- Weinstock v Beck

- Weinstock v Beck - [2024] NSWSC 154 - NSWSC 2024 case summary — Zoe

Affidavit evidence

MPG reads the affidavit dated 31 January 2024 of its Associate General Counsel and Company Secretary, Ms Loftus. Her evidence is that MPG is a public company which is listed on the Australian Securities Exchange ("ASX") and is a specialised pharmaceutical company focused on commercialising branded pharmaceuticals. She refers to a cash on-market buy-back which MPG has been undertaking in respect of its own shares since 10 May 2023 and to the giving of notice of an annual general meeting by MPG on 27 October 2023, which included a proposed resolution, for the purposes of s 257C of the Act and other purposes, that shareholders authorise and approve the on-market buy-back of up to 15 percent of MPG's issued shares in the 12 month period following the approval of that resolution. As I will note below, that resolution was required to the extent that MPG might seek to exceed the 10 percent in 12-month limit ("10/12 limit") specified in the Act, which it could only do with shareholder approval. In the event, MPG has not to date exceeded that limit. Ms Loftus in turn refers to the fact that it was subsequently recognised that MPG had inadvertently not complied with requirements for notice to ASIC which arose under s 257C of the Act, and possibly also under s 257F of the Act, which contemplated that the notice of the relevant meeting and any document that would accompany that notice would be given to ASIC before it was sent to shareholders, and, under s 257F of the Act, required that occur at least 14 days before the relevant resolution was passed. Ms Loftus frankly recognises that that resulted from an oversight and misunderstanding on her part of the notification requirements to ASIC, where MPG had previously notified ASIC of the current on-market buy-back, at a time that it was within the 10/12 limit specified in the Act. Ms Loftus also refers to steps which were then taken to notify ASIC of the buy-back resolution prior to the annual general meeting, although that did not comply with s 257C of the Act since it had not occurred prior to the dispatch of the notice of the meeting.
Ms Loftus also refers to the outcome of MPG's annual general meeting, where the resolution approving the increase of the buy-back limit to 15 percent was passed by an overwhelming majority of shareholders, and to the fact that a further notice was then lodged with ASIC, after the meeting had occurred. Ms Loftus also notes that, had she recognised the requirement for lodgment of the notice of the annual general meeting with ASIC, prior to its dispatch to shareholders, she would have lodged that document in accordance with that requirement. There is no reason to doubt her evidence in that respect.
Ms Loftus addresses the financial position of MPG and expresses the view that the buy-back does not give rise to any material impact or prejudice to any person, or any injustice, and she points out that MPG has not received any complaints from shareholders or creditors in relation to the matter. I note that evidence although it seems to me that (as Mr Jameson, who appears for MPG, accepts) the relevant question here is whether any prejudice or injustice has arisen from the late notice of that resolution given to ASIC, which is a narrower question than that of the financial impact of the buy-back upon MPG. Ms Loftus also notes the position in relation to buy-backs undertaken by MPG in the past 12 months and its intention in relation to further buy-backs, and she notes that MPG has not in fact exceeded the 10/12 limit, and will not undertake further buy-backs that exceed the 10/12 limit unless and until the Court grants the relief sought.
An exhibit to Ms Loftus' evidence in turn includes relevant documents. In particular, it includes a notice of intention to carry out a buy-back in Form 280 which was lodged by MPG with ASIC on 10 May 2023, at a time that MPG was not seeking to exceed the 10/12 limit. MPG also announced to the ASX, on that date, an on-market buy-back programme for up to 10 percent of its issued capital, and noted, correctly, that the Act permitted a buy-back of up to 10 percent of its issued capital in that manner in any 12-month period without shareholder approval, and noted that the buy-back would be funded from MPG's current cash reserves.
Subsequently, on 27 October 2023, MPG lodged with ASX a notice of annual general meeting and the related proxy form and a letter to shareholders. The letter to shareholders noted that one of the matters to be considered at the annual general meeting was to approve an extension of the on-market share buy-back. That reference was, on one view, shorthand for the extension of the buy-back to up to 15 percent in the 12-month period following approval of the resolution, but the content of that resolution was made clear to shareholders, both by the terms of the resolution and by the explanatory material put before shareholders. That explanatory material made clear that the effect of the proposed resolution was to increase the number of shares which could be bought back within any 12-month period to the 15 percent limit, although I noted above that ultimately did not occur. The explanatory material also addressed the effect of the buy-back up to the 15 per cent limit, on MPG, and also referred to the advantages and disadvantages of the buy-back. There is no reason to doubt that the explanatory material gave a fair summary of the buy-back proposal, and of its implications, and that is plainly a matter that is relevant both to the likelihood that ASIC would have intervened, in respect of any notice that had been given to it prior to the issue of the notice of annual general meeting, and to the relief that is now sought.
Subsequently, as Ms Loftus had noted in her affidavit, MPG lodged a notice of intention to carry out a share buy-back with ASIC. That notice does not comply with the requirements of s 257C(3) of the Act both because it was not lodged before the notice of meeting was sent to shareholders, and because it did not attach the relevant notice of the meeting. On 12 December 2023, after the issues that are the subject of this application had been identified, the solicitors acting for MPG drew them to ASIC's attention and MPG lodged a further notification of details of buy-back with ASIC. I will return below to the position that is taken by ASIC in respect of this application.
By a further affidavit dated 12 February 2024, Mr Sommer, who is a solicitor acting for MPG in the application, refers to correspondence with ASIC, initially in respect of MPG's inadvertent failure to lodge the prescribed notice prior to the dispatch of the notice of the annual general meeting, and subsequently in respect of this application. By letter dated 12 February 2024, which had been provided with the documents relating to this application, ASIC indicated that it neither supported nor opposed the application and did not intend to appear at the hearing. The Court may properly proceed on the basis that ASIC sees nothing in respect of the application that it considers warrants its opposition to the application.

[4]

The buy-back regime

Mr Jameson draws attention to the relevant statutory provisions in Pt 2J.1 of the Act. Section 257A of the Act relevantly provides that a company may buy-back its own shares if the buy-back does not materially prejudice the company's ability to pay its creditors and the company follows the procedures laid down in Pt 2J.1 Div 2. A table contained in s 257B provides that, where an on-market buy-back will exceed the 10/12 limit, then an ordinary resolution under s 257C is required; 14 days' notice must be given under s 257F; and certain additional steps must be taken. Section 257C(1) provides that, if s 257B applies, then shareholder approval is required to exceed the 10/12 limit, and, under s 257C(3), before the notice of the meeting is sent to shareholders, the company must lodge with ASIC a copy of that notice of meeting and any document relating to the buy-back that will accompany that notice of meeting. I have noted above the failure to comply with that requirement in this case, and the evidence as to the circumstances in which that occurred. Section 257F(1) requires that, where s 257B applies to a buy-back, as is the case here, the company must satisfy the lodgment requirement in s 257F(2) at least 14 days before, relevantly, the resolution under s 257C(1) is passed.
Section 257F(2) provides that the company satisfies that lodgment requirement when it lodges documents with ASIC under, inter alia, s 257C(3) of the Act, to which I referred above.
Mr Jameson also refers to s 259A of the Act, which provides that a company must not acquire shares in itself, and to the exception that is there available where a company buys back shares under s 257A of the Act. He also refers to s 259F of the Act, which provides that, if a contravention of s 259A of the Act occurs, that contravention does not affect the validity of the acquisition of the shares and the company is not guilty of an offence, but any person who is involved in the relevant contravention contravenes that section. MPG here seeks relief, in respect of its directors and officers, from any civil liability in respect of any failure to comply with s 257C(3) and by extension s 257F of the Act in relation to the buy-back.

[5]

Scope of relief under s 1322 of the Act

MPG seeks relief under s 1322 of the Act, both in respect of an extension of time to comply with the relevant requirements in ss 257C and 257F of the Act and in respect of the relief from liability that is sought. That section relevantly provides that: (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; ... (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. (5) An order may be made under paragraph (4)(a) or (c) notwithstanding that the contravention or failure referred to in the paragraph concerned resulted in the commission of an offence. (6) The Court must not make an order under this section unless it is satisfied: ... (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.
Mr Jameson rightly notes that this provision is a remedial provision and is to be given a liberal construction, and he refers to French CJ's observation in Weinstock v Beck (2013) 251 CLR 396 (at [39]) that s 1322(4) of the Act reflects: "a long‐standing legislative recognition that mistakes will happen in corporate governance and that it is not in the public interest that the validity of decisions made in relation to corporations be unduly vulnerable to innocent errors which may be corrected without substantial injustice to third parties."
Mr Jameson notes that MPG has not identified any authority in which relief under s 1322(4) of the Act has been sought or granted in connection with a failure under s 257C of the Act of the kind arising under this case. He points out, however, that there are many occasions on which the Court has granted relief under s 1322 of the Act in respect of other transactions involving similar issues, including the issue of shares, a company's inadvertent self-acquisition of its own shares and relief from civil liability in respect of inadvertent non-compliance with statutory obligations, for example in respect of financial accounting requirements: see, for example, Re Commonwealth Bank of Australia (2004) 57 ACSR 28; Re Insignia Financial Ltd [2022] NSWSC 488; Re Flight Centre Technology Pty Ltd (2022) 160 ACSR 651; Re Diona Pty Ltd [2022] FCA 1215.
Mr Jameson submits, and I accept, that there is no reason to think that ss 257C or 257F of the Act impose time limits which are absolute and not capable of extension under s 1322 of the Act. I recognise that those sections are likely directed to ensuring that ASIC has notice of the content of the notice of meeting that will be sent to shareholders, before it is sent, and the opportunity to intervene in respect of anything that is contained in that notice. However, that statutory purpose does not require that s 1322 of the Act should not be available in these circumstances, where the availability of an extension of time or other relief in a particular case will depend on the matters specified in that section.
The Court may not make an order relieving a person in whole or part from any civil liability in respect of a contravention under s 1322(4)(c) of the Act unless it is satisfied that the person subject to the civil liability acted honestly. I am satisfied of that matter in respect of the directors and officers of MPG involved in the buy-back, having regard to Ms Loftus' evidence and the chronology of events that is disclosed by the documents which have been tendered. Before granting relief, either by way of relief from liability under s 1322(4)(c) of the Act or by an extension of time under s 1322(4)(c)(d) of the Act, the Court must be satisfied that no substantial injustice has been or is likely to be caused to any person. I am comfortably satisfied that no such injustice, let alone substantial injustice, has arisen here. The question, here, is whether any such substantial injustice has arisen from MPG's failure to give the relevant notice to ASIC, before and not after the dispatch of the notice of its annual general meeting, where there is no reason to think that ASIC would have cause for regulatory concern to the buy-back resolution to be put before that meeting, had it been given such notice prior to the dispatch of the notice of meeting. As I have noted above, the relevant notice of meeting appears, on its face, to have fairly described the buy-back, and the resolution to approve a 15 percent in 12 months limit was approved by MPG's shareholders by a substantial majority.
I also bear in mind that, as Mr Jameson points out, information relating to the buy-back was then in the public domain, where the relevant notice of meeting had been made available by way of ASX announcement on 27 October 2023, although it does not follow that ASIC necessarily knew of the content of that notice by reason of that announcement. It is also relevant, as Mr Jameson points out, that the evidence indicates that MPG has not received any complaint from its shareholders or creditors in respect of the quality of the information provided to them, and I have regard to the fact that, as I have noted above, ASIC has not intervened in order to oppose the relief sought by MPG.

At a glance

Court

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Before

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Judgment (7 paragraphs)

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Legislation Cited (1)

Cases Cited (3)