Plaintiff v Defendants

2 At 1.00 am on 8 August 2020, Aura provided unsealed copies of an originating process, an interlocutory process and a supporting affidavit of Mr Reeve to the Court. The originating process seeks a number of orders in relation to the affairs of the company, Aura. The defendants to the proceeding are as follows:

ASEAN Deep Value Fund, a Cayman Islands company (No 149267) ('ASEAN');

Pre-Emptive Trading Pty Ltd (ACN 111 948 451) ('PET') and Mr John Leslie Bennett;

3 In substance, Aura, a listed company, makes complaint that the defendants are contravening the takeover-related provisions of the Corporations Act 2001 (Cth) ('the Act') and, in particular:

(a) that they have done so by increasing relevant shareholdings from below 20% to greater than 20% contrary to s 606(1) of the Act; and

(b) they have done so in breach of s 671B of the Act by failing to make disclosure as required in relation to substantial holdings in Aura.

4 While those matters are the subject of substantive complaint, and form the basis of the relief claimed in the originating process, the issue that is said to have required an urgent hearing by the Court concerns an extraordinary general meeting of the company due to be held on 14 August 2020 ('the EGM').

5 That EGM was requisitioned on 23 June 2020 by Mr O'Neil, on behalf of the first defendant, ASEAN. On 14 July 2020, the Aura Board sent out notice of that meeting, informing shareholders that it would take place on 14 August 2020. The proposed resolutions, if passed, would see control of the Board pass from the existing directors to those put forward by the 15% shareholder, ASEAN.

6 At the last AGM on 18 November 2019, more than 25% of voting shareholders voted against the remuneration resolution, thereby giving rise to 'one strike' against the directors. At present, there is a trading halt on the shares of Aura as a result of concerns in relation to its management having been raised by ASEAN.

7 Aura now applies to the Court on very short notice for orders:

(a) that the time stipulated on s 249D(5) of the Act for the holding of that meeting be extended pursuant to s 1322(4)(d) of the Act:

(i) until 30 November 2020; or

(ii) until such other date as the Court deems appropriate; and

(b) that, pursuant to the inherent jurisdiction of the Court, the EGM be adjourned to a date three weeks after the determination of the substantive application or alternatively, Aura's annual general meeting, whichever date is earlier.

8 Aura also seeks directions in relation to the conduct of the substantive proceeding, but in its written submissions simply asks that the directions hearing of the originating process be adjourned and that the Court permit substituted service of the originating process and the interlocutory process.

9 The background to the proceeding includes that, since October 2019, there has been a battle for control of Aura. As part of that battle for control, there have been repeated requisitions for general meetings under s 249D of the Act.

10 At the general meeting held on 7 January 2020, convened at the request of PET, Mr Bennett was elected to the Board.

11 The meeting requisitioned by PET that led to Mr Bennett's election as a director was the result of one of a series of notices by shareholders pursuant to s 249D of the Act.

12 On around 15 November 2019, PET issued a notice requesting a general meeting pursuant to s 249D of the Act, putting forward a number of resolutions. Those resolutions included that the executive director, managing director and chairman of Aura, Mr Reeve, be removed and that performance shares allocated to him in November 2019 be cancelled. Those resolutions were not passed.

13 On about 31 December 2019, PET issued a third notice pursuant to s 249D of the Act. On that occasion PET requested the Board call a further general meeting to be held on 31 January 2020, putting forward several resolutions including the removal of Mr Perkins as a director, and the appointment of Mr Hoertlehner as a non-executive director. The notice pursuant to s 249D was subsequently ruled invalid by the Board of Aura.

14 On 29 January 2020, Mr O'Neil, on behalf of ASEAN, requisitioned a further general meeting pursuant to s 249D of the Act. However the notice and requisition was determined by Aura to be invalid and no meeting was held.

15 On 17 February 2020, Mr Bennett, in his capacity as director, sought to invoke Article 12.3 of Aura's Constitution to call a general meeting. Mr Bennett issued the director's notice so as to bring about the further general meeting. He did so because, in the intervening period, PET's shareholding had been diluted to below 5%, such that PET no longer had the power to requisition the meeting pursuant to s 249D of the Act.

16 On 20 February 2020, ASEAN issued a further s 249D notice, the fifth such notice. Aura contends that it did so acting in concert with Mr Bennett. In his affidavit, Mr Bennett denies that to be the case.

17 On 13 March 2020, Aura announced the convening of a meeting to be held on 14 April 2020 to consider the motions proposed in the fifth s 249D notice and the director's notice. On 26 March 2020, Aura postponed the meeting, on account of the COVID-19 pandemic. The postponed meeting took place on 21 May 2020. The resolutions put forward on behalf of the proponents for the meeting were not passed.

18 In the intervening period between 26 March 2020 and 21 May 2020, Aura issued shares to a number of investors. 814 million shares were issued in that period, including 25,131,579 shares to Mr Madden, the company secretary of Aura (those shares are held by his wife). Also in the intervening period and on 8 May 2020, Mr Craigie and Mr Heber were appointed additional directors of Aura.

19 The Board of Directors of Aura currently consists of Mr Reeve, Dr Beeson, Mr Perkins, Mr Bennett, Mr Heber and Mr Craigie, with Mr Madden as the company secretary.

20 Although Mr Bennett has been a director of Aura since January 2020, he has not been involved in decisions by his fellow Board members, including the issuing of shares and the appointment of additional directors to which I have referred.

21 Two issues are raised by the interlocutory application. First, whether time should be abridged for service of the originating process and interlocutory process pursuant to the Supreme Court (Corporations) Rules 2013. Second, and of substance, whether the Court should order the adjournment of the EGM proposed to be held on Friday, 14 August 2020.

22 Aura argues that the scheduled 14 August 2020 EGM should be adjourned so that the Court can hear and determine its substantive claim for relief as set out in the originating process.

23 Aura relies upon affidavits of Mr Reeve dated 7 August 2020 and 9 August 2020. It also relies on affidavits of Dr Beeson and Mr Perkins, which express support for the concerns raised in the Reeve affidavits. In support of the application, Aura filed written submissions prepared by Mr Trichardt of counsel who appeared on the application.

24 ASEAN, Mr O'Neil and Mr Roes oppose the application for interlocutory relief. They rely upon two affidavits of Mr O'Neil dated 11 August 2020 and an affidavit of Mr Roes dated 11 August 2020. Those parties filed submissions prepared by Mr Carmichael of counsel who appeared on their behalf on the application.

25 PET and Mr Bennett oppose the application. Mr Bennett swore an affidavit on 11 August 2020. PET and Mr Bennett also rely upon an affidavit of Mr Gordon, their solicitor, sworn on 11 August 2020. Mr Gordon represents PET in relation to proceeding number S ECI 2019 05456 in which Aura is the plaintiff, and PET has filed a defence and counterclaim. PET and Mr Bennett filed written submissions prepared by Mr Lorbeer of counsel who appeared on the application on their behalf.

26 The sixth defendant, Mr Sartingen, is not resident in Australia. He has not appeared in the proceeding. He did not participate in the 12 August 2020 hearing.

27 The seventh defendant, Mr Hoertlehner has not filed a notice of appearance in the proceeding. He is a resident of Panama, but at present located in Europe. On 10 August 2020, he sent a document to the Court entitled 'Rebuttal Affidavit'. He appeared at the hearing on his own behalf and opposed the application to adjourn the 14 August 2020 EGM.

28 For the reasons that I will shortly set out, I am not prepared to make an order adjourning the EGM.

29 The application by Aura relies upon the proposition that there is an arguable case of contraventions of the Act by the defendants as is the subject matter of the substantive claims in the proceeding. As indicated by the interlocutory orders sought, it contends in essence that the shareholders should not vote on the resolutions which, if passed, would see wholesale changes to the existing Board of Aura until after the Court determines the substantive issues in the proceeding.

30 The case for Aura is that the defendants' combined shareholding exceeds the 20% threshold. It is said that, at the time of filing Mr Reeve's affidavit, PET hold 3% of the shares, ASEAN 15.01%, Blue Star, a company associated with Mr Hoertlehner, 0.78% and Mr Sartingen 5.27% - a total of 24.06%. I was informed by Mr Trichardt that the directors currently hold a little over 3% of the shares in the company.

31 Although notice to the defendants was very short, each of the first to fifth defendants have filed detailed affidavit evidence taking issue with the substantive claims made by Aura. Each of the defendants who appeared at the hearing deny that they are 'Associates' as defined in s 9 of the Act. They deny the allegation by Aura that, their combined shareholding is to be treated as one, and that such combined shareholding, together with the shareholding of Mr Sartingen, has impermissibly increased from less than 20% to more than 20% in contravention of s 606(1)(c) of the Act.

32 Mr Trichardt submitted that the meeting was not requisitioned in good faith and for a proper purpose. That is a matter that should be properly particularised. However, the allegation having been raised, it is clear that the defendants strongly refute such an allegation. It is clear that the defendants have serious concerns about the management of Aura.

33 Those concerns include in relation to the method of raising funds and dealings with Lind Global Macro Fund LP. The evidence discloses that the defendants are concerned about the terms on which funding has been provided by Lind and as to dilution of their shareholding in association with such funding arrangements. The evidence in support of the application referred to a non-binding term sheet to raise funds, but on 7 August 2020, Chilean Metals Inc, the party to that non-binding term sheet, announced that it would not be proceeding with the venture, a matter which Mr Bennett, says has both not been corrected in Mr Reeves' second affidavit and does not appear to have been disclosed to the market.

34 The primary complaint concerning breach of s 671B of the Act by reason of failure to make disclosure of a substantial holding relates to Mr Sartingen, who has not yet appeared in the proceeding.

35 It is obviously not possible to resolve the very significant factual contest as between Aura and the defendants. It is sufficient to observe both that such a dispute exists, and that even though time was very tight, the defendants who appeared on the application have put on detailed evidence in order to seek to refute the allegations on which Aura relies.

36 Section 249D of the Act gives the directors of a company faced with a request of members with at least 5% of the votes that may be cast at the general meeting no option other than to call a general meeting in response to such a requisition. Mr Trichardt confirmed that it is not in contest that:

(a) ASEAN relevantly holds more than 5% of the votes;

(b) the request made by ASEAN pursuant to s 249D requires that Aura holds a general meeting; and

(c) it is required do so within two months of a valid request, the time period specified in s 249D(5) of the Act.

37 The request for the meeting was made on 23 June 2020. The company sent out notice of the proposed meeting on 14 July 2020. The meeting is scheduled for 14 August 2020. The Board does not have power to adjourn a meeting requisitioned under s 249D of the Act.

38 When the company sent out notice of the proposed meeting on 14 July 2020, the shareholders, as recipients of the notice, were informed in clear and strident terms that the existing Board of directors, excluding Mr Bennett, opposed each of the motions that ASEAN has put forward for consideration at the meeting. Detailed reasons were provided by the Board as to why shareholders should vote against the proposed resolutions.

39 The same reasons provided by the Board to the shareholders as part of the 14 July 2020 notice of meeting as reasons they should not support the resolutions are relied upon in the application before me as to why the Court should exercise its discretion pursuant to s 1322 of the Act to extend the time for holding the meeting - not a course of action that the directors have power to take pursuant to s 249D.

40 In support of the application, Mr Trichardt submitted that the proposed resolutions are contrary to the interests of the members as a whole. Reliance was placed on s 232(c) and (d) of the Act.

41 In the case of a listed company such as the present, if I was to adjourn the meeting as requested, one consequence would be that the members, approximately 70% of whom, as best I can tell, are not involved in the disputes that have given rise to this litigation, would be deprived of the ability to decide for themselves whether the interests of the members as a whole are best served by the resolutions to be considered by the company and its members on 14 August 2020 at the EGM.

42 In his affidavit, Mr Reeve sets out the concerns of the Board, excluding Mr Bennett, relevant to the proposed resolutions and issues for the EGM, including:

1. Aura Energy's asset base might be lost given ASEAN's and its proposed directors' lack of resources, corporate or listed company experience (page 1 of the GM Notice), especially given the risk of replacing three experienced directors with three effectively unknown persons;
2. in line with the strategy adopted by the Board, except Mr Bennett, Aura Energy recently announced a C$4.5 million gold funding deal to advance its gold assets which values the gold assets, on a 100% basis, at C$9 million (or c. $9.6 million). This has caused the value of Aura Energy on the London AIM market to overall increase substantially since this announcement. There is a risk that if the resolutions proposed by ASEAN are passed that this gold transaction might fall through, especially since the technical team has indicated that they would leave Aura Energy if the resolutions are passed (pages 1, 2, and 20 of the GM Notice);

1. ASEAN has not articulated any strategy in any of its s249D Notices (page 2 of the GM Notice). This is contrary to the strong well-articulated plan which the Board, except Mr Bennett, has for the development of the Tiris project, the Mauritanian gold assets, and the Häggan vanadium project (pages 18 and 19 of the GM Notice);

1. the objectives of ASEAN, as also evidence by the extraordinary terms of the proposed ASEAN convertible note as discussed in paragraph 53 to 56 above, are clearly a blatant attempt to transfer wealth from Aura Energy shareholders for the benefit of ASEAN or its backers (pages 2, 5, 21 and 22 of the GM Notice);
2. the business impact of the ASEAN proposed Board changes succeeding could be extremely negative as, for example, there would be very high risks for the Häggan Vanadium project and the Tiris project given the current Board's relationships with the Swedish and Mauritanian authorities, the said gold deal would place in jeopardy, and the ASEAN convertible note would be financially devastating (page 2 of the GM Notice). Indeed, ASEAN almost triggered the default with the convertible note (pages 22 and 23 of the GM Notice);
3. ASEAN and the proposed directors have still not revealed their true relationship to the previously proposed directors residing in Panama (page 2 of the GM Notice);
4. the current strategy and the advancement of the proposed development of Aura Energy's gold and vanadium assets, including its recently announced joint venture with Chilean Metals Inc are likely to be prejudiced if the proposed directors are elected (page 4 of the GM Notice);
5. the multiple section 249D requisitions and general conduct of ASEAN and Mr Bennett over the last few months as set out above have been completely disruptive and detrimental to the operations of Aura Energy (page 4 of the GM Notice) and its share price;
6. unlike Mr Perkins, Dr Beeson and me, the directors proposed by ASEAN have no experience in relation to geology, mining, metallurgy, community relations and mining development (pages 4, 19 and 20 of the GM Notice);
7. ASEAN participates in social media where it makes derogative remarks about Aura Energy, its directors and management;
8. The ASEAN proposed directors are all resident outside Australia and there is little information available about ASEAN, a Cayman Island entity (page 7 of the GM Notice); and

1. the London AIM listing could be lost (pages 23 and 24 of the GM Notice).

43 The very same concerns as set out above were notified to the shareholders and formed part of the information sent to them on 14 July 2020 in advance of the 14 August 2020 meeting.

44 It is clear from the evidence before me that voting is already in progress. The remaining 70% or so of shareholders in this listed company, unless the meeting on 14 August 2020 is adjourned, will cast their vote based upon information available to them which includes the same information relied upon before me in support of the application to adjourn the meeting.

45 In my opinion, the Court should be very reluctant to interfere with the statutory rights of the shareholders.[1] That is particularly so in circumstances where the very material relied upon in the application before the Court is, with the exception of the information concerning Mr Sartingen, information that the shareholders already have. There is no reason why those in control of the Board could not have also disseminated information to shareholders, concerning Mr Sartingen's asserted shareholding, had they chosen to do so.

46 It is also the case that Aura determined and made a deliberate decision to deal with its concerns which are now the subject matter of the proceeding by first going to the Takeovers Panel. By its application dated 19 May 2020 the declaration sought by Aura from the Takeovers Panel was:

(a) first, that the relevant parties were Associates and had breached s 606(1)(c) because their voting power increased from below 20% to in excess of 20%; and

(b) secondly, that the alleged Associates or any one or more of them failed to comply with s 671B(1) by not disclosing their association and the number of voting shares in Aura in which the other held a relevant interest.

47 As will be obvious, the Takeovers Panel was asked by Aura in May 2020 to adjudicate as to the conduct of the defendants on the same matters which are now the subject of the substantive proceeding before the Court.

48 The Takeovers Panel's decision was dated 29 May 2020. The Takeovers Panel concluded that in its opinion there was no reasonable prospect they would make a declaration of unacceptable circumstances by reason of the matters alleged. The Takeovers Panel gave reasons to the parties on 2 July 2020. Those reasons were published on 7 July 2020.

49 The evidence discloses that Mr Bennett and other of the respondents to this application were involved in responding to the Takeovers Panel and participating in its inquiry and deliberations. The Takeovers Panel declined to become involved in the dispute.

50 Although the meeting in question was requisitioned on 23 June 2020 and notices of the meeting were sent out by Aura on 14 July 2020, no application was either made or foreshadowed to the Court and no notice of any application was given to any of the respondents to the application until Friday, 7 August 2020. Neither affidavit by Mr Reeve in support of the application gives any explanation for delay. His second affidavit says that some important information -

was only uncovered on 7 July 2020 which provided evidence of the association between the respondents and which shows that ASEAN and the other respondents are Associates of each other. In this regard I refer to the information about Mr Sartingen and his Relevant Interest in Aura ... .

51 It is clear from the evidence that all of the information now relied upon by Aura in support of the application was, at the very latest, information available to it on 7 July 2020. That is, on the same day that the Takeovers Panel published its reasons.

52 The urgency with which Aura approached the Court on 7 August 2020, is of its own making. The affidavit evidence does not disclose any new facts or events that have taken place and are relied upon by Aura since 7 July 2020. In the meantime, notices were sent out by the Board to shareholders including the detailed information to which I have referred.

53 In its submissions in support of the interlocutory application, Aura sought abridgment of time for service, but there was no explanation about the inordinate delay and why time should be abridged. The parties impacted, with the exception of Mr Sartingen, appeared at the hearing. Notwithstanding this, the late timing of the application and the absence of explanation for delay is a strong reason why the application for abridgment should be refused.

54 As earlier mentioned, when the meeting to be held on 26 March 2020 was postponed by Aura, between the original 26 March 2020 date and 21 May 2020, Aura, under the control of the Board, whom the present resolutions seek to replace, took the opportunity to issue shares in favour of themselves and their associates and also to appoint two additional directors. In the course of oral submissions, I asked Mr Trichardt what was to stop a repetition of such behaviour if I acceded to Aura's application. His response was to say, accurately, that the Court's discretion to adjourn the meeting includes a discretion to adjourn the meeting on condition. Why, one might ask rhetorically, should the Court become involved in making prescriptive orders to prevent a repeat of such behaviour on the eve of the scheduled meeting?

55 If the meeting were to be adjourned, as I have been urged to do, then the remaining 70% or so of shareholders of the company will be deprived of the opportunity to vote at the meeting of which they have notice. The proposed resolutions if passed, would see control of the Board pass from the existing directors to those put forward by the 15% shareholder, ASEAN. It was submitted by Mr Trichardt that for such an outcome to occur would bring about a takeover by improper means because votes of persons who had failed to comply, on Aura's case, with relevant provisions of the Act would be taken into account. If the proposed resolutions pass, whilst there will be substantive change in the composition of the Board, there will not be a takeover. If the shares held by the defendants determine the outcome of the resolutions, and if Aura succeeds at trial in its substantive claims then it will be open to the Court to make orders overturning what has occurred.

56 There is also the separate issue as to the benefit of adjourning the meeting until November of this year when it is clear that the Court will not have time prior to the proposed adjourned date to hear and determine the substantive proceeding. Had Aura issued this proceeding at an earlier time, the position may have been different. In reality, Aura's own delay and decision to first deal with the issues of concern to it via the Takeovers Panel, has precluded a decision by the Court before the annual general meeting scheduled for November.

57 I agreed to make orders for substituted service on Mr Sartingen, but as matters presently stand, he has not appeared in the proceeding. He and each of the defendants are entitled to have the disputed issues in the substantive proceeding heard and determined on their merits.

58 As I indicated towards the end of the hearing I will order that both Mr Sartingen, if he appears, and Mr Hoertlehner should file and serve any affidavit that is responsive to the plaintiff's material by 4 September 2020. The plaintiff, Aura, should file and serve points of claim by 18 September 2020 and points of defence should be filed and served by 9 October 2020, with the matter to come back for directions on 16 October 2020. That is the date on which the related proceeding is to come back for directions. Clearly, the two proceedings should be managed by the same judge.

59 For the reasons set out above, the application by Aura that the Court extend the time for the EGM scheduled for Friday 14 August 2020 is dismissed.

60 In my opinion, Aura or alternatively, such of the directors of Aura who are the driving force behind the application should pay the costs of and incidental to the hearing on 12 August 2020, including submissions. I otherwise consider it appropriate to reserve the costs of the application. It is clear that the substantive affidavits that have been prepared are not wasted as they answer the substantive claims on behalf of the plaintiff.

61 At the conclusion of the hearing, Mr Carmichael submitted that his client wished to apply for costs orders against Mr Reeve. Mr Lorbeer who appeared for Mr Bennett and his company PET, said his clients wished to consider the position as to costs.

62 I direct that the responding parties, within seven days of the date of the Orders, being 12 August 2020, file short submissions in support of any costs orders against any director or officer of Aura and also in support of any gross sum costs order. As I indicated in the course of argument, I will rule on the costs application on the papers and without the need for further appearance.

[1] Hume Ltd v Unity APA Ltd (in liq) [1987] VR 469, 471-2; Pacific Dairies Ltd v Orican Pty Ltd [2019] VSC 647, [38].