Pursuit Minerals Limited, in the matter of Pursuit Minerals Limited [2018] FCA 1127 - FCA 2018 case summary — Zoe

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Pursuit Minerals Limited, in the matter of Pursuit Minerals Limited [2018] FCA 1127

[2018] FCA 1127

Federal Court of Australia|2018-07-30|Before: Smith J

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At a glance

Source facts

Court

Federal Court of Australia

Decision date

2018-07-30

Before

Smith J

Source

Original judgment source is linked above.

Judgment (12 paragraphs)

[1]

Pursuant to s 1322(4)(a) of the Corporations Act 2001 (Cth), it is declared that any offer for sale or sale of the quoted securities being 16,100,045 ordinary shares in the plaintiff during the period after their issue on 7 June 2018 to 6 July 2018 is not invalid by reason of: (a) the failure to issue a valid cleansing notice under s 708A of the Corporations Act to exempt the sellers from the obligation of disclosure under the Corporations Act; and (b) the sellers' consequent failure to comply with ss 707(3) and 727(1) of the Corporations Act.
Pursuant to s 1322(4)(c) of the Corporations Act any sellers of securities referred to in order 1 are relieved from any civil liability arising out of any contravention of sections 707(3) and 727(1) of the Corporations Act.
A sealed copy of these orders is to be served on the Australian Securities and Investments Commission (ASIC) as soon as reasonably practicable and upon service of these orders on ASIC, ASIC is to include these orders on its database.
A copy of these orders be given to each person to whom the securities referred to in order 1 above were issued and as soon as reasonably practicable the plaintiff is to publish an announcement to the Australian Securities Exchange (ASX) in which a copy of these orders is included.
The plaintiff make a request forthwith of the ASX for the class of securities 'PUR' to be reinstated.
For a period of 28 days from the date of reinstatement by the ASX of the class of securities 'PUR' and the publication of these orders on the ASX website, any person who claims to have suffered substantial injustice or is likely to suffer substantial injustice by the making of any or all of these orders has liberty to apply to vary or to discharge them within that period.
There be no orders as to costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

[2]

[3]

Statutory framework 4 The statutory framework is summarised in many of the cases dealing with such applications, but I repeat a short summary. 5 Part 6D.2 of Chapter 6D of the Act deals with disclosure to investors in the context of fundraising. The manner of disclosure is prescribed in s 709. The rationale for disclosure is obvious: investors should be provided with all information that they would reasonably require in order to make an informed assessment as to the acquisition of securities, including the rights and liabilities that attach to those securities and information about the company that is issuing or has issued them. By s 700(1), 'securities' expressly includes shares. 6 Section 707 provides that an offer of securities for sale needs disclosure to investors in certain circumstances. Section 707 is an anti-avoidance provision designed to prevent the avoidance of disclosure requirements by, for example, the issue of shares to a party to whom disclosure is not required and that party then offering the securities for sale to investors without disclosure: Re Golden Gate Petroleum Ltd [2010] FCA 40; (2010) 77 ACSR 17 at [27] (McKerracher J). 7 Section 707(3) provides that an offer of a body's securities for sale within 12 months after their issue needs disclosure to investors, subject to exceptions provided by s 708 and s 708A. 8 Exceptions include circumstances where a cleansing notice or cleansing prospectus may issue. Section 708A(5) provides for the issue of a cleansing notice. Section 708A(11) provides for the issue of a cleansing prospectus. 9 The cleansing notice exception can be relied upon only if the securities are quoted and their trading has not been suspended for more than 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 on which the securities were issued (five day rule). 10 The cleansing prospectus exception applies (relevantly) where a prospectus is lodged on or after the date that shares are issued but before the day on which a sale offer is made. It will have the effect of meeting disclosure requirements for relevant offers and sales after the date of the prospectus.

[4]

Facts and background 11 Mr Stephen Kelly, the company secretary, deposed to the following matters: (a) the plaintiff was originally listed on the Australian Securities Exchange (ASX) in 2008 as Riviera Resources Ltd. Since that time, it has undertaken a number of name changes; (b) in 2015 the company was suspended from quotation on the ASX as a result of the appointment of voluntary administrators by its then secured creditor; (c) the company successfully recapitalised under the terms of a deed of company arrangement; (d) the company then acquired various base metal projects and a number of mineral exploration tenements; (e) in June 2017 the company (then called Burrabulla Corporation Limited) issued a prospectus for the purpose of complying with the admission requirements of the ASX Listing Rules and it was formally reinstated to the ASX as Pursuit Minerals Limited on 25 August 2017; (f) on 7 June 2018 the company issued 16,100,045 shares to sophisticated and professional investors (June 2018 shares); (g) on the same date the company issued a cleansing notice under s 708A(5)(e) of the Act by way of an ASX release, and also lodged an Appendix 3B 'new issue announcement', by which the company warranted (amongst other things) that an offer of the securities for sale within 12 months after their issue will not require disclosure under s 707(3) or s 1012C(6) of the Act. 12 It is not in issue in this matter that under s 707(3) and s 708A(1), any on-sale of the June 2018 shares required that there be disclosure on the part of the vendor shareholders unless one of (relevantly) s 708A(5) or 708A(11) provides otherwise. 13 Mr Kelly said that he prepared the cleansing notice on the understanding that it was required to enable immediate trading in the June 2018 shares by the shareholders. He was aware of the fundraising disclosure obligations under the Act and was aware of the five day rule. He said that although he was aware that trading in the company's shares had been suspended for more than five days in the 12 months preceding the date of issue, it had not been suspended for more than five days since its relisting. 14 Mr Kelly was in error in making the assumption that he need only take into account the period from the relisting in assessing the five day rule. In fact, he was obliged to take into account the whole 12 month period preceding the date of issue, and on that basis the five day rule could not be satisfied. 15 On 18 June 2018 and at the company's request, trading in the shares was suspended pending the filing of a cleansing prospectus and the outcome of this application. 16 The company issued a cleansing prospectus on 6 July 2018. 17 Mr Kelly conducted an analysis of the shares held by shareholders before and after the issue of the June 2018 shares and concluded that there had in fact been secondary trading by some shareholders since the June 2018 issue and before the issue of the cleansing prospectus. 18 One of the company's directors, Mr Jeremy Read, deposed to having received a telephone call from Ms Madeleine Green of the ASX on about 15 June 2018 who raised the issue of the invalidity of the cleansing notice. The company then sought legal advice and took steps to seek a voluntary trading suspension, lodge the cleansing prospectus and make this application. 19 Mr Kelly also deposed to having checked prior share issues by the company in order to satisfy himself that there had not been prior invalidity with respect to any cleansing notice or cleansing prospectus. He did not find any such problems with prior share issues. 20 Mr Read said that he understands generally the disclosure obligations on a company when it issues shares but assumed that Mr Kelly, as company secretary, would have taken the necessary steps to issue a valid cleansing notice. He was not aware of any difficulty in this case until the Australian Securities and Investments Commission (ASIC) drew it to his attention. 21 Both Mr Kelly and Mr Read deposed to their knowledge that shareholders are vulnerable to claims for offering or trading shares without making the requisite disclosure between the date of issue and the date of the cleansing prospectus, in contravention of s 707(3) and s 727(1) of the Act. 22 Accordingly, the company approached the Court seeking relief as to the shareholders' liability under s 1322(4) of the Act. 23 The company sent an email to all shareholders or parties that it identified as having on-sold shares in the relevant period and who might be affected by the invalidity of the cleansing notice. The company disclosed that it was applying to this Court for relief. The email properly invited shareholders to attend the hearing if they wished to do so. Mr Kelly deposed to there being no responses from shareholders, a matter confirmed close to the hearing by an affidavit of the company's solicitor, Mr Daniel Tydde.