Australian Corporate Lawyer - Autumn 2016

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where company secretaries have been
delegated by the company’s board to perform
the urgent task of lodging prospectuses,
processing applications for securities and
lodging quotation applications. The reasons
for the late lodgement have included
inadvertence 16 , an honest but mistaken
belief as to the requirements of the Act and
the ASX Listing Rules 17 and even because of
solicitor’s error 18 . The Court has made orders
extending time where such an order is in the
interests of subscribers and the company, and
in some cases where the securities have been
admitted to quotation and traded 19 .
Relief regarding what cannot be
done under the Corporations Act
or company constitution
As noted above, the High Court held that
the words “by reason of any contravention”
provide no basis for drawing a distinction
between what cannot be done at all under
the Act or company constitution and what can
be done but has not been done validly. The
recent decisions of Re Golden Gate Petroleum
Ltd 20 and Re Silver Lake Resources Ltd 21 are
pertinent examples of the power under
section 1322(4)(a) being applied to instances
of what cannot be done under the Act.
In each of the Golden Gate and Silver
Lake decisions, the Court ordered that
sales of securities that had been made in
contravention of sections 707(3) and 727(1),
in that there had been no disclosure by the
company and no compliance with section
708A, were not invalid by reason of the
company’s failure. In Golden Gate, the Court
held that although the requirements of
section 708A regarding disclosure were not
met prior to the offer for sale of some of the
company’s options, the public policy of the
Act would not be undermined in that case if
any sale transactions of the options between
the date of the offer and the date that trading
was suspended were validated 22 . The Court
noted that investors had available to them
comparable information to that which would
have been made available to them had the
company complied with section 708A(11)
when the securities had been offered for sale.
On that basis, Justice McKerracher considered
that the policy of adequate disclosure to
investors “was met in this case informally, but
not formally” 23 .
Further, in both decisions, the Court ordered
that sellers of the securities be wholly
relieved of any civil liability arising from the
contravention 24 . In Golden Gate the Court
observed that persons who subsequently
offered the company’s options for sale
during the period when no disclosure had
been made are likely to have done so in
good faith and in reliance on the company’s
representations to the effect that offers for
sale did not require disclosure under section
707(3) of the Act due to an exemption under
section 708A 25 . Further, it was difficult to
identify the persons to whom the options
were transferred during the relevant period,
and they were unlikely to have known that
they were acquiring options in relation to
which disclosure had not been given: that is,
having regard to all of the company’s options
on issue, it would be difficult to “unscramble
the egg”.
It is notable finally that in both the Golden
Gate and Silver Lake decisions, the companies
did not request ultimately that the Court grant
relief from potential liability to the company
and its servants, and it’s likely that ASIC would
have opposed such relief. The rights of any
person who may have been affected by the
error were preserved for a limited period
following the making of the Court’s orders.
The exercise of the Court’s discretion
The Court has acknowledged that a refusal
to grant relief on such applications would
inevitably cause additional and wasted
costs. But Courts express concern with
any appearance of recklessness and have
warned that non-compliance based on a
risk assessment that a company could avoid
its obligations would be a factor weighing
heavily in the balance against an extension 26 .
Ancillary orders have sometimes been made
that the costs of the Court applications not be
paid out of Company funds, reflecting that the
error rests with officers of the company 27 .
The Court will also be careful to take into
account the interests of parties that may
be affected, including whether orders are
opposed by ASIC or ASX, and will generally
give persons liberty to apply to vary or revoke
orders made pursuant to section 1322. It is
important for any applicant to anticipate
the parties that may have an interest in the
application under section 1322 and obtain
their support for the orders sought on an
informed basis. In Re Phylogica Ltd 28 , Justice
Nicholson validated a share issue pursuant
to section 254E of the Act and ordered that
the applicant company, directors and officers
be relieved from civil liability arising from
a contravention of the Act arising from an
unwitting variation of shareholders rights 29 .
Such orders were considered to be in the
commercial interests of the company who had
entered into a valuable agreement with a third
party on the basis that the shares were valid 30 .
An acknowledgement was sought from each
of the shareholders in the class affected.
His Honour made the orders conditional on
receipt of an acknowledgement and approval
to the orders by two major shareholders that
might otherwise have been affected by the
orders in the application 31 .
In Weinstock Gageler J summarised the
interpretation of the words “by reason of any
contravention” in section 1322(4)(a) as follows:
“If something is done which has not been
properly authorised because, for example,
appropriate resolutions have not been passed or
because there is in office no validly elected board
of directors, the doing of it without authority may
be regarded as a contravention. 32 ”
The High Court’s broad approach to the text
and purpose of the section reflects a concern
for substance over form, and is potentially
very helpful for those involved in matters of
corporate governance.
Footnotes
1 [2013] HCA 14; (2013) 297 ALR 1; (2013) 251 CLR 396;.
2 Beck v L W Furniture Consolidated (Aust) Pty Limited [2011]
NSWSC 235 at [153].
3 Ibid at [154], where Barrett J cited the decision of Gillard J in
Jordan v Avram (1997) 23 ACSR 153.
4 Beck v LW Furniture Consolidated (Aust) Pty Ltd (2012) 87
ACSR 672 at [223], [236].
5 Ibid at [224].
6 Ibid at [129].
7 Ibid at [131].
8 (2013) 251 CLR 396at [39].
9 (2013) 251 CLR 396at [56].
10 (2013) 251 CLR 396at [42].
11 (2013) 251 CLR 396at [52].
12 (2013) 251 CLR 396at [42].
13 (2013) 251 CLR 396at [40].
14 [2004] FCA 1798, (2004) 52 ACSR 362.
15 ASIC considers that it does not have power under s741 of the
Act to exempt a person from a provision of Chapter 6D of
the Act retrospectively.
16 In the Matter of Alara Uranium Limited [2007] FCA 724
17 Re Ashburton Minerals Ltd [2005] FCA 512, 53 ACSR 694.
18 Re Insurance Australia Group Ltd (2003) 45 ACSR 702.
19 Re Golden Gate Petroleum Ltd (2004) 50 ACSR 659, 22 ACLC
1292.
20 (2010) 77 ACSR 17 (cited with approval by French CJ in
Weinstock at [10], footnote 15).
21 (2012) 87 ACSR 436.
22 (2010) 77 ACSR 17 at [69].
23 Ibid.
24 See also Re Elemental Minerals Ltd (2010) 79 ACSR 277.
25 (2010) 77 ACSR 17 at [51].
26 French J (as he then was) in Alara.
27 Re Wave Capital Ltd [2003] FCA 969, (2003) 47 ACSR 418, per
French J at 427.
28 [2004] FCA 1769, [2004] 52 ACSR 159.
29 Sections 246F(3)(a) and 246B(1) and (3) at [23].
30 Re Phylogica Ltd at [19] and [20].
31 Re Phylogica Ltd at [22] and [23].
32 (2013) 251 CLR 396at [66] per Gageler J, citing Campbell
JA’s dissenting judgment in the Court of Appeal ((2012) 265
FLR 60 at 91 [137]), particularly his Honour’s reference to the
judgment of Lehane JA in Nece Pty Ltd v Ritek Incorporation
(1997) 24 ACSR 38 at 46.
40 VOLUME 26, ISSUE 1 – AUTUMN 2016