Macquarie Securities (Australia) Limited, in the matter of Macquarie Securities (Australia) Limited [2014] FCA 455

Background 3 On 5 April 2011, the Australian Securities and Investments Commission (ASIC) granted MGL and MSAL a conditional exemption from the operation of s 259C of the Act in relation to the acquisition of MGL shares for the purpose of transferring those shares to participants in the dividend reinvestment plan, where the acquisition and distribution were conducted within stipulated timeframes: see s 259C(2). 4 It was a condition of the exemption that MGL and MSAL provide a deed that was enforceable by ASIC containing certain covenants concerning the non-exercise of voting rights attaching to the shares; the non-exercise of control or influence in respect of voting rights attaching to the shares; the disposal of acquired shares no longer required for the purpose of implementing the dividend reinvestment plan; and the maintenance of records for inspection by ASIC, if required. 5 The present application arises from the fact that, inadvertently, MGL and MSAL failed to provide the deed required as a condition of ASIC granting the exemption. Thus the exemption simply did not take effect in relation to the share purchases to which I have referred. Further, and in any event, Belike was not a party to the conditional exemption that had been granted, and had not otherwise sought an appropriate exemption under s 259C(2). 6 Nigel Glenn Donnelly is the Division Director in the Legal and Governance Group (Company Secretarial Division) of the Macquarie Group of Companies (the Macquarie Group). He has held that position since July 2010. His responsibilities include providing legal advice to the Company Secretarial Division and other Macquarie Group support areas, the supervision of staff involved in and of matters relating to the payment of dividends, the maintenance of capital registers and compliance with related disclosure obligations, the administration of Macquarie Group's employee share option plans, and the processing of notices and subpoenas requiring production of information held by Macquarie Group. 7 Mr Donnelly has deposed to the circumstances in which MGL and MSAL failed to provide the required deed. He has accepted that this failure was the result of his own inadvertence. He said that on 5 April 2011 he received confirmation from MGL's and MSAL's external solicitors that the exemption sought from ASIC had been granted on that day. However, because the dividend reinvestment plan in respect of the final dividend declared for the 2011 financial year came to be implemented through a share issue, rather than through a share purchase, such that it was not necessary to rely on the granted exemption, he did not proceed at that time to prepare and provide the deed required for the exemption. He said that when it was determined that the dividend reinvestment plan in respect of the interim dividend declared for the 2012 financial year would be implemented through a share purchase, he checked the terms of the granted exemption, but had forgotten that the deed had not been provided. He said that, mistakenly, he interpreted the earlier advice from the external solicitors (that the exemption as sought had been granted) as advice that MGL and MSAL had complied with the conditions of the granted exemption. 8 I accept Mr Donnelly's explanation. I accept that the failure to provide the deed was inadvertent and the product of an innocent mistake. 9 However, as I have noted, regardless of the fact that the required deed was not provided, Belike was never covered by an exemption that had been granted by ASIC under s 259C(2). It is not clear to me on the evidence why no application was made to ASIC to make Belike a party to the original exemption, particularly in circumstances where, in implementing dividend reinvestment plans for third-party clients, customarily MSAL acted as broker for the share purchases and Belike acted as the custodian of the acquired shares for participants in the various plans. It is possible, as senior counsel for the plaintiff submitted, that, at the time, nobody turned to consider the implications of Belike acting as a custodian in respect of MGL shares purchased under the Macquarie Group's dividend reinvestment plan. 10 The evidence reveals that, as a result of the present problem, ASIC and the plaintiffs' solicitors have corresponded on future compliance with ASIC's relief instruments to avoid further contraventions. If, in the implementation of the Macquarie Group's dividend reinvestment plan in respect of future declared dividends, Belike is to act as the custodian of shares acquired for that purpose, the risk of contravention will be reduced by MGL, MSAL and Belike applying under s 259C(2) for an appropriate exemption. 11 I should record that, even though MGL and MSAL did not provide a deed as required by the exemption granted by ASIC on 5 April 2011, the conditions otherwise stipulated by that exemption were in fact complied with in respect of the share purchases for which relief is now sought. Further, ASIC has been informed of this proceeding and has been served with the originating process, Mr Donnelly's affidavit, and the plaintiffs' written outline of submissions in support of the relief sought. In a letter dated 30 April 2014, ASIC advised that it did not intend to appear at today's hearing. It raised no substantive opposition to the relief sought.

Consideration 12 The plaintiffs' present concerns are that, absent the relief sought, their acquisitions pursuant to the purchase transactions to which I have referred will be void and that, apart from the plaintiffs themselves, disadvantage will be suffered potentially by the sellers from whom the relevant shares were purchased, MGL's shareholders participating in the dividend reinvestment plan at the relevant times, and those in the market who, in turn, may subsequently have purchased the relevant shares from the participating shareholders. That concern is predicated on all the relevant transactions being identified. Mr Donnelly's evidence is that "it would be difficult or impossible to identify the counterparties to such acquisitions of MGL shares and it would be potentially impossible to unwind those transactions". 13 The evidence does not reveal the number of participants involved in the acquisitions by the plaintiffs or the number of shareholders participating in the dividend reinvestment plan at the relevant times. Further, the evidence does not reveal the number of transactions involved. Even so, it is clear that, in total, a large number of shares (over 6.5 million) are involved. I accept the likelihood that it would be difficult, and perhaps impossible, to identify all relevant transactions and parties. More importantly, I accept the likelihood that, in practical terms, it would be impossible to unwind the transactions. 14 A significant feature of the present case is that all the acquired MGL shares transferred to the plaintiffs occurred subject to market supervision in circumstances where the practical requirements of ASIC's exemption (that is, other than the provision of the deed) have been complied with. 15 Section 1322(4)(a) of the Act provides: 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; … 16 Section 1322(6), relevantly 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 … (c) in every case - that no substantial injustice has been or is likely to be caused to any person. 17 In the present case, the plaintiffs rely on subparagraphs (a)(ii) and (iii) quoted above. They must also satisfy the requirement of paragraph (c) quoted above. 18 In Re Westpac Banking Corporation (2004) 53 ACSR 288, Emmett J at [22] noted one possible difficulty in applying s 1322(4)(a) to the invalidation mandated by s 259C(1): there is no specific prohibition in s 259C on the issue or transfer of shares of a company to an entity it controls: ... The first question is whether, where there is a purported issue or transfer, it can be said that there is a contravention of a provision of the Act. There is no specific prohibition in s 259C of the issue or transfer of shares of a company to an entity it controls. Rather, the provision simply renders void any such issue or transfer. There is no doubt that there have been issues and transfers of shares in Westpac to entities it controls that do not fall within the exceptions in s 259C(1). Those issues and transfers of shares have been treated as effective, both by the plaintiffs and innumerable other entities and persons. 19 At [24] Emmett J held: The power conferred by s 1322 should be liberally construed. It is directed to removing technical objections that often arise under the Act. The provision is of a remedial character, and that therefore justifies a liberal interpretation. Notwithstanding that there is no express prohibition on the issue or transfer of shares of a company to an entity it controls, I consider that where such a purported issue or transfer occurs, there is a contravention of s 259C within the meaning of s 1322(4)(a) of the Act. 20 A number of other cases in this Court, cited in the plaintiffs' outline of submissions, have adopted the approach that an order under s 1322(4)(a) can be made where, otherwise, the issue or transfer of shares to a controlled entity would be void under s 259C(1): see Re Commonwealth Bank of Australia (2005) 57 ACSR 28; In the matter of MLC Limited (2006) 60 ACSR 187; Re Australia and New Zealand Banking Group Limited [2010] FCA 945; In the matter of Macquarie Group Limited [2010] FCA 1507. 21 In the circumstances I have outlined, I am satisfied that the plaintiffs have acted honestly. I am also satisfied that, in any event, it is just and equitable that the relief now sought be granted. In coming to that conclusion, I am satisfied that no substantial injustice has been or is likely to be caused to any person.

Disposition 22 Orders, substantially as sought, should be made. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.