Oldfields Holdings Limited Re [2009] NSWSC 1220

CATCHWORDS : Corporations - Rights Issue - Application order under s 1322 (4) of the Corporations Act 2001 (Cth) extending time for a company to give notice to Australian Securities Exchange Ltd under s 708AA (2) (f) of the Act - Whether failure to lodge a cleansing notice as required by the Act was due to inadvertence - Whether substantial injustice to any party

Chalice Gold Mines Ltd, Re [2009] FCA 1236 CASES CITED : Chameleon Mining NL, Re [2009] NSWSC 660 Charter Hall, Re [2007] FCA 1316

TEXTS CITED : Ford's Principles of Corporation Law, on line service 68

PARTIES : Oldfields Holdings Limited (Plaintiff)

COUNSEL : Mr J Darams (Plaintiff) Ex parte

SOLICITORS : Eakin McCaffery Cox (Plaintiff)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

Tuesday 10 December 2009 ex tempore Revised 12 December 2009

Application seeking orders in relation to an extension of time

1 There is before the court an application made pursuant to subsection 1322(4)(d) of the Corporations Act 2001 (Cth) [the Act] seeking orders in relation to an extension of time to give notice to Australian Securities Exchange Limited [the ASX] under subsection 708AA(2)(f) of the Act. 2 The application is supported by four affidavits: the affidavit of Mr Gary Jeffrey Guild; the affidavit of Mr Anthony Mankarios; the affidavit of Mr Mark Geoffrey Dobell; the further affidavit of Mr Mark Geoffrey Dobell. Background 3 The background to the making of the application concerns a rights issue by Oldfields Holdings Limited [Oldfields], the relevant timetable being as follows: 6th October 2009 Lodging Appendix 3B with ASX 12th October 2009 Notice to Security Holders 13th October 2009 "Ex" Date 19th October 2009 Record Date 22nd October 2009 Acceptance Form mailed 6th November 2009 Acceptances close at 5pm 9th November 2009 Securities quoted on a deferred settlement basis 11th November 2009 Notify ASX of under subscriptions 16th November 2009 Despatch Date Confirm Appendix 3B 17th November 2009 Resume Normal Trading

4 The plaintiff is a publicly listed company. The plaintiff's application arises out of circumstances where it has embarked upon a capital-raising by way of a 1 for 2 rights issue to each of its members. The plaintiff has sought to raise additional working capital in order to meet prospective orders for its goods from overseas clients. The company has received approximately $250,000 in relation to the rights issue. 5 The capital-raising is regulated by Chapter 6D of the Act. Pursuant to section 706 of the Act, the offer by the plaintiff required disclosure under that part of the Act unless, relevantly in the current circumstances, section 708AA of the Act applies. 6 The problem arose by reason of a mistake made in the preparation and lodgement of all relevant documents in respect of the rights issue. The failure involved the omission by Oldfields to prepare or lodge a cleansing notice as required by the Act. That such a notice had not been lodged, and indeed was required, first came to the attention of the company secretary of Oldfields on or about 29 or 30 October 2009. 7 Once the company had satisfied itself that a cleansing notice was in fact required, it prepared such a notice by reference to the requirements under section 708AA(2) of the Act, but did so outside of the lodgement period. In due course the cleansing notice was lodged with the ASX. Close communications had taken place between the company and ASIC as well as the ASX. 8 The ASX had advised the company that as a consequence of it not having served the ASX with the cleansing notice within the requisite time, the persons who have subscribed to the shares will not be entitled to trade those shares unless the issue of notice has been dealt with satisfactorily by the Court. ASIC had been apprised of the situation and did not wish to be heard on the application. In discussions with representatives of the plaintiff, ASIC indicated that it did not actively oppose the application. 9 Consistently with previous decisions on a similar section of the Act, the company proposed serving the orders on ASIC and on the ASX and also posting a copy of the orders on the company's website. This is to permit any person who might wish to be heard in relation to orders to be made by the Court, to be granted liberty to apply within a short period of twenty-eight days to vary the orders [if such a person had been substantially prejudiced by those orders]. The legislation 10 Of present relevance, the key section that must be considered is section 708AA of the Act pertaining to rights issues. 11 In particular subsection 708AA(2) is the provision with which the plaintiff has had concerns:

Conditions required for rights issue (2) The offer does not need disclosure to investors under this Part if: (a) the relevant securities are being offered under a rights issue; and

(b) the class of the relevant securities are quoted securities at the time at which the offer is made; and

(c) trading in that class of securities on a prescribed financial market on which they are quoted was not suspended for more than a total of 5 days during the shorter of the following periods:

(i) the period during which the class of securities is quoted;

(ii) the period of 12 months before the day on which the offer is made; and (d) no exemption under section 111AS or 111AT covered the body, or any person as director or auditor of the body, at any time during the relevant period referred to in paragraph (c); and

(e) no order under section 340 or 341 covered the body, or any person as director or auditor of the body, at any time during the relevant period referred to in paragraph (c); and (f) the body gives the relevant market operator for the body a notice that complies with subsection (7) within the 24 hour period before the offer is made. 12 What is uncontentious is that the plaintiff applicant has satisfied criteria (a) to (e) in subsection 708AA(2). What is also uncontentious, however is that the plaintiff has not complied with the subsection (2)(f) in that it was unable to give the cleansing notice to the ASX within the statutory twenty-four hour framework. 13 Another provision relied upon is subsection 708AA(7) which prescribes the minimum requisite content of the cleansing notice referred to in subsection 708AA(2). Requirements for notice

(7) A notice complies with this subsection if the notice: (a) states that the body will offer the relevant securities for issue without disclosure to investors under this Part; and

(b) states that the notice is being given under paragraph (2)(f); and

(c) states that, as at the date of the notice, the body has complied with: (i) the provisions of Chapter 2M as they apply to the body; and

(ii) section 674; and (d) sets out any information that is excluded information as at the date of the notice (see subsections (8) and (9)); and (e) states: (i) the potential effect the issue of the relevant securities will have on the control of the body; and

(ii) the consequences of that effect. 14 The plaintiff submits that treatment of its situation, governed by section 708AA, should be analogous to how the court would deal with a situation governed by section 708A that deals with sales offers as opposed to rights issues. Its main contention is that section 708AA and section 708A are very similar. 15 In particular subsection 708AA(2) bears a strong resemblance to subsection 708A(5), while subsection 708AA(7) bears a strong resemblance to subsection 708A(6). 16 Subsection 708A(5) relevantly provides:

Sale offer of quoted securities--case 1 (5) The sale offer does not need disclosure to investors under this Part if: (a) the relevant securities are in a class of securities that were quoted securities at all times in the 3 months before the day on which the relevant securities were issued; and

(b) trading in that class of securities on a prescribed financial market on which they were quoted was not suspended for more than a total of 5 days during the shorter of the period during which the class of securities were quoted, and the period of 12 months before the day on which the relevant securities were issued; and

(c) no exemption under section 111AS or 111AT covered the body, or any person as director or auditor of the body, at any time during the relevant period referred to in paragraph (b); and

(d) no order under section 340 or 341 covered the body, or any person as director or auditor of the body, at any time during the relevant period referred to in paragraph (b); and

(e) either: (i) if this section applies because of subsection (1)--the body gives the relevant market operator for the body a notice that complies with subsection (6) before the sale offer is made; or

(ii) if this section applies because of subsection (1A)--both the body, and the controller, give the relevant market operator for the body a notice that complies with subsection (6) before the sale offer is made. 17 Subsection 708A(6) provides:

(6) A notice complies with this subsection if the notice: (a) is given within 5 business days after the day on which the relevant securities were issued by the body; and

(b) states that the body issued the relevant securities without disclosure to investors under this Part; and

(c) states that the notice is being given under paragraph (5)(e); and

(d) states that, as at the date of the notice, the body has complied with: (i) the provisions of Chapter 2M as they apply to the body; and

(ii) section 674; and (e) sets out any information that is excluded information as at the date of the notice (see subsections (7) and (8)). 18 Notwithstanding the similarities, the major observed difference between the respective provisions pertains to control of the fundraising body. On the one hand subsection 708AA(5)(e) requires the body to state as part of its cleansing notice, the potential effect the issue of the relevant securities will have on the control of the body and the consequences of that effect. On the other hand subsection 708A(6) does not.

19 With regard to remedying technical breaches of the Act, the Court may deploy a vast array of powers under section 1322. In this case the plaintiff has sought to invoke the Court's power to extend statutory time periods under subsection 1322(4), extracted below:

Irregularities … (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: … (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. …

(6) The Court must not make an order under this section unless it is satisfied: … (c) in every case--that no substantial injustice has been or is likely to be caused to any person. 20 It is clear that the key notion informing the Court's exercise of its power under subsection 1322(4) is "substantial injustice" against any person.

The plaintiff's submission 21 In addressing the differences the plaintiff submitted that ASIC is satisfied, from analysing the notices eventually given, that the rights issue would have no adverse impact on control in that the issue and would not result in an increase in control of the majority shareholders. Remedial Legislation

22 In essence, the Court is dealing with remedial legislation in circumstances where I am satisfied that the failure to comply with the relevant time limit was inadvertent. I am also satisfied that the steps to be taken to regularise the position were taken within a reasonable period once the defect was appreciated. 23 The closing date of the acceptances was 5pm on 6 November. The following steps envisaged that on, 16 November, to the extent that the Courts orders may permit, the company be entitled to dispatch [or give directions through its registry], shares to those persons who have subscribed and paid their subscription.

24 The shares would then resume normal trading on 17 November. The offer for securities (shares) made by the plaintiff was made on 22 October 2009. The period for acceptance of the shares closed at 5pm on 6 November 2009. Some, but not all, of the plaintiff's members have accepted their offers. 25 The plaintiff proposes to advise its registry to issue the shares to those members that have accepted offers and have paid their subscription price on 16 November 2009. Clearly, by reason of section 723, the plaintiff cannot issue the shares to those that have subscribed under this rights issue because of the non-compliance with section 708AA. 26 It is difficult to see that in these circumstances there is any substantial injustice to any party occasioned by regularising the situation: save for the possibility that a purchaser may be able to prove that there was "excluded information" which should have been disclosed, or to the extent that a member of the plaintiff would have acted differently if they had been advised of the potential effects on control of the plaintiff as a consequence of the rights issue. 27 However, I accept that a purchaser who was able to prove such a circumstance would have independent causes of action available. Put shortly, compliance in the circumstances presently apparent to the Court would not have improved the position of such a purchaser. In the circumstances, the only potential consequence for the control of the plaintiff would appear to be a dilution of the majority shareholder's control. The orders to be made will be made pursuant to section 1322(4). 28 The current situation is close to that dealt with by Gyles J in Re Charter Hall [2007] FCA 1316 although there is one important difference; likewise the decision of White J in Re Chameleon Mining NL [2009] NSWSC 660 which generally followed Charter Hall is to similar effect: cf Re Chalice Gold Mines Ltd [2009] FCA 1236. 29 The Charter Hall decision was given in a situation in which the effect of the relevant breach was that the parties with whom securities were placed would be inhibited from disposing of them for twelve months. The distinction as between that case and the present case is that in the present matter before the court the company is prohibited under section 723 from issuing the securities. 30 Gyles J observed as follows:

"The purpose of the provisions in question is to ensure that, where one might call the prospectus obligations in relation to the issues of securities a side-step by reason of appropriate circumstances the purchasers of such securities receive the same relevant level of disclosure as might have been achieved by other means but without the more stringent and costly requirements for a prospectors and prospectus type provisions." 31 I accept that notwithstanding that there are apparently no previously published decisions of the courts in this country where a company has sought to invoke subsection 1322(4) in relation to a failure to strictly comply with subsection 708AA(2)(f), the Charter Hall decision may be regarded as apt by way of analogy in the present situation. 32 As already observed, aside from the requirement for the notice pursuant to subsection 708AA(7) to state the potential effect for control of a company pursuant to a rights issue and the consequence of that effect, the information provided pursuant to the cleansing notice given under subsection 708AA(7) (required by subsection 708AA(2)(f)) is similar and not relevantly different to the information that is required to be given to the Court under subsection 708A(5) and (6) of the Act, the very sections considered by the Courts in Charter Hall and Chameleon Mining and Chalice Mining. A cursory analysis of the sections reveals this to be the case. 33 Further, the authors of Ford's Principles of Corporation Law, online service 68 - October 2009 at [22.151], note that section 708AA is generally modelled on a case of section 708A (section 708A(5)). The foregoing is generally apt also to cover the circumstances presently before this Court, save with the effect in the present case of the potential effect on control already the subject of some previous discussion. 34 Just as Gyles J found it difficult to see that there was any substantial injustice to any party occasioned by regularising the situation, save for the possibility that a purchaser may have been able to prove that there was excluded information which should have been disclosed, so here, I am unable to see that there is any substantial injustice to any party if the current application be allowed. Orders 35 The Court makes the following orders and directions: 1. The Court grants leave to the plaintiff Oldfields Holdings Pty Limited to file in court an originating process in the form I initial and date 10 November 2009 2. The court makes orders in terms of paragraph 2 of the originating process. 3. The court makes orders in terms of paragraph 3 of the originating process. 4. The court orders that a sealed copy of these orders be served as soon as practicable on the Australian and Securities Investment Commission and the Australian Securities Exchange Limited and that a copy of these orders be placed on the website of the plaintiff as soon as practicable and remain there for 28 days. 5. The court orders that any interested party have liberty to apply on 3 days notice within 28 days of the entry of these orders to revoke or vary the orders. 6. The court orders that these orders be entered forthwith. 7. The court notes the undertaking of the plaintiff by its solicitor to pay the usual costs of the application. 8. The court grants leave to the plaintiff to file in Court the affidavit of Mark Geoffrey Doble sworn on 10 November 2009, the affidavit of Gary Jeffrey Guild sworn on 9 November 2009, the affidavit of Anthony Mankarios sworn on 9 November 2009 and the affidavit of Mark Geoffrey Doble sworn on 10 November 2009, each of which I initial and date 10 November 2009.

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