued its claim for relief on various bases, including s 1322 and s 1325D. The view taken in Primelife Corporation Ltd v Aevum Ltd [2005] NSWSC 269 by Hamilton J was that his Honour was satisfied that in the context of the takeover provisions of the CA, both those sections provided the Court with the power to make the requisite orders. His Honour said: 8 The following propositions emerge from the CA and relevant case law: (1) The proper construction of ss 650B, 650C and 650D "is that they provide, subject to the Act, the sole method by which offers under off-market bids may be varied, including extensions of the offer period": see the judgment of Mandie J in the Supreme Court of Victoria in Pinnacle VRB Ltd v Reliable Power Inc (2001) 163 FLR 215; 39 ACSR 8 at [9]. (2) This arises from the use of the words "may only" in s 650A(1) and "the bidder must" in s 650D(1): Pinnacle at [9]. (3) The result which follows from the failure to comply with the "sole method" is that there will be a failure to vary validly: Pinnacle at [9] and [10]. (4) The failure to vary will mean, subject to any remedial court order, that the bid has lapsed and there are no extant offers. (5) Section 659B of the CA provides that a bid period needs to have come to an end before "court proceedings in relation to a takeover bid" may be commenced. If an application for a remedial order is the subject of a s 659B prohibition (which it is unnecessary to decide) the prohibition does not apply in this proceeding because the bid period had technically come to an end at the time the application was made. (6) The statutory requirement to "give" a notice in s 650D(1)(c) means "send" or "dispatch" and does not connote the concept of service or actual receipt: Pinnacle at [10]. (7) An object of the bid variation provisions in the CA is to create "commercial certainty for participants in financial markets": Pinnacle at [12]. (8) "Month" in s 650D(1)(a)(ii) means "calendar month" by operation of s 22(1)(b) of the Acts Interpretation Act 1901 (Cth) ("the AIA"). (9) A "contravention" of legislation, by operation of s 22(1)(j) of the AIA, includes a failure to comply with legislation: applied in Pinnacle at [19]. (10) "'Inadvertence' generally means being `not properly attentive' or not directing one's mind to the doing of an act due, inter alia, to being ignorant of a requirement that an act be done, or done in a particular way, or by a particular time.": per Lee J in Diamond Rose NL v Striker Resources NL (1998) 85 FCR 76 at 81D-E, citing Hamilton v Property Investments Ltd [1983] WAR 317 and Sanwa Australia Finance Ltd v Ground-Breakers Pty Ltd (In Liq) [1991] 2 Qd R 456. (11) Section 1322(4) is a source of power for making remedial orders where there has been a contravention of the bid variation provisions of the CA: Pinnacle at [17] - [19] and [25]; and see the decision of Mullins J in the Supreme Court of Queensland in Barondene Pty Ltd v Breakfree Ltd (2003) 22 ACLC 910 at 912. So is s 1325D: Pinnacle at [17] - [19]. (12) The use of the words "may only" in s 650A(1) does not evince an intention to exclude the operation of the remedial provisions in ss 1322(4) or 1325D or an intention that the constructional approach in David Grant & Co Pty Ltd v Westpac Banking Corp (1985) 185 CLR 265 is to be taken: Pinnacle at [17] and [19]. (13) Section 1322(4) has greater flexibility than s 1325D, in that orders can be made "subject to such conditions as the court imposes": Barondene at 912. (14) Section 1322(4) conditions may be expressed so that the order is given "on condition that" the party seeking the relief undertakes to do certain things, as it was expressed in Pinnacle at [25]; or as part of a package that includes undertakings and orders, as occurred in Barondene at 913. (15) Section 1322(4) is a "remedial provision to be applied with liberality": per Giles JA (with whom Beazley JA agreed) in Winpar Holdings Ltd v Goldfields Kalgoorlie Ltd (2001) 166 FLR 144; 40 ACSR 221 at [74]. (16) In order to make an order under s 1322(4)(a), it is necessary for only one of the sub paragraphs of s 1322(6)(a) to be fulfilled, because the sub paragraphs are disjunctive. (17) In order to make any order under s 1322(4), it is necessary for s 1322(6)(c) of the CA to be fulfilled, namely, that "no substantial injustice has been or is likely to be caused to any person". (18) For the purposes of fulfilling s 1322(6)(a)(ii) of the CA, namely, that a person seeking a remedial order was acting honestly, the actions or inactions of a solicitor acting on behalf of that person are capable of being sufficient to fulfil the requirement. In Winpar, the trial Judge (Santow J) found that the solicitor, advising on a selective reduction of capital, considered the concluding words of s 256C(2), which required a special resolution at a meeting of those members of the company whose shares were being cancelled. The solicitor construed the words as meaning that the resolution could be considered at the general meeting of all members to consider the reduction of capital: Winpar Holdings Ltd v Goldfields Kalgoorlie Ltd (2000) 157 FLR 59 at [31] - [33]. The Court of Appeal regarded this view as wrong but, the solicitor having acted honestly, held there was an appropriate basis for s 1322(4) relief: CA at [76]. (19) The concept of "acting honestly" can embrace active but incorrect consideration of a legal issue, as well as failure to consider the issue at all. (20) It is desirable that an application for remedial orders in a bid variation situation be brought on quickly, as a two to five day delay may test the limits of any excusable period: Diamond Rose at 82C-D. (21) A prime consideration for making a remedial order which will continue a bid is maintaining the right of shareholders to choose to accept the bid (Pinnacle at [24]; Barondene at 912), even if it is likely that the bid will be unsuccessful: Pinnacle at [24]. (22) A relevant consideration for making a remedial order, where an extension of a bid is involved, is that some notice of the extension has been given to the market: Barondene at 912. (23) Where a bid has lapsed and is effectively reinstated by a remedial order, and shares have traded during the hiatus between the lapse and the remedial order, it is appropriate to consider as a condition of relief, an undertaking by the bidder to compensate the vendors of such shares in the target for the difference between their sale price and the bid price: Barondene at 913.

Section 1325A(2) of the CA 17 While similar considerations apply, Emmett J in Re Cabcharge Australia Ltd [2007] FCA 421 raised 'faint reservation' as to whether s 1322(1) and s 1325D could apply in relation to a contravention of s 625. In the end, his Honour only relied on s 1325A(2) of the CA. That subsection specifically deals with contraventions of s 625. 18 I would respectfully agree that it appears in the present circumstance to be the most appropriate source of power to grant the relief. As the available relief it provides for is in the widest terms, I propose to simply extend the time for compliance with s 625(3)(c)(i) of the CA until the actual date of lodging (or at least the next business day).

Conclusion 19 Although the motion has been originally cast in terms which sought both declaratory relief and an extension of time and although it was originally based on a variety of the sections of the CA, counsel for MacMahon is content that I should if I saw fit simply make orders extending time for compliance to the actual date of MacMahon's application to the ASX pursuant to s 1325A(2) of the CA. In my view, that is the most appropriate section and the most appropriate relief. I am satisfied on the basis of the principles discussed, that the circumstances warrant such relief being granted. 20 Accordingly, the orders made are that: 1. For the purposes of the offers described in Appendix A to the plaintiff's bidder's statement dated 22 May 2008, the compliance with s 625(3)(c)(i) of the Corporations Act 2001 (Cth) is extended until 11 July 2008. 2. The plaintiff and all other interested or affected parties have liberty to apply to vary these orders upon first giving 24 hours written notice. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher.

Associate: Dated: 22 July 2008 Counsel for the Plaintiff: AJ Power

Corporations Act 2001(Cth)ss 625(3)(c)(i), 1322(4)(a), 1322(4)(d), 1325A(2), 1325D

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