RE SMS OPERATIONS PTY LTD; EX PARTE SMS OPERATIONS PTY LTD [2021] WASC 191 (17 March 2021)

(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 plaintiff 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(a) ASIC Class Order: Wholly Owned Entities [CO/98/1418] (Class Order), which has been repealed but continues to apply for financial years prior to 1 January 2017; and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 (New Instrument), which is in force and applies to the financial years commencing after 1 January 2017.

1. Each of the Old Class Order and the New 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 Old Class Order or New Instrument (as applicable) are met for that financial year. The conditions are largely the same irrespective of whether the Old Class Order or the New 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]

(c) a statement is included in the directors' declaration of the holding entity as to whether, at the date of the document, there are reasonable grounds to believe that the members of the group will be able to meet any obligations or liabilities to which they are or may become liable by reason of the deed of cross-guarantee;[9]

(d) an annual resolution that the applicable entity should continue to remain a party to the deed of cross guarantee, following a reassessment by the directors of the advantages and disadvantages of this;[10]

(e) before the end of the first financial year in respect of which the applicable entity took advantage of the class order relief, the directors made a statement of their opinion that there were reasonable grounds to believe that the entity could pay its debts as and when they fell due and resolved that they should obtain the benefit of the Old Class Order, which resolution has not been revoked;[11]

(f) the directors of every other party to the deed of cross guarantee has made a statement before the end of the financial year it became party to the deed that there were reasonable grounds to believe the entity could pay its debts as and when they fell due;[12]

(g) if the holding entity's financial reports were required to be audited, the auditor of the holding entity was satisfied that the requirements had been complied with;[13] and

(h) 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.[14]

1. SMS Operations relied on six affidavits at the hearing of the matter: an affidavit of Mr Frank Campagna, the plaintiff's company secretary, filed 10 March 2021; an affidavit of Mr Kent Swick, a director of the plaintiff, filed 12 March 2021; an affidavit of Mr Jitu Bhudia, a director of the plaintiff and the chief financial officer of Swick Mining Services Ltd, filed 12 March 2021; and three affidavits of Mr Mark Foster, a partner at Steinepreis Paganin, the plaintiff's solicitors, filed 12 March 2021, 16 March 2021 and 17 March 2021.
2. SMS Operations is an Australian company that was incorporated on 26 June 1970 under the name RTS Pty Ltd.[15] SMS Operations specialises in the provision of drilling services, primarily underground diamond drilling, to a range of clients in Australia, the USA and Europe.[16]
3. As at 18 February 2021, the total issued share capital of the plaintiff consisted of four fully paid ordinary shares, all of which were held by Swick Mining Services Ltd (Swick), a company that has been listed on the Australian Securities Exchange (ASX) since 1 November 2006.[17]
4. In June 2016, Mr Bhudia, a director of the plaintiff and Swick's chief financial officer, asked Mr Campagna to take steps for Swick to meet the requirements of the Old Class Order and to arrange for a Deed of Cross Guarantee (Deed) to be entered into between Swick and three of its fully owned subsidiaries, including the plaintiff, namely:

1. Prior to his current role, Mr Bhudia was the group financial controller at a publicly listed mining services company. In this role, Mr Bhudia was aware that Class Orders existed and the nature of relief they provided, although he was never directly involved in securing this relief.[19]
2. On 24 June 2016, Mr Campagna contacted Mark Foster of Steinepreis Paganin, the plaintiff's solicitors, by email and asked him to prepare the Deed.[20] Mr Campagna requested that the Deed be lodged and registered with ASIC before 30 June 2016, so that the plaintiff was eligible for the Old Class Order relief that financial year and would not have to prepare audited accounts.[21]
3. After receiving the email from Mr Campagna, Mr Foster asked a senior associate then employed by Steinepreis Paganin to prepare the Deed and provide further advice to the plaintiff as required.[22] At that time, Mr Foster believed that the senior associate had adequate legal experience to complete the task with minimal supervision.[23]
4. On 27 June 2016, Steinepreis Paganain sent a draft Deed to Mr Campagna by email.[24] After receiving this draft, Mr Campagna and Steinepreis Paganin finalised the Deed.[25] On 28 June 2016, the Deed was executed and lodged with ASIC.[26]
5. During the course of finalising the deed, Mr Campagna sought clarification from Steinepreis Paganin on a number of matters. On three separate occasions, both before and after the Deed was lodged, Mr Campagna asked Steinepreis Paganin whether there were any further requirements or ASIC obligations which the plaintiff needed to attend to for the Deed to be effective.[27]
6. On 28 June 2016, after the Deed had been lodged, Steinepreis Paganin informed Mr Campagna that the Deed was effective and there was nothing further the plaintiff had to do.[28]
7. Following the confirmation that the Deed had been lodged and that there were no further requirements for the plaintiff to attend to, Mr Campagna believed that the plaintiff was entitled to rely on the Old Class Order relief.[29] On the basis of Mr Campagna's belief, Swick prepared and lodged its annual reports for the financial years ending 30 June 2016,[30] 2017,[31] 2018,[32] 2019[33] and 2020.[34] Each report cited the Old Class Order or New Instrument and included the plaintiff in Swick's consolidated financial statements in each of these reports.[35]
8. On 20 November 2020, Mr Campagna received an email from the Group Financial Controller of Swick attaching a letter he had received from ASIC dated 28 October 2020 and received on 18 November 2020. In this letter, ASIC stated that SMS Operations had failed to lodge its 2019 financial statements and reports.[36]
9. At this time, Mr Campagna believed the plaintiff was entitled to rely on the Old Class Order relief. Mr Campagna investigated why SMS Operations had received the letter from ASIC and sought to clarify the plaintiff's financial and reporting obligations.[37] Mr Campagna became aware that before the plaintiff was entitled to relief under the Class Order, it was necessary for them to have lodged an ASIC Form 389 (Opt-in Notice).[38]
10. On 20 November 2020, Mr Campagna informed Swick's Group Financial Controller that the plaintiff had failed to lodge an Opt-in Notice.[39] On the same date, Mr Campagna notified Mr Bhudia of the issue.[40] Mr Bhudia's evidence was that he relied on Mr Campagna to ensure the plaintiff complied with the Old Class Order and, by extension, the New Instrument.[41]
11. On 1 March 2021, Mr Swick became aware of the plaintiff's failure to comply with the Act. On discovering that the plaintiff had not lodged an Opt-in Notice, Mr Swick conferred with other directors of Swick (Mr Andrew Simpson and Mr Ian McCubbing). Each of the other directors confirmed they had also been unware of the non‑compliance with the Old Class Order and New Instrument until ASIC had brought the issue to the plaintiff's attention.[42]
12. SMS Operations has taken several steps to address its failure to lodge an Opt-in Notice and has made an active effort to remedy the issue and to ensure that the non-compliance does not occur again.
13. On 9 December 2020, Mr Campagna contacted Steinepreis Paganin by email to obtain further advice.[43] On 11 December 2020, Steinepreis Paganin responded to Mr Campagna's email and confirmed that the failure to lodge an Opt-in Notice prevented the plaintiff from being able to rely on the Old Class Order relief.[44]
14. On 15 December 2020, Mr Campagna requested further advice from Steinepreis Paganin in relation to this application for relief under the Class Order.[45] On 21 December 2020, the plaintiff instructed Steinepreis Paganin to commence this application to remedy the plaintiff's failure to fulfil its obligations under the Old Class Order and New Instrument.[46]
15. Since January 2021, the plaintiff and its solicitors have sought to clarify the plaintiff's obligations under the Old Class Order and New Instrument.[47] The plaintiff has subsequently undertaken the steps required to satisfy the conditions of the Old Class Order and the New Instrument.[48]
16. On 10 March 2021, the plaintiff commenced this application, which was listed for hearing on 17 March 2021.
17. On 12 March 2021, SMS Operations requested confirmation from its auditors, Deloitte and Ernst & Young, that it had met condition (v) of the Old Class Order and condition 6(1)(x) of the New Instrument.[49] On 15 March 2021, the plaintiff received these confirmations by email.[50]
18. On 17 March 2021, ASIC informed the plaintiff that it neither supported nor opposed the application and did not intend to appear at the hearing of the matter.[51]

1. In its originating process filed 10 March 2021, the plaintiff seeks the following relief:

(a) orders pursuant to s 1322(4)(d) of the Act that the various times specified by the Old Class Order and New Instrument for the plaintiff to comply with specific requirements be extended to 15 March 2021;

(b) orders pursuant to s 1322(4)(a) of the Act that the lodgement of a notice, making of certain director and auditor statements and passage of certain directors' resolutions be deemed to be effective to entitle the plaintiff to relief, under the Old Class Order for the financial year ended 30 June 2016, and under the New Instrument for the financial years ended 30 June 2017, 2018, 2019, and 2020; and

(c) orders under s 1322(4)(c) of the Act relieving the plaintiff and its current and former directors and officers from any civil liability in respect of its failure to comply with ch 2M of the Act by reason of its failure to validly invoke and obtain the relief under the Old Class Order and New Instrument.

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:[52]

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.[53] 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.[54]

Disposition Application by an 'interested person'

1. Counsel for the plaintiff submitted that if they were unable to rely on the Class Order or the New Instrument to obtain relief from the requirements of pt 2M.3 of the Act, the financial interests of plaintiff are likely to be adversely affected. This is because of the significant cost involved in the consequential requirement by the plaintiff to prepare and have audited financial statements and reports.
2. Courts have previously accepted that a real financial interest in the result is sufficient to confer standing as an 'interested person'.[55]
3. On the basis of the evidence before me, I accept that the plaintiff is an interested person for the purpose of s 1322(4)(d).

1. The plaintiff sought orders extending the time for fulfilling the requirements in:

(a) conditions (k), (j), (i), (kb), (o) and (v) of the Old Class Order to 15 March 2021; and

(b) conditions (g), (i), (w), and (x) of the New Instrument to 15 March 2021.

1. In applying for this extension of time, counsel for the plaintiff submitted that the statutory requirements of s 1322(4)(d) and s 1322(6) of the Act were satisfied.
2. I am satisfied that in respect of each of the irregularities for which the plaintiff seeks relief, a time period is either expressly or impliedly imposed which is capable of extension. On this basis, I accept that the time limit for filing the Form 389 Opt-in Notice and the lodgement of consolidated financial statements can be extended under s 1322(4)(d) of the Act.[56]
3. In the circumstances of this matter, I considered it was appropriate to extend the time limits until 15 March 2021 for the following reasons.
4. First, granting the extension of time is consistent with the purpose of the Old Class Order, the New Instrument and the Act. The purpose of the Old Class Order and the New 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 plaintiff is consistent with this purpose. It also furthers the objects of the Old Class Order, the New 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 plaintiff and the subsidiary companies of Swick 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.
5. Second, the non-compliance by the plaintiff was unintentional, honest and inadvertent. The failure to lodge an Opt-in Notice was due to the plaintiff's reliance on the incorrect legal advice of its solicitors and at that time, the plaintiff had a genuine belief that it had complied with all necessary requirements to entitle it to relief. Had Mr Campagna and the directors known that the Opt-in Notice had not been lodged with ASIC and that as a consequence, the plaintiff's other financial obligations had not been fulfilled, I am satisfied they would have lodged the requisite Opt-in Notice and corrected their consolidated financial statements.
6. I accept that the plaintiff has acted promptly in bringing this application once the issue was drawn to its attention. In addition, upon becoming aware of the issue, the plaintiff identified other issues with the consolidated financial statements that had been filed and sought to address these.
7. Third, in the absence of an extension of time, there would be significant costs incurred by the plaintiff as it would be required to file audited financial statements for up to five different financial years. Mr Campagna estimates that the costs that would be incurred by the plaintiff would be approximately $100,000.00.[57]
8. 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. The plaintiff's conduct is not otherwise disentitling of relief. The failures that occurred were a result of the inadvertence and oversight of the plaintiff's solicitors and not the conduct of the plaintiff itself.
9. Fifth, ASIC did not oppose the application and did not intend to appear at the hearing of the matter.

1. SMS Operations also sought ancillary orders under s 1322(4)(a) of the Act in relation to the lodgement of the Opt-in notice, the making of statements by directors and auditors and the passage of resolutions by the directors. These orders were, in effect, a corollary of orders one and four.
2. I accept that the lodgement of the notice, making of directors statements and passage of resolutions were each an 'act, matter or thing purporting to have been done in relation to a corporation'. I also accept that each of these were invalid as they were lodged out of time and not in compliance with the Old Class Order or New Instrument. As a consequence, SMS Operations contravened pt 2M.3 of the Act.
3. Counsel for the plaintiff contended that each of the pre-conditions in s 1322(6) of the Act was satisfied, although it is only necessary that one be satisfied.[58] As set out above, I accept that the pre-condition in s 1322(6)(a)(ii) of the Act is satisfied as I consider the failure was inadvertent and there is no evidence that SMS Operations or any other person did not act honestly.
4. Finally, for the reasons set out above at [43] to [48], I consider that no substantial injustice has been or is likely to be caused to any person. Accordingly, I considered it was appropriate to make the orders sought by the plaintiff.

Relief from Civil Liability (s 1322(4)(c) of the Act)

1. A pre-condition to an order under s 1322(4)(c) of the Act is that the person to be relieved from civil liability acted honestly.[59] 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.[60]
2. The concept of acting honestly can embrace:[61]

(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 Opt-in Notice was not dishonest. The evidence before me supports a conclusion that the failure by the plaintiff to comply with the Old Class Order, the New Instrument and the Act was a result of honest inadvertence, rather than a deliberate disregard of the plaintiff's obligations. I am satisfied that each of the persons involved 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, I was satisfied that, in the circumstances of this case, relief should be granted in the terms sought by the plaintiff. Accordingly, at the conclusion of the hearing, I made orders in the form annexed to these reasons as 'Annexure A'.

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

[1] Corporations Act 2001 (Cth) s 292(1)(b), s 292(1)(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] Old Class Order, first order, [(b)]; New Instrument, s 4, s 5 and s 6(1)(c).

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

[9] Old Class order, first order [(j(i))]; New Instrument, s 6(1)(h).

[10] Old Class order, first order [(kb)]; New Instrument, s 6(1)(i).

[11] Old Class order, first order [(o)(i)] and [(o)(ii)]; New Instrument, s 6(1)(g)(i) and s 6(1)(g)(ii).

[12] Old Class order, first order [(o)(v)]; New Instrument, s 6(1)(w).

[13] Old Class order, first order [(v)]; New Instrument, s 6(1)(x).

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

[15] Affidavit of Frank Campagna filed 10 March 2021 [12].

[16] Affidavit of Frank Campagna filed 10 March 2021 [15].

[17] Affidavit of Frank Campagna filed 10 March 2021 [17].

[18] Affidavit of Jitu Bhudia filed 12 March 2021 [14].

[19] Affidavit of Jitu Bhudia filed 12 March 2021 [9] ‑ [10].

[20] Affidavit of Frank Campagna filed 10 March 2021 [20], 'FC-04'.

[21] Affidavit of Frank Campagna filed 10 March 2021 [21].

[22] Affidavit of Mark Foster filed 12 March 2021 [8].

[23] Affidavit of Mark Foster filed 12 March 2021 [9].

[24] Affidavit of Frank Campagna filed 10 March 2021 [24].

[25] Affidavit of Frank Campagna filed 10 March 2021 [25] ‑ [33].

[26] Affidavit of Frank Campagna filed 10 March 2021 [33], 'FC-16'; first affidavit of Mark Foster filed 12 March 2021 [11], 'MF-02'.

[27] Affidavit of Frank Campagna filed 10 March 2021 [25], [31], [34], 'FC-09', 'FC-14', 'FC-17'.

[28] Affidavit of Frank Campagna filed 10 March 2021 [35], 'FC-18'; first affidavit of Mark Foster filed 12 March 2021 [12], 'MF-04'.

[29] Affidavit of Frank Campagna filed 10 March 2021 [36].

[30] Affidavit of Frank Campagna filed 10 March 2021 'FC-24'.

[31] Affidavit of Frank Campagna filed 10 March 2021 'FC-31'.

[32] Affidavit of Frank Campagna filed 10 March 2021 'FC-31'.

[33] Affidavit of Frank Campagna filed 10 March 2021 'FC-31'.

[34] Affidavit of Frank Campagna filed 10 March 2021 'FC-31'.

[35] Affidavit of Frank Campagna filed 10 March 2021 'FC-24', 'FC-31'.

[36] Affidavit of Frank Campagna filed 10 March 2021 [37], 'FC-19'.

[37] Affidavit of Frank Campagna filed 10 March 2021 [39] - [40].

[38] Affidavit of Frank Campagna filed 10 March 2021 [40].

[39] Affidavit of Frank Campagna filed 10 March 2021 [40], 'FC-20'.

[40] Affidavit of Jitu Bhudia filed 12 March 2021 [17].

[41] Affidavit of Jitu Bhudia filed 12 March 2021 [21] ‑ [23].

[42] Affidavit of Kent Jason Swick filed 12 March 2021 [13].

[43] Affidavit of Frank Campagna filed 10 March 2021 [41], 'FC-21'.

[44] Affidavit of Frank Campagna filed 10 March 2021 [42], 'FC-22'.

[45] Affidavit of Frank Campagna filed 10 March 2021 [43].

[46] Affidavit of Frank Campagna filed 10 March 2021 [44], 'FC-23'.

[47] Affidavit of Frank Campagna filed 10 March 2021 [45] ‑ [50].

[48] Affidavit of Frank Campagna filed 10 March 2021 [45] ‑ [50].

[49] Second affidavit of Mark Foster filed 16 March 2021 [9] - [10], 'MF-12', 'MF-13'.

[50] Second affidavit of Mark Foster filed 16 March 2021 [12] - [13], 'MF-15', 'MF-16'.

[51] Third affidavit of Mark Foster filed 17 March 2021 [10], 'MF-18'.

[52] 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].

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

[55] 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].

[56] Re Murray River Organics Ltd [2019] FCA 931; (2019) 138 ACSR 365; Re Navitas Bundoora Pty Ltd [2020] WASC 87.

[57] Affidavit of Frank Campagna filed 10 March 2021 [67].

[58] Weinstock v Beck [2013] HCA 14; (2013) 251 CLR 396 [43], [55] ‑ [56], [64].

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

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