MOSHINSKY J:
1 The plaintiff, Micro-X Limited (MX1) applies for relief under s 1322 of the Corporations Act 2001 (Cth) in relation to notices under s 708A(5) and (6). MX1 relies on an affidavit of Peter Robin Rowland (MX1's Managing Director) dated 24 July 2019, and an affidavit of Jeremy David Leibler (a solicitor) dated 25 July 2019.
2 Section 708A exempts certain sale offers of securities from the disclosure requirements in Part 6D of the Corporations Act. Specifically, s 708A(5) (when read together with s 708A(6)) exempts sale offers of quoted securities where the issuer gives the relevant market operator a notice (described in the submissions as a 'cleansing notice') before the sale offer is made, and within 5 business days after the day on which the securities are issued.
3 MX1's shares are listed on the Australian Securities Exchange (the ASX).
4 In a private placement in September 2018, MX1 issued a total of 30,000 convertible notes with a face value of $100.00 per note, raising a total amount of $3 million. Of these:
(a) on 4 June 2019, 5,000 notes were converted at $0.2313 per share, causing MX1 to issue 2,161,695 ordinary shares;
(b) on 14 June 2019, 5,000 notes were converted at $0.23 per share, causing MX1 to issue 2,173,913 ordinary shares; and
(c) on 10 July 2019, 5,000 notes were converted at $0.23 per share, causing MX1 to issue 2,173,913 ordinary shares.
5 Some of the converted shares were, shortly thereafter, on-sold by the converting noteholders. The offer of the shares for sale within 12 months of their issue triggered the operation of the disclosure obligations in s 707(3) of the Corporations Act. Subject to the matter discussed below, all of the elements for the exemption in s 708A were present:
(a) but for s 708A(5), disclosure to investors would be required by s 707(3) for the sale offer;
(b) the shares were not issued by MX1 with the purpose referred to in s 707(3)(b)(i). I accept that MX1's purpose in issuing the shares was to comply with its contractual obligations under the notes. MX1 did not issue the shares for the purpose of the noteholders selling or transferring the shares, or granting, issuing or transferring interests in, or options over, them (such that the presumption in s 707(4)(b) is rebutted); and
(c) there was no determination in force under s 708A(2).
6 The conditions for the application of the exemption in s 708A(5) were thus present. However, through inadvertence, MX1 neglected to lodge 'cleansing notices'. The evidence establishes that MX1 believed at the time of the issue of the notes, and represented to the ASX, that the on-selling of the shares within 12 months of their issue (through conversion of the notes) would not require disclosure under s 707(3) of the Act. MX1 became aware of the issue regarding 'cleansing notices' in respect of the relevant transactions only very recently. It now seeks to rectify the situation, by seeking retrospective permission to lodge the notices late.
7 I note that in May 2019, when MX1 became aware of another inadvertent failure to lodge cleansing notices (in relation to shares that had been issued on 3 January 2019, 11 January 2019 and 7 May 2019 under a private placement), MX1 applied to this Court for relief, which was granted on 27 May 2019 by Middleton J (proceeding No. VID543 of 2019). That application was determined before the three share issues with which the present application is concerned. The present issues came to light only on 18 July 2019, after new advisers (who were appointed by MX1 on 24 June 2019) conducted an audit of previous conversions to ensure regulatory compliance.
8 MX1's application is made under s 1322(4) of the Corporations Act. MX1 has standing to apply under that provision, as an "interested person": Re Impression Healthcare Ltd [2019] FCA 772 at [15].
9 The orders sought by MX1 fall into four categories. I will consider each category in turn.
10 First, MX1 seeks orders under s 1322(4)(d) extending the period of 5 business days referred to in s 708A(6)(a) ("5 business days after the day on which the relevant securities were issued by the body") to the second business day after the orders are made.
11 Section 1322(4)(d), when read together with s 1322(6)(c), enables the Court to make an order extending the period for doing any act, matter or thing under the Corporations Act or in relation to a corporation, so long as the Court is satisfied that no substantial injustice has been caused or is likely to be caused to any person.
12 It is submitted by MX1, and I accept, that no substantial injustice has been, or is likely to be, caused to any person as a result of the extension. I note the following facts and matters:
(a) MX1 fully complied with its continuous disclosure obligations at all times, including at the time of issue of the notes and the shares upon conversion. There has been no matter which has been excluded from a continuous disclosure notice in accordance with the ASX Listing Rules: see Re Charter Hall Ltd [2007] FCA 1316 at [4].
(b) Other than the issue of the relevant shares and the earlier issues of shares, there has been no material change in MX1's affairs in the 12 months before the time of issue of the shares.
(c) The shares were not issued with the purpose of re-sale.
(d) ASIC has not made a determination under s 708A(2) in relation to MX1.
(e) All the other elements of s 708A(5) are satisfied, as:
(i) the shares are in a class of securities that were quoted securities at all times in the three months before their issue;
(ii) shares in the relevant class were not suspended from trading on ASX for more than a total of five days during the shorter of the period during which the class of securities were quoted and the period of 12 months before the day the shares were issued;
(iii) no exemption under ss 111AS or 111AT of the Corporations Act covered MX1, or any person as director or auditor of MX1, at any time during the relevant period referred to in paragraph (b) above; and
(iv) no order under s 340 or 341 of the Corporations Act covered MX1, or any person as director or auditor of MX1, at any time during the relevant period.
(f) MX1 would have been entitled to give to ASX a 'cleansing notice' in relation to the shares issued on conversion. Had MX1 lodged a 'cleansing notice' within the prescribed timeframe, the notice would not have required MX1 to make additional disclosure of any "excluded information" within the meaning of ss 708A(7) and (8) of the Act: Re RCR Tomlinson Ltd [2009] FCA 1130 at [23].
(g) Any offers for sale or on-sales by noteholders were made on the assumption that no disclosure was required by them: Re Impression Healthcare Ltd [2019] FCA 772 at [20].
(h) While it is theoretically possible that a purchaser of shares from a noteholder might contend that the purchase would not have been made had the seller complied with its obligations of disclosure, any potential for injustice could be accommodated by giving liberty to any person who may claim to have suffered substantial injustice by reason of the making of an order extending the time for compliance with s 708A(6) to apply to vary or discharge the orders within a limited period: Re Chameleon Mining NL [2009] NSWSC 660 at [12].
I therefore consider it appropriate to make such orders.
13 Secondly, MX1 seeks orders under s 1322(4)(a) declaring that the 'cleansing notices' (to be given to the ASX within the period as extended) be deemed to take effect as if they had been given to the ASX on the dates when they should have been given. These orders are a corollary of the first category of orders. For the same reasons, I consider it appropriate to make such orders.
14 Thirdly, MX1 seeks orders under s 1322(4)(a) declaring that any offer for sale or sale of the shares is not invalid by reason of the seller's failure to comply with the disclosure requirements in ss 707(3) and 727(1).
15 Section 1322(4)(a), when read together with s 1322(6)(a) and (c), enables the Court to make an order declaring that any act, matter or thing purporting to have been done under the Corporations Act in relation to a corporation is not invalid by reason of any contravention of a provision of the Act, so long as the Court is satisfied that:
(a) the act, matter or thing is essentially of a procedural nature;
(b) the persons concerned in or party to the contravention or failure acted honestly;
(c) it is just and equitable that the order be made; and
(d) no substantial injustice has been or is likely to be caused to any person.
16 There is evidence that the omission was through inadvertence. On the basis of the material before the Court, I find that MX1 and its officers acted honestly. The material before the Court indicates that, overall, there is a culture of compliance and process throughout MX1. MX1 failed to turn its mind to whether a 'cleansing notice' was required, and realised this only when its new advisers conducted an audit that there had been an omission: see Re ICandy Interactive Ltd (2018) 125 ACSR 369 at [55]. MX1 acted promptly to rectify the situation: see Re ICandy Interactive Ltd at [54]. It is just and equitable that the orders be made. For the reasons set out above, there is no substantial injustice. The declaratory relief will give clarity to the converting noteholders who on-sold the shares and thereby to any purchasers from them: see Re RCR Tomlinson Ltd [2009] FCA 1130 at [19]. For these reasons, I consider it appropriate to make the orders sought.
17 Fourthly, MX1 seeks orders under s 1322(4)(c) relieving any sellers from civil liability arising out of a contravention of ss 707(3) and 727(1) of the Corporations Act in respect of any sales of securities that occurred before receiving notice of the orders.
18 Section 1322(4)(c), when read together with ss 1322(6)(b) and (c), enables the Court to make an order relieving a person in whole or in part from any civil liability in respect of a contravention or failure to have done any act, matter or thing in contravention of a provision of the Corporations Act, so long as the Court is satisfied that:
(a) the act, matter or thing is essentially of a procedural nature;
(b) the persons concerned in or party to the contravention or failure acted honestly; and
(c) no substantial injustice has been or is likely to be caused to any person.
19 In my view, it is appropriate to grant the relief from liability, for the same reasons as set out above. I also note that the mischief to which s 707(3) is directed is to minimise the opportunity for issuers of securities to avoid giving disclosure by first selling to an intermediary and then having the intermediary on-sell to retail investors. That is not what occurred here. On the material before the Court, there was no intention by the issuer, MX1, in issuing the notes or the shares to avoid any of the provisions of the Corporations Act.
20 I note that the Australian Securities and Investments Commission (ASIC) and the ASX have been served with a copy of the application. ASIC has indicated that it neither consents to nor opposes the relief being granted: see Re Genetic Technologies Ltd [2019] FCA 1088 at [14]; Re Spectur Ltd [2019] FCA 867 at [9].
21 For these reasons, I will make orders substantially in the terms sought by MX1.
I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moshinsky.