Weinstock v Beck

EVIDENCE 3 The Prospectus contained offers of securities seeking to raise a minimum of $4 million and a maximum of $4.5 million. The funds were to be for use in connection with the continuation of the operations and activities of Austsino's business. 4 The Prospectus contained a minimum subscription condition and stated that the securities would be admitted for quotation on the ASX. In those circumstances, the time limits for satisfaction of those conditions in s 723(3)(b) and s 724(1)(b)(ii) CA were applicable. 5 At the time of filing submissions, Austsino had not as yet taken steps to issue shares under the Prospectus as the 3 month period expired before it could do so. 6 Austsino had completed the essential steps necessary for the Prospectus, other than to issue the shares applied for under the Prospectus and to then satisfy the ASX requirements consequent upon the same. A delay arose because some of the subscribers were overseas and complications occurred in clearing their funds in Australia, which the ASX advised was a requirement. By reason of the effluxion of time, Austsino could not satisfy the requirement of admitting the securities for quotation as required under the Prospectus and s 723(3)(b) and s 724(1)(b)(ii) CA and in accordance with the ASX conditions. 7 The effect of failing to complete all steps within the 3 month period would mean that without an extension, Austsino's shares would be delisted. This is because Austsino has reached the third anniversary of its voluntary suspension of its securities from quotation on the ASX. 8 Absent a curative order, no securities could be issued under the Prospectus, the various applicants' funds would have to be returned and the present shareholders would not have the benefit of investing in a listed vehicle. 9 This would cause substantial injustice if not remedied. That is, Austsino would need to refund money, become a listed vehicle again, and undergo an involved process with considerable expense, delay and inconvenience, not only to itself, but its existing shareholders. On the evidence, this seems contrary to the desire of the subscribing applicants for Austsino's securities. 10 By these proceedings, relief was sought in order to allow Austsino to extend the time to complete all tasks necessary to finalise the raising under the Prospectus to allow the completion of a capital raising by issue of remaining securities under the Prospectus. 11 Austsino relied on various affidavits, particularly on the affidavit of Mr Michael Keemink sworn on 23 March 2018, from which the foregoing and much other detail was verified.

THE LEGISLATIVE SCHEME 12 In Re Solco Ltd (2015) 106 ACSR 591, I discussed the legislative scheme for fundraising for companies and curative orders as follows (at [15]-[20]): [15] Section 723(3) [CA] relevantly provides that if a disclosure document for an offer of securities states or implies that the securities are to be quoted on a financial market (whether in Australia or elsewhere) and the securities are not admitted to quotation within 3 months after the date of the disclosure document, then an issue or transfer of securities in response to an application made under the disclosure document is void and the person offering the securities must return the money received by the person from the applicants as soon as practicable. [16] By s 724(1), if a person offers securities under a disclosure document and the disclosure document states or implies that the securities are to be quoted on a financial market (whether in Australia or elsewhere) and the securities are not admitted to quotation within 3 months after the date of the disclosure document, the person must deal under s 724(2) with any applications for the securities made under the disclosure document that have not resulted in an issue or transfer of the securities. Under s 724(2) the person must repay the money received by the person from the applicants or give the applicants the documents required by s 724(3) and 1 month to withdraw their application and be repaid, or issue or transfer the securities to the applicants and give them the s 724(3) documents and 1 month to withdraw their application and be repaid. [17] The documents required to be given by s 724(3) are set out in the table to that subsection. Relevantly, if the sole disclosure document is a prospectus, as is the case in this matter, then the document to be given is 'a supplementary or replacement prospectus that corrects the deficiency or changes the terms of the offer'. [18] The other two sections relevant to this application are the remedial provisions, s 254 and s 1322 [CA]. Section 254E provides: (1) On application by a company, a shareholder, a creditor or any other person whose interests have been or may be affected, the Court may make an order validating, or confirming the terms of, a purported issue of shares if: (a) the issue is or may be invalid for any reason; or (b) the terms of the issue are inconsistent with or not authorised by: (i) this Act; or (ii) another law of a State or Territory; or (iii) the company's constitution (if any). (2) On lodgment of a copy of the order with ASIC, the order has effect from the time of the purported issue. [Emphasis added] [in original] [19] Section 1322 relevantly provides: … (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: (a) an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation; (b) an order directing the rectification of any register kept by ASIC under this Act; (c) an order relieving a person in whole or in part from any civil liability in respect of a contravention or failure of a kind referred to in paragraph (a); (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. [Emphasis added] [in original] … (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. Consideration [20] As noted above, in summary, the [CA] provides that if a disclosure document states or implies that the securities are to be quoted on a financial market, then s 723 and s 724 [CA] set out the consequences if time limits are not observed for an application being made for quotation or for admission to quotation. Under s 723(3) the issue or transfer of the securities is void and the offeror must return the application moneys. Under s 724(2) the offeror must either repay the application moneys or give a supplementary prospectus and 1 month to withdraw their application and be repaid. The intent of s 723 and s 724, is that investors who expect to be issued securities admitted to quotation on a financial market should receive such securities within the prescribed time frame so that they are able to take advantage of the quotation. Section 254E enables the court to validate an issue of shares if the issue is or may be invalid for any reason. Section 1322 enables a court, among other things, to declare any act matter or thing is not invalid by reason of contravention of a provision [CA] or to extend the period for doing any act, matter or thing. The power of the court is confined by the conditions set out in s 1322(6). 13 Orders to extend the time for admission to quotation and validate and confirm issued shares were made in Re Solco, and have also been made by this Court in various other applications, including Re Wave Capital Ltd (2003) 47 ACSR 418; Re Golden Gate Petroleum Ltd (2004) 50 ACSR 659; Re Tony Barlow Australia Ltd (2005) 53 ACSR 1; Re Nusep Ltd (2007) 62 ACSR 301; Re Laserbond Ltd (2007) 25 ACLC 1658; Taruga Gold Limited, in the matter of Taruga Gold Limited [2015] FCA 892; and Re G8 Communications Ltd (2016) 112 ACSR 22. 14 Some of the essential principles on such an application under s 1322 CA are: (a) the prescriptive requirements of the wording in s 1322(4)(a) and s 1322(4)(d) and the pre-conditions in s 1322(6) CA need to be satisfied: Weinstock v Beck (2013) 251 CLR 396 per French CJ (at [43]), per Hayne, Crennan and Kiefel JJ (at [53]) and Gageler J (at [64]); (b) any one of the conditions set out in ss 1322(6)(a)(i), 1322(6)(a)(ii) or 1322(6)(a)(iii) CA will meet the requirements of s 1322(6)(a) CA: Weinstock per French CJ (at [10]); (c) the Court retains a discretion as to whether it makes the orders sought: s 1322(4) CA; (d) the powers conferred reflect a broad legislative policy that the law should not inflict unnecessary liability or inconvenience or invalidate transactions because of non-compliance with its requirements where such 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 in compliance with the law: Re Wave Capital per French CJ (at [29]); (e) limitations to the broadly expressed powers in s 1322 CA will not be readily implied: Weinstock per French CJ (at [43]) and per Hayne, Crennan and Kiefel JJ (at [55]-[56]); (f) the Court can make orders under s 1322(4) CA with conditions, and also make such consequential and ancillary orders as it thinks fit: s 1322(4) CA; and (g) an order can be made under s 1322(4)(a) CA, notwithstanding that the contravention or failure concerned resulted in the commission of an offence: s 1322(5) CA. 15 Since Re Solco and Re G8, the ASIC Corporations (Minimum Subscription and Quotation Conditions) Instrument 2016/70 (Cth) has been issued under s 741 CA to provide a means for issuers to extend the minimum subscription and quotation time period for all applicants without seeking individual relief. Austsino submits that, given the effluxion of time, Austsino's position is not amenable to this Instrument.

PROPOSED ORDER 1 - EXTENSION OF TIME RELIEF PURSUANT TO S 1322(4)(d) 16 The first proposed order in the originating process is: Pursuant to section 1322(4)(d) [CA], the period set out in sub-sections 723(3)(b) and 724(1)(b)(ii) [CA] for the admission to quotation by ASX of securities of [Austsino] issued pursuant to the Prospectus, be extended to the date which is 5 business days after the making of this order. 17 The statutory requirements of s 1322(4)(d) and s 1322(6) CA are met as: (a) Austsino is an interested person who may seek relief, as required by s 1322(4) CA and as consistent with earlier authorities; (b) the order sought is an order extending the period for the doing of any act, matter or thing or taking any proceeding under the CA or in relation to a corporation for the purpose of s 1322(4)(d) CA in that the time for admission to quotation under each of s 723(3)(b) and s 724(1)(b)(ii) CA is extended; and (c) the period to be extended can be extended even if expired, as provided for by s 1322(4)(d) CA, as is the case here where the period expired on 20 March 2018. 18 I am satisfied as to the pre-condition and requirement in s 1322(6)(c) CA (that no substantial injustice has been or is likely to be caused to any person), indeed, to the contrary, if the orders were not made, persons would be adversely affected: (a) as to Austsino, if no extension is granted, Austsino will not in all likelihood be able to properly continue its business if no curative orders are made; (b) as to the existing shareholders of Austsino (those prior to the capital raising under the Prospectus), they would be affected as: (i) their shares in Austsino would not be reinstated for trading; (ii) their shares would be affected by the absence of the immediate capital raised in order to continue the business of Austsino; and (iii) they would have diminished prospects of obtaining value for their previous investment; (c) as to the applicants for securities in Austsino (under the Prospectus): (i) they presently have the option of repayment of their money under s 723(3)(c)-(d) CA and they have had that right since 20 March 2018 and have been informed of their rights to do so by letter from Austsino dated 21 March 2018; (ii) Austsino intends to repay money to any applicant who requests return in accordance with the written communication from Austsino to all applicants informing them of their rights; and (iii) given that applicants have sought shares in Austsino, it is reasonable to infer they generally desire the admission of their issued shares or shares to be issued for quotation. Without the orders, they will not get the shares applied for immediately or at all. 19 As to the discretion to extend the time, I accept that the circumstances favour an extension as: (a) the extension order is for a relatively short period of time. Longer extensions (retrospectively) have been granted: see, for example, Re Golden Gate (at 667 orders 5-7 (10-11 months)) and Re Solco (at [35] (8 months)); (b) there is a good reason for an extension. Austsino and its advisors have overlooked the statutory timeframe given the unusual features of this particular capital raising, as explained in the evidence. Those involved made a genuine error which ought not be visited upon Austsino, nor its present and prospective shareholders; (c) the conduct of Austsino is not disentitling. Austsino had done all that it was required to do to obtain admission to quotation other than issue the shares, for which applications were made, and comply with the consequential regulatory requirements. It had raised substantial capital and met the minimum subscription condition for the Prospectus; (d) notice to all persons potentially affected has or will be given. They can return under the liberty to apply order to raise any matters they see fit; (e) as noted in Re Solco (at [33]): The making of the extension order is consistent with facilitating the conduct of commerce generally, including by maintaining market confidence that technical difficulties will not necessarily prevent or unduly hinder the raising of capital by the issue of securities to be admitted to quotation. (f) neither the ASX, nor ASIC, oppose the extension order. 20 The proposed order is in a conventional form (as made recently by the Court in Re Solco and Taruga Gold).

NO OTHER DISCRETIONARY REASONS TO WITHHOLD RELIEF 21 There is no evidence of any substantial misconduct, serious wrongdoing or flagrant disregard of the corporate law or Austsino's constitution so as to warrant refusal of the relief sought: Re Wave Capital (at [29]). There is nothing to suggest in the papers that any minority shareholder interest might be oppressed. 22 In any event: (a) liberty to apply is sufficient to protect the interests of any aggrieved person that can raise a legitimate and sufficient concern; and (b) Austsino has not sought relief from civil liability for itself or its officers under s 1322(4)(c) CA, such that there is no bar against those with rights affected who suffer loss or damage to commence appropriate proceedings. 23 Finally, it has been said that a relevant factor for the Court to take into account in exercising the discretion to grant relief under s 1322(4) CA is promptness with which Austsino has sought to remedy the irregularity: Azure Minerals Limited, in the matter of Azure Minerals Limited [2013] FCA 63 per Barker J (at [12]). In the present case, Austsino was alerted by the ASX about the expiration of 3 months and has acted promptly and properly.

CONCLUSION 24 Section 1322 CA allows the Court, in an appropriate case, to excuse failures which would otherwise invalidate share issues provided that certain prescriptive requirements are met. The circumstances of this case justify the making of the curative orders sought. Austsino has mistakenly allowed the 3 month period to expire which should not be to the detriment of others. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher.