RE SKIN ELEMENTS LIMITED; EX PARTE SKIN ELEMENTS LIMITED [2024] WASC 509 (6 January 2025)

1. In support of the originating process, the plaintiff relied on five affidavits: two affidavits of Stuart Usher, a director and company secretary of the plaintiff, filed 17 and 18 December 2024; an affidavit of Peter Francis Malone, the non‑executive chair and managing director of the plaintiff, filed 17 December 2024; and two affidavits of Ciara Marie Heslenfeld, a solicitor employed by the plaintiff's solicitors, filed 17 and 19 December 2024.
2. The plaintiff is a researcher and developer of skincare biotechnology, whose securities are listed on the Australian Securities Exchange (ASX). As at 13 December 2024, the Company had a market capitalisation of approximately $3.5 million and approximately 750 shareholders.[2]
3. Earlier this year, the Company resolved to move its auditors from Western Australia to Victoria. Up until June 2024, the Company's auditors had been BDO Audit (WA) Pty Ltd (BDO WA). On 11 June 2024, BDO WA informed the Company of its intention to resign, and on 13 June 2024, the Company announced that BDO had been appointed as their auditors until the date of the Company's next AGM.[3] BDO had previously provided its written consent to act as auditors for the Company on 24 April 2024.[4]
4. Notwithstanding this announcement, no resolution concerning the appointment of BDO as auditor was put to shareholders at the Company's AGM held on 29 November 2024. Mr Usher's evidence is that this occurred because at the time he drafted the AGM notice, he had numerous competing priorities and simply overlooked the requirement to ensure there was a resolution for the appointment of BDO as the plaintiff's auditor.[5]
5. On 11 December 2024, Mr Usher became aware that the Company had not sought nor obtained shareholder approval for the appointment of BDO at the 2024 AGM. On discovering the issue, he contacted the plaintiff's external solicitors to determine what was required to resolve the issue and has subsequently ensured that there has been liaison with both the Australian Securities Investments Commission (ASIC) and the ASX, as well as the commencement of these proceedings.[6]
6. Since 11 December 2024, Mr Usher has undertaken a review of the previous issues of shares by the plaintiff since its admission to the official list of the ASX on 13 December 2017. In the course of this review, he identified that cleansing notices issued by the Company from 26 June 2023 failed to refer to compliance with s 674A of the Act and only referred to s 674. His evidence is that this occurred as a result of the re-use of cleansing notices previously issued by the Company, without realising that amendments had been made to the Act which were effective on 14 August 2021. His evidence is that, despite the failure to refer to s 674A of the Act in the cleansing notices issued on 26 June 2023, 10 July 2023, 2 November 2023 and 10 December 2024, on their respective dates of issue, the Company was in compliance with its obligations under s 674A of the Act.[7]

Statutory regime Financial reports and appointment of auditor

1. The statutory regime that governs financial reports and the appointment of auditors is contained in ch 2M of the Act. The process for the appointment and removal of auditors specifically is set out in pt 2M.4 of the Act.
2. Section 327C of the Act deals with the circumstances where an auditor is appointed to fill a casual vacancy other than at an AGM. Pursuant to s 327C(1), where this occurs, the directors must, within one month of the vacancy occurring, appoint an auditor to fill the vacancy unless the company has already done so at a general meeting. Pursuant to s 327C(2), where this occurs, the auditors hold office until the company's next general meeting.
3. Pursuant to s 328B(1) of the Act, a company may appoint an individual firm or company as auditor of the company at its AGM, but only if a member of the company gives the company written notice of the nomination before the meeting was convened, or not less than 21 days before the meeting.[8] Where a company purports to appoint an auditor in contravention of this section, the appointment has no effect, and the company and each of its officers are guilty of an offence.[9]
4. Section 301 of the Act requires a company to have its financial reports audited in accordance with div 3 of pt 2M.3 of the Act, obtain an auditor's report, and then subsequently to report to its members. Because of the short time period between the failure to appoint the auditor and the discovery of the issue, there is no issue raised in these proceedings as to the Company's compliance with its reporting obligations.

1. Part 6D.2 of the Act imposes disclosure obligations on corporations in relation to rights, issues, and the issue and scale of quoted securities.
2. Specifically, s 708A of the Act governs the issue of quoted securities, including shares. In certain circumstances, these obligations can be satisfied by the lodgment of either a cleansing notice or a prospectus.[10] Where disclosure has not been made and shares are on‑sold within a period of 12 months, the party to whom the shares are issued may be obliged to make disclosure.[11]
3. The notice issued by the company is required to comply with the specific requirements set out in s 708A(6) of the Act, which includes the requirement that the notice state as at the date of the notice, the company is in compliance with the provisions of ch 2M of the Act as well as s 674 and s 674A of the Act.

Power under s 1322 of the Act to grant the relief sought

1. In this case, the plaintiff seeks orders under s 1322 of the Act. In considering an application under this section, the essential principles are well-known and can be summarised as follows[12]

(a) The prescriptive requirements of the wording in s 1322(4) and the pre‑conditions in s 1322(6) of the Act must be satisfied.[13]

(b) Even where this is the case, the court retains a discretion under s 1322(4) of the Act as to whether it will make the orders sought.

(c) The broad powers that have been granted to the court under s 1322 of the Act reflect the legislative policy that the law should not inflict unnecessary liability or inconvenience or invalidate transactions because of non-compliance with its requirements where the non-compliance is the product of honest error or inadvertence, and where the court can avoid its effects without prejudice to third parties or to the public interest.[14]

(d) Limitations to these broad powers will not readily be implied.[15] This is because the section is remedial in character and should be applied broadly.

(e) Where the court makes orders under s 1322(4)(a) of the Act, conditions can be imposed, and the court can also make such consequential and ancillary orders as it thinks fit.

Should the orders sought by the plaintiff be made?

1. In this case, I accept the plaintiff has standing as an interested person to bring the application for the relief that it seeks.[16] I also accept that notice of the hearing has been provided to both the ASX and ASIC, and that neither regulator has sought to appear at the hearing today to oppose the orders sought and has given the standard correspondence to the Company.[17]

Should the appointment of BDO as auditor be validated?

1. On the evidence before me, I make the following findings of fact.

(a) Following the resignation of BDO WA as auditor of the Company in June 2024, the directors of the Company complied with their obligations under s 327C(1) of the Act by appointing BDO as auditor with effect from 13 June 2024.

(b) The directors of the Company were required, pursuant to s 327B(3) of the Act, to take all reasonable steps to comply with, or to secure compliance with s 327B(1) of the Act to appoint an auditor at its 2024 AGM to fill the vacancy created by the original resignation of BDO WA. This did not occur.

(c) No resolution was put nor passed at the 2024 AGM to appoint BDO as auditor of the Company. As a result, BDO ceased to be the Company's auditor at the conclusion of this AGM.

(d) Following this, the board of the Company has not complied with s 327B(1) of the Act to appoint an auditor.

1. I have previously considered the relevant legislative history, objects, and purposes of ch 2M.4 of the Act in Re Bellevue Gold Ltd[18] and do not intend to repeat the views that are expressed there. Those reasons reflect my views.
2. In this case, the plaintiff seeks a declaration under s 1322(4)(a) of the Act that the appointment of BDO as auditor of the plaintiff from 29 November 2024 is not invalid by reason of:

(a) the failure of the plaintiff to comply with s 327B(1)(b) of the Act by not approving the appointment of BDO as auditor of the plaintiff at its 2024 AGM; and

(b) the failure of the plaintiff to comply with s 328B of the Act.

1. The form of the orders that have been proposed by the plaintiffs satisfy the prescriptive requirements of the Act,[19] in that:

(a) they are framed in a declaratory form;

(b) they identify the act, matter, or thing, namely, the appointment of an auditor; and

(c) they clearly identify the alleged contraventions of the Act.

1. While only one of the preconditions in s 1322(6)(a) of the Act need be satisfied, in this case the plaintiff submits that the preconditions in both s 1322(6)(a)(ii) and s 1322(6)(a)(iii) of the Act were satisfied.
2. I accept the evidence of Mr Usher that the failure to appoint BDO as auditor arose because of inadvertence and the fact that he was dealing with a number of competing priorities at the time. This conclusion is supported by the prompt steps that have been taken by the Company to rectify the issue as soon as it became aware that this had occurred. On this basis, I accept that the precondition in s 1322(6)(a)(ii) of the Act is satisfied.
3. Section 1322(6)(a)(iii) of the Act gives the court a wide discretion to exercise the powers under s 1322 of the Act.[20] I am satisfied on the evidence before me that it is just and equitable to make the orders that are sought by the plaintiff.
4. In my view, the making of the orders sought by the plaintiff is consistent with the public policy of the Act contained in ch 2M, which is to ensure that public companies appoint independent auditors to audit their accounts and that audited accounts are lodged within the timeframe specified in the Act and are provided to members.
5. It is relevant in this case that all parties have proceeded on the basis that BDO continues to be validly appointed.
6. In my view, the granting of the relief sought will remove any doubt about the Company's compliance with its obligations under the Act and the potential impact that it may have on the Company's obligations going forward.
7. In making the orders sought, I have also taken into account the classes of persons who may be impacted by the making of these orders, namely, the Company, its shareholders, and BDO.
8. In my view, there is no evidence that any substantial justice has been or is likely to be caused to any person by the making of these orders. In this case, that is particularly relevant given the short timeframe of less than a month from the issue arising to the date that these orders are made.

1. In relation to the orders sought by the Company concerning the issue of securities the subject of cleansing notices on 26 June 2023, 10 July 2023, 2 November 2023 and 10 December 2024, as well as the shares issued on 5 July 2023 and 4 December 2024, the proposed validation orders are:

(a) framed in a declaratory form;

(b) identify the act, matter or thing, namely the issue of securities; and

(c) clearly identify the contraventions that are sought to be validated.

1. In this case, counsel submitted, which I accept, that all of the preconditions have been satisfied.[21]
2. First, as has been previously acknowledged by many courts, the act of issuing a cleansing notice is an act of a procedural nature.[22]
3. As noted above, Mr Usher's evidence is that he re‑used a previous cleansing notice and was unaware and did not turn his mind to whether there were legislative changes that had occurred, which required the plaintiff to confirm its compliance with s 674A of the Act. I accept Mr Usher's evidence that the error was inadvertent and there is no evidence that any of the persons concerned have failed to act honestly.
4. Given this, I am satisfied the precondition in s 1322(6)(a)(ii) of the Act is also satisfied in respect of all share issues and that it would be just and equitable to make the orders sought.
5. Once again, in considering whether there would be any substantial injustice if the orders sought are made, I have considered the classes of persons who may be impacted by the making of these orders.
6. First, the people who have been issued these shares. The prejudice to them if the orders sought are not made is that any future sale of these shares may be void or voidable.
7. In relation to the shareholders of the Company, the Company's failure to comply with the relevant provisions of the Act has caused the Company to enter into a trading halt. If orders are not made by this court, the security holders will not have the benefit of a market for their shares.
8. I also accept that if the orders sought are not made, there may be substantial injustice to the Company as any offer and subsequent sale of securities may be void or voidable, which gives rise not only to commercial uncertainty, but also potential expense for the Company if it is required to remain involved in the issue.
9. For these reasons, I find there is no basis for inferring that substantial justice has been or is likely to be caused to any person by the making of the proposed orders and find that, in fact, the reverse is the case. That is, I accept that if these orders are not made, there will be substantial injustice to the classes of persons that I have referred to.
10. In this case, I accept and find that there is no evidence of any substantial misconduct, serious wrongdoing or flagrant disregard of the Act or the Company's constitution, which would warrant any refusal of the relief sought.[23]
11. There is nothing in the evidence before me that suggests any minority interest might be oppressed, or any other interest could be affected by the orders sought. Specifically, I am satisfied that all shareholders, together with the ASX and ASIC, have been notified of the issue that has arisen and have been given notice of the hearing. No shareholder or either regulator has sought to be heard or intervene in the hearing today.
12. In exercising the court's discretion to grant relief, a relevant factor is the promptness with which the plaintiff has sought to remedy the irregularity once it has been identified.[24] In this case, the issue was identified approximately just over a week ago and since then, the plaintiff has taken significant steps to determine the relief required, sought legal advice, commenced the proceedings, and sought an urgent hearing. In my view and for the following reasons, it is appropriate to grant the relief in the terms sought by the plaintiff to validate the share issues.
13. First, the plaintiff sought to remedy the irregularity promptly by taking steps to review its books and records to identify any other issues with the Company's share issues. They have sought legal advice and the application has been filed all within the space of one week.
14. Second, I accept and find that these matters occurred through inadvertence and oversight and did not occur as a result of a deliberate breach of any obligations.
15. Third, the orders sought address a past act and not a future act.
16. It is usual in cases such as this to provide an opportunity for shareholders and any other persons with a sufficient interest in the matter to raise a complaint about the orders. The usual period is that there be liberty to apply within 28 days, which is the timeframe sought by the plaintiff in its minute of proposed orders.
17. Finally, in relation to public policy considerations, it is my view that these will not be undermined by granting the relief sought.

1. For these reasons, subject to the one amendment that I have discussed with counsel, I am satisfied it is appropriate to make orders in terms of the plaintiff's reamended minute dated 19 December 2024.[25]

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

[1] Treasury Laws Amendment (2021 Measures No. 1) Act 2021 (Cth) sch 2 pt 2.

[2] Affidavit of Stuart Usher filed 17 December [12] - [13].

[3] Affidavit of Stuart Usher filed 17 December [20] - [21], 'SU-05', 'SU-06'.

[4] Affidavit of Stuart Usher filed 17 December [19], 'SU-04'.

[5] Affidavit of Stuart Usher filed 17 December [22] - [25], 'SU-07'.

[6] Affidavit of Stuart Usher filed 17 December [35] - [36].

[7] Affidavit of Stuart Usher filed 17 December [46].

[8] Unless an auditor is removed from office at the AGM.

[9] Pursuant to pursuant to s 328B(2)(a) and s 328B(2)(b) of the Act.

[10] Corporations Act 2001 (Cth) s 708A(5).

[11] Corporations Act 2001 (Cth) s 707.

[12] Re Helios Energy Ltd [2017] FCA 840; (2017) 122 ACSR 174 [20] (Gilmour J).

[13] Weinstock v Beck [2013] HCA 14; (2013) 251 CLR 396 [43] (French CJ), [53] (Hayne, Crennan & Kiefel JJ), [64] (Gageler J).

[14] Re Wave Capital Ltd [2003] FCA 969; (2003) 47 ACSR 418 [29] (French J).

[15] Weinstock v Beck [43] (French CJ), [55] - [56] (Hayne, Crennan & Kiefel JJ), [60], [64] (Gageler J).

[16] Re Wave Capital Ltd [29] (French J).

[17] Affidavit of Ciara Marie Heslenfeld filed 17 December 2024, 'CH-01', 'CH-02'.

[18] Re Bellevue Gold Ltd [2021] WASC 80 [48] ‑ [54].

[19] Corporations Act 2001 (Cth) s 1322(4)(a).

[20] See Re Bellevue Gold Ltd [64] - [65], and the authorities cited therein.

[21] Corporations Act 2001 (Cth) s 1322(6)(a)(i), s 1322(6)(a)(ii) and s 1322(6)(a)(iii).

[22] Re Nanoveu Ltd; Ex Parte Nanoveu Ltd [2024] WASC 329 [70] (Strk J).

[23] Re Wave Capital Ltd [29] (French J).

[24] Re G8 Communications Ltd [2016] FCA 297; (2016) 112 ACSR 22 [60] (Barker J).

[25] At the conclusion of the hearing, I made orders in terms of Annexure 'A'.