RE EX PARTE; NAVITAS BUNDOORA PTY LTD [2020] WASC 87 (16 March 2020)

1. The plaintiffs have provided a frank and detailed explanation as to the circumstances surrounding each of these instances of non-compliance. I was and am satisfied that each of the failures was caused by inadvertence rather than any deliberate disregard of their financial reporting obligations.
2. At the conclusion of the hearing on 26 February 2020, I made orders granting the relief sought and stated that I would publish written reasons for my decision. These are those reasons. In publishing my reasons, I have drawn on the helpful submissions of Mr Walker who appeared as counsel for the plaintiffs in these proceedings.

1. Part 2M.3 of the Act imposes financial reporting requirements on certain entities including 'large proprietary companies' and 'public companies'.[1] I accept that each of the plaintiffs was obliged to comply with pt 2M.3 of the Act at different times from the financial year ending 30 June 2011.
2. The Act imposes various requirements on each of the plaintiffs including the requirement to:

(a) prepare a financial report and a directors' report for each financial year;[2]

(b) have the financial report audited and obtain an auditor's report;[3]

(c) report to members for a financial year by providing to members the financial report, directors' report and auditor's report for that year;[4] and

(d) lodge each of the reports referred to in (c) with ASIC.[5]

1. The deadline for the plaintiffs to report to members and lodge the requisite documents with ASIC is four months after the end of the financial year.[6]
2. Companies are entitled to relief from compliance with these requirements in certain circumstances. Relevantly, for the purposes of this application, two orders have been made by ASIC pursuant to s 341(1) of the Act, which provide a mechanism for relief from compliance with certain financial reporting requirements under the Act. These orders are:

(a) ASIC class order 98/1418 (Class Order) which has been repealed but continues to apply for financial years prior to 1 January 2017; and

(b) ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 (Instrument) which is in force and applies to all financial years commencing after 1 January 2017.

1. Each of the Class Order and the Instrument provide a mechanism for relief from compliance with certain financial reporting requirements under pt 2M.3 of the Act if the conditions set out in the Class Order or Instrument (as applicable) are met for that financial year. The conditions are largely the same irrespective of whether the Class Order or the Instrument applies.
2. Relevantly, the conditions include:

(a) the applicable entity is a wholly‑owned (or closely‑held) subsidiary of a holding entity and has executed a deed of cross guarantee with the holding entity as at the end of the relevant financial year;[7]

(b) for the first year in which it seeks to obtain relief, the applicable entity has lodged an 'opt-in' notice with ASIC using Form 389 which is entitled 'Opt‑in/change of holding entity notice by wholly-owned company relieved from financial reporting obligations' (Form);[8] and

(c) the holding entity has prepared consolidated financial statements for the financial year, the notes to which include specified details about the parties to the deed of cross guarantee.[9]

1. The plaintiffs relied on two affidavits of Hugh Hangchi dated 3 February 2020 and 12 February 2020 and an affidavit of Catherine Louise Pedler dated 25 February 2020. Mr Hangchi is the company secretary and head of governance of the sixth plaintiff and was at all relevant times the company secretary of each of the first to fourth plaintiffs. In this role, he is responsible for the corporate governance of each of the plaintiffs. Ms Pedler is a partner at Ashurst Australia, the solicitors for the plaintiffs.
2. At the time of each of the instances of non-compliance with pt 2M.3 of the Act, the sixth plaintiff (Navitas) was a public company for the purpose of s 292 of the Act and was the parent company of a group of companies which included the first to fifth plaintiffs.
3. On 15 June 2006, Navitas and a number of its wholly-owned subsidiaries entered into a deed of cross guarantee (Deed). On various dates between May 2009 and June 2013, the first to fifth plaintiffs became parties to the Deed by execution of deeds of assumption. Copies of each of these deeds were lodged with ASIC shortly after the date of their execution. In most instances, the execution of the deed of assumption pre‑dated any obligation of the party to prepare and lodge financial statements as they were not then large proprietary companies. Specifically:

(a) the first plaintiff became a party to the Deed on 25 May 2010 and became a large proprietary company in the financial year ending 30 June 2013;[10]

(b) the second plaintiff became a party to the Deed on 20 May 2009 and became a large proprietary company in the financial year ending 30 June 2016;[11]

(c) the third plaintiff became a party to the Deed on 25 May 2010 and became a large proprietary company in the financial year ending 30 June 2011;[12]

(d) the fourth plaintiff became a party to the Deed on 25 May 2010 and became a large proprietary company in the financial year ending 30 June 2012;[13]

(e) the fifth plaintiff became a party to the Deed on 9 May 2013 and became a large proprietary company in the financial year ending 30 June 2013.[14]

1. None of the first to fifth plaintiffs lodged a Form with ASIC in the first year in which they could seek relief from the financial reporting obligations under the Act.
2. From the year in which they became a party to the Deed and subject to pt 2M.3 of the Act, none of the first to fifth plaintiffs prepared or lodged any financial statements or reports with ASIC. Instead, consolidated financial statements were prepared by Navitas for each relevant financial year which included the financial information of the first to fifth plaintiffs.[15] The consolidated financial statements were lodged with the ASX and provided by the ASX to ASIC.[16]
3. On or about 7 October 2019, ASIC informed the first to fifth plaintiffs that they had not lodged financial statements as required by s 319 of the Act for the financial year ended 30 June 2018.[17]
4. In response, on 16 October 2019, the first to fifth plaintiffs advised ASIC that they were parties to the Deed and, as a consequence, were relieved from compliance with the reporting obligations under the Act.[18]
5. By reply dated 23 October 2019, ASIC informed the first to fifth plaintiffs that: companies relying on relief from reporting requirements under the Act were required to lodge a Form; the Forms had not been lodged in time to grant relief in respect of the financial year ending 30 June 2018; ASIC could not grant an extension of time; and the plaintiffs were subject to compliance action for the financial year ending 30 June 2018.[19]
6. On 24 October 2019, the first to fifth plaintiffs lodged a Form with ASIC in respect of the financial year ending 30 June 2019.[20]
7. On 5 November 2019, the first to fifth plaintiffs advised ASIC that the failure to lodge the Forms was as a result of human error, and that the financial results for the financial year ended 30 June 2018 of each of these plaintiffs had been consolidated into the financial report of Navitas. Further, they confirmed that each of the plaintiffs was financially sound and solvent.[21]
8. On 4 December 2019, ASIC issued notices under s 1274(11) of the Act to each of the first to fifth plaintiffs requiring them to lodge financial reports and statements for the 2018 financial year and stating that a failure to comply with the notice may result in court action.[22] On 13 December 2019, ASIC agreed to delay compliance action in respect of these notices until 31 January 2020.[23]
9. While the notices issued by ASIC related only to the 2018 financial year, Mr Hangchi formed the view that as a consequence of the failure by the first to fifth plaintiffs to lodge the Forms in the first financial year in which the relevant plaintiff was both a large proprietary company and a party to the Deed, each of the first to fifth plaintiffs was required to lodge the financial statements and reports for each of the financial years from this date until the financial year ended 30 June 2018.
10. Mr Hangchi's evidence is that the failure by the first to fifth plaintiffs to lodge the Forms at the requisite times was unintentional, honest and inadvertent.[24] In particular, he attested that the failure to lodge the Forms was a consequence of his oversight as he was unaware of the requirement to lodge the Forms[25] and believed that all procedural and other steps required to excuse the first to fifth plaintiffs from compliance with the Act had been completed.[26]
11. Mr Hangchi stated that, should the relief sought not be granted, there would be significant costs involved in preparing and auditing financial statements and reports for the first to fifth plaintiffs. In addition, difficulties arise where, over this time, there had been significant changes to key finance personnel, including the chief financial officer, financial controller, and the directors of Navitas. As a consequence, the directors of Navitas who would be required to authorise any financial statements and reports, and satisfy themselves about the information in the financial statements and reports prior to signing them, would include directors who had not been involved with the business during these years.[27]
12. In the course of preparing for this application, Mr Hangchi became aware that the financial statements for the year ended 30 June 2013 failed to state that the fifth plaintiff had become part of the closed group[28] that year or give details of the parties who had been added by an assumption deed during or since that financial year.[29] His evidence was that, notwithstanding these omissions, the financial information in the consolidated financial statements included the financial information of the fifth plaintiff.[30]
13. In February 2020, Mr Hangchi became aware that there were three additional omissions from the annual financial reports of Navitas, namely:

(a) for the financial year ended 30 June 2013, an asterix should have been placed against the names of Cadre Design Pty Ltd, Navitas College of Public Safety Pty Ltd and The Learning Space Pty Ltd to identify that these companies were part of the closed group;[31]

(b) for the financial year ended 30 June 2015, an asterix should have been placed against the name of Navitas College of Public Safety Pty Ltd to identify that this company was part of the closed group;[32]

(c) for the financial year ending 30 June 2018, these statements should have included a reference that Navitas Ventures Pty Ltd became party to the Deed by deed of assumption dated 20 June 2018.[33]

1. Mr Hangchi expressed the view that no substantial injustice had been or is likely to have been caused to any person as a result of the delay in lodging the Forms, the failure to include in Navitas' consolidated financial reports the information in [26], or making the orders sought.[34] In this regard, he drew the Court's attention to the following matters:

(a) on 5 July 2019, by way of a court approved scheme of arrangement under pt 5.1 of the Act, all the issued capital in Navitas was acquired by BGH Bidco A Pty Ltd (BGH). As a consequence, Navitas became a private company and a wholly owned subsidiary of BGH;[35]

(b) at all relevant times, each of the plaintiffs was a party to the Deed;[36]

(c) in each of the lodgement years, Navitas was admitted to the official list of the ASX Ltd and had filed annual directors' reports and financial statements as required by the Act and the Listing Rules of the ASX;[37]

(d) the consolidated financial statements for the financial years ended 30 June 2013, 30 June 2015 and 30 June 2018 included the prescribed financial information in respect of all relevant entities in the closed group;[38] and

(e) he was not aware of any creditors who could have relied on the disclosures who have not since been repaid.[39]

1. In respect of the omissions in the consolidated financial statements for the Navitas group for the financial year ending 30 June 2013, Mr Hangchi stated that these omissions were as a consequence of his oversight and that had he been aware of the omission, he would have ensured that the relevant matters were addressed in the notes to these statements.[40]
2. On 24 February 2020, ASIC informed the plaintiffs that they neither supported nor opposed the application.[41]

1. In their amended originating process filed 12 February 2020, the plaintiffs seek the following relief:

(a) an order pursuant to s 1322(4)(d) of the Act that the time specified by the Class Order (as applied by s 13 of the Instrument) for each of the plaintiffs to lodge a Form be extended to a date that is 7 days after the date of this order;

(b) an order pursuant to s 1322(4)(d) of the Act that the time for the sixth plaintiff to have prepared and lodged consolidated financial statements within the meaning of the Class Order or Instrument for the financial years ending 30 June 2013, 30 June 2015 and 30 June 2018 be extended to a date that is 7 days after the date of this order;

(c) an order under s 1322(4)(c) of the Act relieving the plaintiffs and their current and former directors and officers from any civil liability in respect of the failure to:

(i) lodge a Form within four months of the end of the relevant financial year or subsequently;

(ii) have the plaintiffs' financial statements audited before the deadline for each of the financial years;

(iii) comply with s 319(1) and s 314 (1) of the Act;

(iv) lodge a 'Form 388 - Copy of financial statements and reports' with ASIC; and/or

(v) comply with the notice issued by ASIC under s 1274(11) of the Act dated 4 December 2019 (for the first to fourth plaintiffs) and 12 December 2019 (for the fifth plaintiff).

The power under s 1322 of the Act to grant the relief sought

(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:

(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

(b) in the case of an order referred to in paragraph (4)(c) - that the person subject to the civil liability concerned acted honestly; and

(c) in every case - that no substantial injustice has been or is likely to be caused to any person.

1. An application under s 1322(4)(d) involves what is, in essence, a two stage process. As was stated by Barker J in Blaze Asset Pty Ltd v Target Energy Ltd:[42]

First, the Court needs to determine whether, having regard to the circumstances of the case and the general objects of the [Act] it is appropriate to make an order extending a relevant period, or abridging a relevant period. Secondly, if those circumstances are made out, then the Court must address the question whether any substantial prejudice has been or is likely to be caused to any person by the making of such an order.

1. Section 1322 confers broad authority on the court to extend time where the statutory pre-requisites are met.[43] The power must be exercised having regard to the interests of all parties affected and the public interest in ensuring compliance with the Act. It must also take account of the general objects and purposes of the relevant statutory provision of the Act imposing the time period; the court's order must not undermine the object of the relevant requirement.[44]

Disposition Application by an 'interested party'

1. Counsel for the plaintiffs submitted that if they were unable to rely on the Class Order or the Instrument to obtain relief from the requirements of pt 2M.3 of the Act, the financial interests of the plaintiffs are likely to be affected. This is because of the significant cost involved in the consequential requirement by the plaintiffs to prepare and have audited financial statements and reports. On this basis, it was contended that the each of the plaintiffs was an interested party.
2. Courts have previously accepted that a real financial interest in the result is sufficient to confer standing as an 'interested person'.[45]
3. On the basis of the evidence before me, I accept that each of the plaintiffs is an interested person for the purpose of s 1322(4)(d).

1. I am satisfied that in respect of each of the irregularities for which the plaintiffs seek relief, a time period is either expressly or impliedly imposed which is capable of extension.
2. Dealing first with the failure to lodge the Forms. The Class Order required each of the plaintiffs to lodge a Form with ASIC within four months from the end of the financial year for the first year in which it sought to obtain relief from the reporting requirements under the Act.[46]
3. In respect of the financial years ending before 1 January 2017, I accept that on a proper construction of the Class Order together with pt 2M.3 of the Act, the sixth plaintiff was required to file consolidated statements within four months after the end of the relevant financial year. A pre‑condition for relief under the Class Order is that the holding entity has prepared consolidated financial statements which include the notes specified in the Class Order.[47] The Act requires financial statements to be lodged within four months after the end of the relevant financial year.[48] As such, it is implicit under the Class Order that the relevant time limit for Navitas, as the holding company, to file consolidated financial statements was four months after the end of the relevant financial year.
4. In respect of the preparation and lodgement of consolidated financial statements for the financial years after 1 January 2017, the Instrument expressly required Navitas, as the holding company, to prepare consolidated financial statements by four months after the end of each relevant financial year.
5. Consistent with the decision of Justice Anderson in Re Murray River Organics Ltd, I consider that the time limit for filing the Forms and the lodgement of consolidated financial statements can be extended under the Act, s 1322(4)(d).
6. In the circumstances of this matter, I considered it was appropriate to extend the time limits until a date that was seven days after the date of my order for the following reasons.
7. First, granting the extension of time was consistent with the purpose of the Class Order, the Instrument and the Act. The purpose of the Class Order and the Instrument is to enable closely held or 'closed group' companies to prepare and lodge a consolidated set of financial statements where each company is a party to a deed of cross guarantee. The relief sought by the plaintiffs is consistent with this purpose. It also furthers the objects of the Class Order, Instrument and the Act by correcting the omission to lodge the requisite Forms and information in the notes to the consolidated financial statements. Granting the relief will more accurately reflect the intention of the plaintiffs that they be a 'closed group' as well as the contents of the consolidated financial statements that were lodged at the appropriate times in accordance with the Act.
8. Second, the non‑compliance by the plaintiffs was unintentional, honest and inadvertent. Had Mr Hangchi and the directors of the first to fifth plaintiffs known that the Form had not been filed with ASIC or the notes were incomplete, I am satisfied that they would have lodged the Forms and corrected the information in the notes to the consolidated financial statements.
9. I accept that the plaintiffs have acted promptly in bringing this application once the issue was drawn to their attention. In addition, upon becoming aware of the issue, the plaintiffs identified other issues with the consolidated financial statements that had been filed and sought to address these.
10. Third, in the absence of an extension of time, there would be significant costs incurred by the plaintiffs as they would be required to file audited financial statements for up to eight different financial years.
11. Fourth, there is no suggestion that any third party has acted or could have acted to its detriment as a result of the non-compliance or that any substantial injustice has been or is likely to be caused to any third party. In this regard, I take particular note of the fact that Navitas has recently been subject to a members' scheme of arrangement which took effect on 5 July 2019, that there is no evidence that there are any creditors who could have relied on the disclosures who have not since been repaid, and that each of the first to fifth plaintiffs was solvent during each of the financial years.
12. Fifth, ASIC did not oppose the application.
13. The plaintiffs also sought the ancillary orders to limit the amendments which could be made to the consolidated financial statements and to deem the financial statements to have been prepared and lodged as at the date of the original lodgement. These orders were, in effect, a corollary of the first two orders. For the reasons set out above, I considered it was appropriate to make such orders.

1. A pre-condition to an order under s 1322(4)(c) is that the person to be relieved from civil liability acted honestly.[49] In determining whether a person has acted honestly, the court looks to an absence of evidence of dishonesty and whether the party has taken prompt action to remedy the error.[50]
2. The concept of acting honestly can embrace:[51]

(a) inadvertence or a failure to turn their mind to the relevant issue;

(b) an active, but incorrect, consideration of a legal issue as well as failure to consider the issue at all;

(c) the failure to understand or appreciate the significance of non‑compliance.

1. I am satisfied on the evidence before me that relief from civil liability under s 1322(4)(c) should be granted because all persons concerned in or party to the contravention acted honestly, and no substantial injustice has been or is likely to be caused to any person by reason of the contravention or the making of the proposed form of orders.
2. As noted above, I am satisfied on the evidence that the failure to lodge the notice was not dishonest. The evidence before me supports a conclusion that the failure by the plaintiffs to comply with the Class Order, the Instrument and the Act was a result of inadvertence, rather than a deliberate disregard of the plaintiffs' obligations. I am satisfied that each of these people held the bone fide belief that the company had been relieved from the requirement to report to members and to lodge financial statements with ASIC.

1. For these reasons, at the conclusion of the hearing, I made the orders sought by the plaintiffs in the amended originating process set out in Annexure A to these reasons.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

[1] Corporations Act 2001 (Cth), sub-ss (1)(b), (c).

[2] Corporations Act 2001 (Cth), s 292(1)(b).

[3] Corporations Act 2001 (Cth), s 301(1).

[4] Corporations Act 2001 (Cth), s 314(1).

[5] Corporations Act 2001 (Cth), s 319(1).

[6] Corporations Act 2001 (Cth), s 315(4) and s 319(3).

[7] Class Order, first order, para (b); Instrument, ss 4, 5 and 6(1)(c).

[8] Class Order, first order, para (k); Instrument, s 6(1)(f) and s 6(2).

[9] Class Order, first order, para (e) and (i)(i), (ii) and (iii); Instrument, s 6(1)(r),s 6(1)(v)(ii), s 6(1)(v)(iii) and s 6(2).

[10] Affidavit of Hugh Hangchi filed 3 February 2020 [14], [39].

[11] Affidavit of Hugh Hangchi filed 3 February 2020 [15], [40].

[12] Affidavit of Hugh Hangchi filed 3 February 2020 [16], [41].

[13] Affidavit of Hugh Hangchi filed 3 February 2020 [17], [42].

[14] Affidavit of Hugh Hangchi filed 3 February 2020 [18], [43].

[15] Affidavit of Hugh Hangchi filed 3 February 2020 [49(c)] - [49(d)], [50] - [52], 'HH6', 'HH38' ‑ 'HH45'.

[16] Affidavit of Hugh Hangchi filed 3 February 2020 [49(d)], [50].

[17] Affidavit of Hugh Hangchi filed 3 February 2020 [21] 'HH17' - 'HH21'.

[18] Affidavit of Hugh Hangchi filed 3 February 2020, 'HH22'.

[19] Affidavit of Hugh Hangchi filed 3 February 2020, 'HH23'.

[20] Affidavit of Hugh Hangchi filed 3 February 2020, 'HH24'.

[21] Affidavit of Hugh Hangchi filed 3 February 2020, 'HH25'.

[22] Affidavit of Hugh Hangchi filed 3 February 2020, 'HH26' - 'HH29', 'HH31'.

[23] Affidavit of Hugh Hangchi filed 3 February 2020, 'HH32'.

[24] Affidavit of Hugh Hangchi filed 3 February 2020 [53].

[25] Affidavit of Hugh Hangchi filed 3 February 2020 [54(a) - (b)].

[26] Affidavit of Hugh Hangchi filed 3 February 2020 [54(e)].

[27] Affidavit of Hugh Hangchi filed 3 February 2020 [44].

[28] Closed group is defined in the Instrument, s 4: 'means the holding entity and the wholly-owned entities'.

[29] Affidavit of Hugh Hangchi filed 3 February 2020 [45].

[30] Affidavit of Hugh Hangchi filed 3 February 2020 [46].

[31] Supplementary affidavit of Hugh Hangchi filed 12 February 2020 [21].

[32] Supplementary affidavit of Hugh Hangchi filed 12 February 2020 [23].

[33] Supplementary affidavit of Hugh Hangchi filed 12 February 2020 [25].

[34] Affidavit of Hugh Hangchi filed 3 February 2020 [48] - [52]; Supplementary affidavit of Hugh Hangchi filed 12 February 2020 [27].

[35] Affidavit of Hugh Hangchi filed 3 February 2020 [49(a)].

[36] Affidavit of Hugh Hangchi filed 3 February 2020 [49(b)].

[37] Affidavit of Hugh Hangchi filed 3 February 2020 [49(c)].

[38] Supplementary affidavit of Hugh Hangchi filed 12 February 2020 [22], [24], [26].

[39] Affidavit of Hugh Hangchi filed 3 February 2020 [49(e)].

[40] Affidavit of Hugh Hangchi filed 3 February 2020 [53(c)].

[41] Affidavit of Catherine Louise Pedler filed 25 February 2020, 'CLP1'.

[42] Blaze Asset Pty Ltd v Target Energy Ltd [2009] FCA 698; (2009) 177 FCR 488 [31]. See also Re Jaxsta Ltd [2018] WASC 390 [42].

[43] David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; (1995) 184 CLR 265, 275 ‑ 276.

[45] Twin v Deputy Commissioner of Taxation [2004] 1 Qd R 450; [2003] QSC 329 [16]; Allatech Pty Ltd v Construction Management Group Pty Ltd [2002] NSWSC 293; (2002) 41 ACSR 587 [21].

[46] See also Re Murray River Organics Ltd [2019] FCA 931; (2019) 138 ACSR 365.

[48] Corporations Act 2001 (Cth), s 315(4) and s 319(3).

[49] Corporations Act 2001 (Cth), s 1322(6)(b).

[50] Re iCandy Interactive Ltd [2018] FCA 533; (2018) 125 ACSR 369 [54].