FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v Astra Resources Ltd (No 2) [2016] FCA 560

ORDERS

THE COURT DECLARES THAT

1.    The Third Defendant, Dr Jaydeep Biswas, while a director of Astra Resources PLC, failed to take reasonable steps to prevent each of the contraventions of s 727(1) the subject of the Declarations 1-7 made by the Court on 14 September 2015.

2.    The Fourth Defendant, Ms Silvana De Cianni, while a director of Astra Resources PLC, failed to take reasonable steps to prevent each of the contraventions of s 727(1) the subject of the Declarations 1-7 made by the Court on 14 September 2015.

3.    The Fifth Defendant, Mr Barrie Meerkin, while a director of Astra Resources PLC, failed to take reasonable steps to prevent each of the contraventions of s 727(1) the subject of the Declarations 1-7 made by the Court on 14 September 2015.

4.    The Fifth Defendant, while a director of Astra Consolidated Nominees Pty Ltd, failed to take reasonable steps to prevent each of the contraventions of s 727(1) the subject of the Declaration 8 made by the Court on 14 September 2015.

THE COURT ORDERS THAT:

1.    The name of the First Defendant be changed to Astra Resources Ltd.

2.    Each of the Third and Fourth Defendants (Dr Jaydeep Biswas and Ms Silvana De Cianni) are disqualified, pursuant to s 206E of the Corporations Act, from managing a corporation for a period of 12 years from the date of this Order.

3.    The Fifth Defendant (Mr Barrie Meerkin) is disqualified pursuant to s 206E of the Act from managing a corporation for a period of nine years from the date of this Order.

4.    Each of the First and Second Defendants (Astra Resources and Astra Nominees) is, within 14 days of the date of this order, to send a copy of a letter in the form of Annexure A and Annexure B to these orders respectively (to be sent separate to any other communication) to each of the persons named in the first column of the Schedule to the Order made in this proceeding on 14 September 2015, the letters to be sent:

(a)    by email to the email addresses listed in Trial Exhibit A82; or

(b)    if no email address is provided in Trial Exhibit A82 (or if any email sent does not appear to have been validly received), then to any mailing address listed in Trial Exhibit A9, or if not listed in that exhibit, then as listed in Trial Exhibit A82.

5.    ASIC’s application for an order pursuant to s 1324B of the Act that Astra Resources and Astra Nominees together cause advertisements to be published in newspapers is dismissed.

6.    ASIC’s application pursuant to s 1101B of the Act that each of the share purchase transactions by the 281 investors is voidable at the discretion of the purchaser, together with consequential orders, is dismissed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ANNEXURE A

[Joint liquidators’ letterhead. All type to be 11pt Garamond in accordance with the liquidators’ in-house style]

[Name]

[Address]

Dear [Name]

Astra Resources Ltd – in liquidation (UK Company No 7620218)

Trading address: 46 Tynte Street, North Adelaide SA 5006 Australia

On [date(s) of sale(s)] you were sold shares in Astra Resources Ltd, formerly Astra Resources PLC (Astra Resources), by Astra Consolidated Nominees Pty Ltd.

On [date] the Federal Court of Australia ordered Astra Resources to write to you in the terms of this letter.

Distribution of application forms for offers of Astra Resources shares broke the law

The Federal Court has ruled that, on certain occasions when Astra Resources distributed application forms for offers of shares in Astra Resources, it broke the law, because a prospectus had not been lodged with the Australia Securities and Investments Commission (ASIC).

In some circumstances, Australian laws require that, when offers to sell shares are made, a prospectus or similar document needs to come with the offers. Sometimes this requirement does not apply, for example when the sales are to “sophisticated investors” who (it appears from an accountant’s certificate) have net assets of at least $2,500,000 or gross income for each of the last two financial years of at least $250,000.

When a prospectus must come with share offers then (subject to some limitations) the law requires it to contain all the information which investors would reasonably require to make an informed assessment of:

•    the rights and liabilities attaching to the shares that are being offered; and

•    the assets and liabilities, financial position and performance, profits and losses and prospects of the company that issued the shares.

The Federal Court has confirmed in an order it made on 14 September 2015 that Astra Resources distributed application forms for offers of shares, without a prospectus being lodged in circumstances where the prospectus requirement did apply. That means Astra Resources broke the law when those application forms were distributed.

The sale of shares in Astra Resources to you [(each of) date(s) of sale(s)] followed the distribution of an application form in circumstances where the Court has ruled that Astra Resources broke the law.

You may have rights to claim money

You may have a right to make a legal claim against Astra Resources for damages, or for a refund of the money you paid. That raises legal issues, and you should get legal advice on them.

At present, Astra Resources has been placed into liquidation in its place of incorporation, England and Wales, and any rights you have against it may be affected by this circumstance. This letter is sent on behalf of Nicholas Wood and Michael Leeds, the liquidators appointed to Astra Resources in England and Wales.

Please contact our office on Astra.Resources@uk.gt.com or +44(0) 20 7865 2215 if you have any questions about this letter. However, please note that we cannot provide you with independent advice – accordingly, you may wish to speak to your lawyer or other professional adviser.

Yours sincerely

for and on behalf of Astra Resources Ltd

[Signature of liquidators or their representative]

ANNEXURE B

[Second defendant’s letterhead, showing second defendant’s full name and the address of its principal place of business in Australia. All type to be 10pt Arial]

[Name]

[Address]

Dear [Name]

Your shares in Astra Resources Ltd

On [date(s) of sale(s)] you were sold shares in Astra Resources Ltd formerly Astra Resources PLC (Astra Resources), by Astra Consolidated Nominees Pty Ltd.

Some offers for sale of Astra Resources shares broke the law

The Federal Court of Australia has ruled that, on certain occasions when we offered to sell shares in Astra Resources, we broke the law, because a prospectus had not been lodged with the Australia Securities and Investments Commission (ASIC).

In some circumstances, Australian laws require that, when offers to sell shares are made, a prospectus or similar document needs to come with the offers. Sometimes this requirement does not apply, for example when the sales are to “sophisticated investors” who (it appears from an accountant’s certificate) have net assets of at least $2,500,000 or gross income for each of the last two financial years of at least $250,000.

When a prospectus must come with share offers then (subject to some limitations) the law requires it to contain all the information which investors would reasonably require to make an informed assessment of:

•    the rights and liabilities attaching to the shares that are being offered; and

•    the assets and liabilities, financial position and performance, profits and losses and prospects of the company that issued the shares.

The Court has confirmed that we offered the shares for sale, without a prospectus being lodged in circumstances in which the prospectus requirement did apply. That means we broke the law when those application forms were distributed.

You may have rights to claim money

The Court has confirmed those breaches of the law in an order that it made on 20 May 2016. At the same time, the Court ordered us to write to you in the terms of this letter. You may have a right to make a legal claim against us for damages, or for a refund of the money you paid us. That raises legal issues, and you should get legal advice on them.

If you have any questions about this letter, please direct them to your lawyer or other professional adviser, rather than to us or ASIC.

Yours sincerely

[Signature of proper officer]

on behalf of [Name of second defendant]

REASONS FOR JUDGMENT

WHITE J:

Introduction

1    On 24 July 2015, the Court published findings that the first defendant (Astra Resources) and the second defendant (Astra Nominees) had contravened s 727(1) of the Corporations Act 2001 (Cth) (the Act) by, respectively, distributing application forms for an offer of shares and making offers of shares without having lodged a disclosure document with ASIC: Australian Securities and Investments Commission v Astra Resources PLC [2015] FCA 759.

2    On 14 September 2015, the Court made declarations giving effect to those findings. They were declarations that Astra Resources had contravened s 727(1) on six separate occasions in 2011 and 2012 by distributing an application form for offers of shares in itself to agents it had appointed to procure applications for shares and, in addition, on various dates in 2011 and 2012, to some 281 investors, whether directly or through a broker, when each offer needed disclosure and no prospectus or other disclosure document had been lodged with ASIC. By 14 September, Astra Resources PLC had changed its name to Astra Resources Ltd, and the Court’s declarations reflected that change.

3    In relation to Astra Nominees, the Court made a declaration that it had contravened s 727(1) in 2011 and 2012 by making an offer of shares in Astra Resources to each of the 281 investors, when each such offer needed disclosure to the investors and no prospectus or other disclosure document had been lodged with ASIC.

4    The Court listed ASIC’s remaining claims for hearing, being its applications for:

(a)    orders, pursuant to s 1324B of the Act, that Astra Resources and Astra Nominees:

(i)    each write to every purchaser of shares informing them of the Court’s declarations and that these may give rise to the investors having legal entitlements with respect to the purchase of their shares;

(ii)    together cause to be published in newspapers advertisements with a similar content.

(b)    orders, pursuant to s 1101B of the Act, that each of the share purchase transactions by the 281 investors is voidable at the discretion of the purchaser, together with associated orders providing for notification and refunds;

(c)    declarations, pursuant to s 206E of the Act, that the third defendant (Dr Biswas), the fourth defendant (Ms De Cianni) and the fifth defendant (Mr Meerkin) (together, the Directors) failed to take reasonable steps to prevent the contraventions of s 727(1);

(d)    orders, pursuant to s 206E of the Act, that each of the Directors be disqualified from managing corporations.

The contraventions summarised

5    These reasons with respect to ASIC’s remaining claims should be read in conjunction with the principal reasons. It is, however, convenient to summarise briefly the circumstances giving rise to the contraventions.

6    Astra Mining Ltd, a publicly listed company, was incorporated in Australia on 4 September 2009. Although ASIC’s records show that Dr Biswas was appointed as a director of Astra Mining on 14 November 2012, there is evidence of him acting as one of its directors before that date. Ms De Cianni was a director of Astra Mining from 28 January 2010 until 15 June 2015. Mr Meerkin was a director from 4 September 2009 until 19 March 2010. Two children of Ms De Cianni (Daniel and Adele) were directors from 18 June 2010 to 17 May 2013 and from 20 August 2010 until 16 January 2012 respectively. Troy Dann was a director from 31 March 2010 until 20 August 2010. The current sole director is Mark DeJesus.

7    In 2011, Astra Mining contemplated listing on an overseas stock exchange and settled, ultimately, on a secondary board of the Frankfurt Stock Exchange. Astra Resources PLC was incorporated in the United Kingdom on 3 May 2011 to be the listing vehicle. Two advisory firms, Stepping Stone Equity (Mr Richards) and Gebo Equity Management Pty Ltd (Mr Walker) facilitated the listing. Both Dr Biswas and Ms De Cianni were directors of Astra Resources from 13 June 2011 until 21 May 2014. Mr Meerkin was a director of Astra Resources from 3 May 2011 until 16 April 2013.

8    On 8 September 2011, effect was given to resolutions passed at an extraordinary general meeting of Astra Mining held in Adelaide on 15 June 2011 by the issue to shareholders in Astra Mining of an equivalent number of shares in Astra Resources; the cancellation of all the existing shares in Astra Mining; and the issue of 120 new shares in Astra Mining to Astra Resources. Astra Mining thereby became a wholly owned subsidiary of Astra Resources. By some unidentified means, the assets of Astra Mining were, apparently, transferred to Astra Resources at or about the same time. These events are described in [26]-[33] of the principal judgment.

9    The listing of Astra Resources on the secondary board of the Frankfurt Stock Exchange occurred on 28 September 2011 but trading in its shares was subject to a 12 month escrow period expiring on 28 September 2012. This escrow period had been agreed upon by the members of Astra Mining at the EGM on 15 June 2011 and had, apparently, also been agreed by the members of Astra Resources. A stratagem was devised by which fundraising for the activities of Astra Resources by the sale of its shares could occur in the interim. This involved the incorporation of Astra Nominees in Australia on 25 August 2011; the entry by Astra Mining, and later Astra Resources, into a series of share subscription agreements (SSAs) with Astra Nominees pursuant to which large numbers of shares in Astra Mining and later Astra Resources were issued to Astra Nominees on the basis that Astra Nominees would hold them on trust; the appointment of brokers to sell to retail investors the shares in Astra Resources held by Astra Nominees; the distribution of forms for the offers to purchase shares; the sale of shares to retail investors; and the payment of the proceeds to Astra Resources. Mr Meerkin was one of the directors of Astra Nominees at relevant times.

10    No prospectus in relation to the sale of the shares in Astra Mining and Astra Resources held by Astra Nominees was lodged with ASIC.

11    By the declarations made on 14 September 2015, Astra Resources was declared to have contravened s 727(1) of the Act by distributing applications for offers of shares in itself to brokers on 5 October 2011, 2 November 2011 (two brokers), 7 May 2012 (two brokers) and 12 June 2012. In addition, Astra Resources was declared to have contravened s 727(1) by distributing application forms for offers of shares in itself to 281 individual investors. In 20 of those 281 cases, Astra Resources distributed the application forms directly to the investors and in the remaining cases, the distribution was through brokers. The earliest distribution of an application form to the 281 investors occurred on or shortly before 13 September 2011, and the last on or shortly before 30 August 2012.

12    Astra Nominees was declared to have contravened s 727(1) of the Act by making an offer for the sale of shares in Astra Resources to each of the 281 investors. Again, the earliest distribution of an application form was on or before 13 September 2011 and the latest on or before 30 August 2012.

Application for a stay

13    After making the declarations on 14 September 2015, the Court listed the remaining aspects of ASIC’s application for hearing on 28 October 2015 and made a number of programming orders in relation to that hearing.

14    On 27 October 2015, Astra Resources, Dr Biswas and Ms De Cianni (the Astra Resources defendants) filed a Notice of Appeal against the declarations made on 14 September 2015 (Action SAD 370/2015). Earlier, on 8 October 2015, the Astra Resources defendants had filed an interlocutory application seeking an extension of time in which to commence an appeal. In addition, on 15 October 2015, the Astra Resources defendants had filed an interlocutory application in the appeal action SAD 370/2015 seeking orders that the programming orders made on 14 September 2015 “be vacated” and that the present proceeding be “stayed” until the hearing and determination of their appeal (collectively, the stay application).

15    Both the applications in the appeal proceedings were heard by Besanko J on Friday, 23 October 2015. His Honour made an order extending the time for the filing and service of a notice of appeal to Tuesday, 27 October 2015. Besanko J referred the application for the stay of the present proceedings to me for hearing at the commencement of the hearing on Wednesday, 28 October 2015.

16    By reason of the sudden ill health of senior counsel then retained by the Astra Resources defendants, the hearing on 28 October 2015 could not proceed. The matter was adjourned to 10 am on 29 October 2015. The application for the stay was heard at that time, with the Astra Resources defendants represented by their junior counsel.

17    I refused the application for the stay and said that I would provide more detailed reasons as part of these reasons. Before doing so I record some more history.

18    At the outset of the hearing on Monday, 14 September 2015, Dr Biswas and Ms De Cianni, who were then represented by different counsel, made an oral application that Court should defer the making of the declarations so as to give them an opportunity to obtain legal advice and so that they could pursue an appeal against the findings published on 24 July. The Astra Resources defendants had earlier signified an intention to appeal because they had, on 17 August 2015, filed an application seeking an extension of time and leave to appeal against the 24 July judgment.

19    On 14 September 2015, I refused to defer the making of the declarations, taking the view that Dr Biswas and Ms De Cianni had had more than an adequate opportunity to obtain legal advice and that, until the Court made orders giving effect to its findings, their proposed appeal would, if it was not incompetent, at least lack utility. I was conscious, amongst other things, that the Court itself had encouraged Dr Biswas and Ms De Cianni to obtain proper legal advice when it reserved judgment in the first part of the trial (on 5 December 2014) and again on 24 July 2015 when it published its findings. Despite that encouragement, the Astra Resources defendants were still unrepresented at the time of judgment delivery and Dr Biswas and Ms Di Cianni had only belatedly obtained legal representation for the hearing on 14 September 2015.

20    After the formal declarations were pronounced on 14 September, counsel for Dr Biswas and Ms De Cianni then made another oral application for the deferral of the resumption of the trial. I refused that application. Again, I considered that Dr Biswas and Ms De Cianni had already had more than an adequate opportunity to obtain legal advice and that it was in the public interest for the proceedings to be brought to a conclusion so that, amongst other things, all appeals could be heard and determined at the one time.

21    The Astra Resources defendants were not daunted by the lack of success on 14 September 2015 in obtaining a deferral of the hearing. On 14 October 2015, Mr Raj of Arrow Law filed in this action an interlocutory application on their behalf seeking the vacation of the programming orders made on 14 September, the vacation of the hearing to commence on 28 October, and the deferral of any further hearings until their appeal had been finally determined. However, on the following day, the Astra Resources defendants discontinued that application. My Associate then confirmed that the hearing would proceed on 28 October 2015.

22    It seems that the Astra Resources defendants discontinued the interlocutory application filed on 14 October so as to pursue an identical application in the appeal proceedings, SAD 370/2015. Hence the application filed on 15 October in those proceedings.

23    Thus, the application for a stay filed in the appeal proceedings was the fourth application of its kind made by Dr Biswas and Ms De Cianni and the second by Astra Resources.

24    The Court has a broad discretion to grant a stay or adjournment in circumstances like the present but an applicant must demonstrate that it is appropriate for such an order to be made. In exercising the discretion, the Court will have regard to the competing rights of the parties, the public interest, the balance of convenience and whether either party will be prejudiced by the stay/adjournment. See generally Marconi’s Wireless Telegraph Co Ltd v Commonwealth (No 3) [1913] HCA 23, (1913) 16 CLR 384 at 386; Powerflex Services Pty Ltd v Data Access Corporation (1996) 67 FCR 65 at 66; and Philip Morris (Australia) Ltd v Nixon [1999] FCA 1281 at [17].

25    I indicated to counsel that, having regard to the possible embarrassment for him arising from the circumstance that the application for the stay pending the appeal was being made to the trial Judge, I would not require him to develop a submission to the effect that the grounds of appeal are reasonably arguable. Instead, I indicated that I was prepared, for pragmatic reasons, to proceed on the assumed basis that at least some of the grounds of appeal may be reasonably arguable without expressing any view, one way or another, on that question.

26    Counsel then submitted that four matters indicated that the balance of convenience lay in favour of the grant of the stay. First, he submitted that the Court should proceed on the basis that neither ASIC nor any of the purchasers of shares in Astra Resources would be prejudiced by the stay. Counsel referred in this respect to the circumstance that ASIC had not commenced the proceedings until some two years after the contraventions had occurred, and submitted that there was no indication of ongoing contraventions.

27    Secondly, counsel referred to undertakings proffered by each of the Astra Resources defendants. In the case of Astra Resources, this was an undertaking that it would:

Continue to conduct its business in the ordinary course of business, unless it first obtains:

(a)    [ASIC’s] written agreement to do otherwise; or

(b)    an order of this honourable Court to do otherwise.

In the light of the evidence to which I will refer later, this was a hollow undertaking as there was evidence that Astra Resources was not conducting any business at all as at 29 October 2015 and, in any event, an order for its winding up was made on 2 November 2015.

28    In the case of Dr Biswas and Ms De Cianni, the undertaking was:

Not to be appointed as a director of any company of which I am not presently a director, save for:

(a)    Incept Holdings Limited (CN 2244964) (unlisted public company registered in Hong Kong) (IHL);

(b)    Lightstone Technologies Limited (BC-1018764) (LTL); or

(c)    the HK X Listing Company;

without first obtaining:

(d)    [ASIC’s] written agreement to do so; or

(e)    an order of this honourable Court permitting me to do.

29    Each of the undertakings was offered on a condition, namely, the grant of the stay and related to the period until the determination of the appeal.

30    Thirdly, counsel submitted that a failure to stay the further hearing would result in the prejudice to the 281 purchasers of shares in Astra Resources whose purchases were the subject of the declarations made on 14 September 2015, as well as prejudice to other investors. This prejudice was said to arise from a combination of circumstances to which Dr Biswas deposed. They were in substance the same matters on which Dr Biswas and Ms De Cianni relied in opposing the disqualification, voiding and publication orders in the substantive hearing. It is not necessary to outline them presently, as I will address them later in these reasons.

31    Finally, counsel submitted on behalf of Astra Resources, Dr Biswas and Ms De Cianni that it was not necessary for the Court to proceed in an inflexible way with the two stage hearing originally contemplated. He submitted that the Court should, in the changed circumstances, adopt the more flexible approach of waiting for the outcome of the appeal against the declarations.

32    I considered that, despite these submissions, the Court should proceed with the balance of the hearing.

33    First, the efficient determination and conclusion of the proceedings has already been delayed by the Astra Resources defendants.

34    Secondly, unless good reason is shown, it is appropriate for the Court to hear and determine all issues in the one proceeding as soon as practicable. Prolonged fragmentation in a trial is not desirable.

35    Thirdly, I accepted that the Astra Resources defendants may well be correct in the submission that the 281 investors will not suffer further prejudice if the second stage of the hearing is deferred. This is because their investments in Astra Resources appear now to be valueless, whether it be because Astra Resources has (at least on some evidence) transferred all its assets to Incept Holdings Limited, a company incorporated in Hong Kong (IHL (HK)) or because of its substantial accumulated losses. Dr Biswas provided a balance sheet for Astra Resources which showed that its total current assets as at 30 September 2015 were only €2,552.68 and its net equity a deficiency of €1,156,728.80. I also observe that a “Preliminary Prospectus” prepared in June 2014 in connection with a then proposed listing of Astra Resources on the Canadian Stock Exchange showed that Astra Resources had suffered net losses as at 30 June 2012 and 30 June 2013 of €7,797,143 and €3,953,104 respectively. These losses seem to have been financed substantially by the shares purchased by investors.

36    Many of the advantages said to be obtained from a stay/adjournment were based on proposed listings of other companies on the Canadian, Frankfurt and Hong Kong Stock Exchanges being able to proceed with resultant benefits for the shareholders in Astra Resources and others. On my assessment, the prospect of these listings occurring and the prospect that, if they did, there would be any benefit to the shareholders of Astra Resources or others involved a considerable degree of speculation. The evidence did not provide any assurance to the Court that the prospects to which the Astra Resources defendants referred were more than mere hopes.

37    Finally, I considered that, in the event that the hearing proceeded and disqualification and publicity orders were made, it would be open to the Astra Resources defendants to make an application for a stay of the operation of those orders pending the hearing and determination of their appeal. Further, and in any event, any appeal by the unsuccessful party on the remaining issues could be heard and determined at the same time as the present appeal against the declarations.

38    These were my reasons for concluding that it was appropriate for the hearing to proceed.

39    However, by reason of the continuing illness of senior counsel retained by the Astra Resources defendants, I adjourned the matter to 30 November 2015, after hearing ASIC’s opening submissions in the second stage of the trial. The Astra Resources defendants were then represented by new senior counsel but the same junior counsel.

40    At the resumed hearing, ASIC led further evidence from its investigator, Mr McCabe, and tendered some documentary evidence. Dr Biswas gave evidence again and his (and Ms De Cianni’s) counsel tendered some documentary evidence. An affidavit from Ms De Cianni was tendered without her being required to attend for cross-examination. Her counsel explained that she did not attend the hearing because of illness.

41    Mr Meerkin did not give evidence but did tender without objection some character statements.

Further matters of history

42    It is appropriate to make findings concerning further events concerning, or relating to, Astra Resources.

43    Between September 2011 and May 2012, Astra Resources was listed on the first Quotation Board of the Frankfurt Stock Exchange. The rules relating to that listing did not require the issue of a prospectus to any prospective investor. In May 2012, Astra Resources was initially suspended and later delisted from the First Quotation Board but this may have been related, at least in part, to the closure of that Board later that year. Astra Resources then obtained a listing on the London GXG Market Exchange in December 2012 but it was delisted in June 2014 in consequence of a decision of its disciplinary committee following repeated breaches by Astra Resources of reporting requirements.

44    Earlier, in May 2013, Astra Resources had announced an intention to list on the Singapore Stock Exchange by means of a reverse takeover of a Singaporean company. That listing did not proceed.

45    In May 2014, Astra Resources announced an intention to apply for a listing in Ontario, Canada. That listing did not proceed. A letter dated 4 July 2014 from the Ontario Securities Commission indicates that the Commission had concerns that the auditor’s opinions in the preliminary prospectus provided were qualified, concerns that Astra Resources had insufficient cash resources and cashflows to be viable, and concerns about the involvement of Dr Biswas, Ms De Cianni and Mr Meerkin in the light of the proceedings in this Court which at that time had just been commenced.

46    On 22 May 2015, a company named Incept Holdings Limited was incorporated as a private company in the United Kingdom. This was a different company from that bearing the same name incorporated in Hong Kong, to which reference has already been made. In order to distinguish the two entities, I will refer to the Incept Holdings Limited incorporated in the United Kingdom as IHL (UK) and to that incorporated in Hong Kong as IHL (HK).

47    It is evident that it was a person or persons associated with Astra Resources who caused the establishment of IHL (UK). The sole shareholder and sole director of IHL (UK) on its incorporation was Ms Adele Bekirovski. Ms Bekirovski is the same person as Adele De Cianni who, as I recorded in [144] of the principal judgment, is Ms De Cianni’s daughter.

48    On 2 July 2015, an announcement headed “Company Name Change” was posted on the website of Astra Resources. It informed readers that:

During the last two years the Company has evolved from a resources company to primarily a technology company taking advantage of the emergence of the clean energy and carbon credit markets and greater efficiency and quality improvements in the production of finished products from traditional commodity minerals.

The Incept Resources PLC name is now outdated and does not represent the activities of the company. On the basis of members’ authority given to the directors in Sept 2013, the company is now in the process of a name change to Incept Holdings PLC … The company name Incept Holdings Limited has been held to allow the name change to take place.

It seems that the reference in this announcement to “Incept Resources PLC” must have been intended to be a reference to Astra Resources. As can be seen, the announcement foreshadowed a change of name by Astra Resources to Incept Holdings Limited.

49    It seems that very shortly afterwards, there was a change of plan as a letter to shareholders posted on the Astra Resources PLC website on 13 July 2015 included the following:

Since 2013 the Board has been considering a change in jurisdiction covering either Asia, Europe or North America to facilitate a listing. Efforts for this have been documented during that period. …

Upon the recommendation of independent accounting, legal and audit advice and according to appropriate custody arrangements, the Directors incorporated a new holding company in Hong Kong on the 1st June 2015 named Incept Holdings Limited (hereinafter referred to as “INCEPT”).

Independent legal and governance advice prior to incorporation of INCEPT confirmed that the Shareholders had provided the Directors with the necessary authority as part of previous Shareholder meetings and the UK was not appropriate jurisdiction for the holding company.

The Company Secretary will record on the Share Registrar (sic) the issuance of new share certificates in Incept Holdings Limited (Hong Kong) to all current shareholders on a pari passu basis. …

This letter announced the incorporation of IHL (HK). I will refer shortly to the authority from shareholders to which reference was made in the letter.

50    I observe that the letter made no refer to the decision of the High Court of Justice in the United Kingdom delivered only three weeks earlier, dismissing the application by Astra Resources for an injunction to restrain the lodgement of a petition for its winding up. I will return to this shortly.

51    Events were occurring in Hong Kong almost contemporaneously. On 1 June 2015, a company then known as “Welly Luck Limited” was incorporated in Hong Kong with an issued share capital of HKD$1. The sole director of Welly Luck Limited on its incorporation was Marlene Liliana Loprete. In her examination conducted pursuant to s 19 of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act), Ms De Cianni said that Ms Loprete is her twin sister. In his s 19 examination, Dr Biswas said that Ms Loprete works “part-time in our office”. ASIC’s records show that Ms Loprete was a director of Astra Nominees between 23 April 2013 and 15 June 2015. I also observe that in the documents lodged with the Hong Kong Companies Registry, Ms Loprete gave as her residential address, 5 Mitchell Close, Fitzroy, 5082, Australia. This is the same address recorded for Ms De Cianni in documents lodged with ASIC relating to Incept Group Ltd, to which I will refer shortly. All these matters indicate the close connection between Ms Loprete, Ms De Cianni and Dr Biswas.

52    On 14 July 2015, Welly Luck Limited changed its name to Incept Holdings Ltd. As indicated, I will refer to this company as IHL (HK). On 23 July 2015, IHL (HK), by Ms Loprete, lodged a notice with the Hong Kong Companies Registry indicating that it had changed its status from a private company to a public company.

53    The effect of these events was that by mid-July 2015, there were two companies named Incept Holdings Ltd, one incorporated in the United Kingdom and one in Hong Kong. In addition, Astra Resources had announced an intention to change its name to Incept Holdings Ltd. There is, however, no evidence that Astra Resources gave effect to that intention and I infer that it did not do so.

54    On 27 August 2015, Ms Loprete lodged with the Hong Kong Companies Registry notice of her resignation as a director of IHL (HK), with that resignation shown as having occurred on 20 July 2015. As can be seen, that was three days before Ms Loprete had lodged the notice concerning IHL (HK)’s change of status from a private company to a public company. One Andrea Alonso Ludovice of Portugal replaced Ms Loprete as the sole director of IHL (HK).

55    I have already referred to Astra Mining Limited. Following the “share swap” with Astra Resources in 2011, Astra Mining Limited ceased to be a publicly listed company. Since the share swap Astra Mining has undergone a number of name changes. On 1 December 2011, it became Astra Mining Pty Ltd; on 30 June 2015, it changed its name to “Incept Holdings Aust Pty Ltd”; on the very next day, it changed its name to “Incept Group Pty Ltd”; and subsequently, on 1 October 2015, it changed its name back to Astra Mining Pty Ltd. The evidence did not disclose the reasons for these frequent name changes. It is obvious that there were some irregularities involved as the documents lodged with ASIC recording the changes of name indicate that those made on 30 June and 1 July 2015 were both resolved upon at a meeting on 25 June 2015 (apparently the same meeting), and the notice lodged on 1 October 2015 relating to the change of name on that date states that the relevant resolution was passed at an even earlier meeting, on 1 June 2015.

56    Dr Biswas was a director of Astra Mining between 14 November 2012 and 16 September 2013 and Ms De Cianni a director between 28 January 2010 and 15 June 2015.

57    As at 10 September 2015, Astra Mining had 120 issued shares. These are shown in the documents lodged with ASIC as owned by IHL (HK) and as having previously been owned by Astra Resources itself. The means by which the shares were transferred from Astra Resources to IHL (HK) was not disclosed in the evidence. Somewhat curiously, a document lodged with ASIC on 1 October 2015 indicated that there had, in effect, been a transfer of shares from IHL (HK) to Astra Resources and, further, that that transfer had occurred on 1 June 2015. This document cannot be accurate as Welly Luck Limited did not change its name to Incept Holdings Ltd until 14 July 2015, and IHL (HK) did not, in any event, hold 120 shares in Astra Mining as at 1 June 2015.

58    The announcement posted on the website of Astra Resources on 2 July 2015 to which I referred earlier, also informed readers that Astra Resources was establishing an advisory board:

The company has agreed to appoint an Advisory Board primarily to monitor and guide the senior management of the company.

The initial terms of reference [are] to advise on:

•    Organisational and corporate structure changes required to list

•    Corporate governance

•    Evaluate and conduct due diligence on the different listing pathways and make a final recommendation. The company now has the opportunity to list in Canada, Germany and this could be complemented with Australian and Asian exchanges.

59    The initial members of the advisory board were Mr Charles Abbott, Mr Ron Barnacle, Mr Jeremy Bayard, Mr Jan Sloane and Mr Adrian Quinn. ASIC adduced minutes of the meetings of the advisory board held on 2 June 2015, 1 July 2015 and 15 July 2015 as well as other documents relating to its conduct of business. Mr Abbott resigned his membership of the board at the meeting on 15 July. Dr Biswas attended the initial meeting on 2 June 2015 and was an apology at the meetings on 1 July and 15 July 2015. It is evident that he played a significant role in the meeting on 2 June 2015. A memorandum from Mr Sloane to advisory board members of 2 August 2015 recorded the advice of Dr Biswas that Astra Resources had transferred all its assets and liabilities to IHL (HK) on 1 June 2015.

60    Earlier, I noted the reference in the letter to Astra Resource’s shareholders posted on its website on 13 July 2015 to the “authority” given by shareholders in September 2013. It seems that Astra Resources relies in this respect on resolutions passed at an Extraordinary General Meeting (EGM) of its members held in Adelaide on 10 September 2013. The notice for the EGM indicated that the members would be asked to consider three resolutions:

1.    The Company will seek immediate listing in Europe, initially an upgrade onto an intermediate exchange and then onto a major European exchange and other international stock markets.

2.    The immediate intermediate listing can be either directly or investment with a non-UK resident company on a 1:1 basis.

3.    The Non-Executive Directors are authorised to make the necessary corporate structure changes, listing agreements, and Board composition to enable the intermediate and major stock exchange listings to proceed.

It was Ms De Cianni, in her capacity as Managing Director of Astra Resources who gave notice of the EGM.

61    It seems that each of these resolutions was passed at the EGM. However, I observe that the minutes of the meeting (signed by Ms De Cianni and Dr Biswas) lodged with UK Companies House (not until 28 July 2015) record that the shareholders had passed a single resolution, being in part a composite of the proposed second and third resolutions together with an additional element, namely, “by virtue of discussion this included conversion of the Astra Resources PLC to a Limited (Ltd) company”. It is doubtful that this extra element did form part of the resolutions passed at the meeting, but nothing turns on that for present purposes.

62    On their face, these resolutions do not seem to authorise the transactions involving IHL (HK) outlined earlier.

63    It is possible that Astra Resources intended, instead, to refer to the first of a series of resolutions carried at a general meeting of shareholders on 30 June 3014 in Adelaide which was as follows:

That the company can proceed with listing on the Canadian Stock Exchange and the Frankfurt Quotation Board.

64    Again, this resolution does not seem to authorise the transactions involving IHL (HK).

65    Astra Resources is now in liquidation. The events resulting in that circumstance commenced with the service of a statutory demand by Credit Veritas USA LLC on Astra Resources in December 2014. In early January 2015, Astra Resources sought an injunction in the High Court of Justice in the United Kingdom to restrain Credit Veritas presenting a winding up petition based on its statutory demand. By a decision delivered on 22 June 2015, the application for the injunction was dismissed: Astra Resources PLC v Credit Veritas USA LLC [2015] EWHC 1830. At the same time, Richards J declared that Credit Veritas was entitled to present a winding up petition based on unpaid retainer fees amounting to US$600,000.

66    Credit Veritas lodged a petition for the winding up of Astra Resources on 27 July 2015. The petition was initially listed for hearing on 28 September 2015 but that hearing was adjourned to 2 November 2015 when the winding up order was made. Subsequently, on 26 November 2015, the Official Receiver in the United Kingdom appointed Mr Nicholas Wood and Mr Michael Leeds of Grant Thornton LLP UK as joint liquidators.

67    The joint liquidators were not represented at the resumed hearing on 30 November 2015. That was understandable given they had been appointed only four days earlier. The liquidators sought an adjournment of the hearing. I declined to adjourn the hearing altogether and instead directed that the hearing that week proceed against all defendants other than Astra Resources. I adjourned the hearing of ASIC’s claims against Astra Resources to 21 December 2015. It seemed that in relation to the claims against Astra Resources account would have to be taken, amongst other things, of the operation of the Cross-Border Insolvency Act 2008 (Cth).

68    At the hearing on 21 December 2015, the liquidators did not appear on behalf of Astra Resources. Instead, they sought (and were granted) leave to intervene. ASIC pressed for orders to be made against Astra Resources. Counsel for the liquidators did not seek an adjournment of the proceedings but made a number of submissions concerning the proposed orders and their form.

69    At the conclusion of that hearing, I granted leave to the parties to provide supplementary submissions with respect to the period of the disqualification sought by ASIC, given that it was common ground that the effect of the decision in Commonwealth v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; (2015) 326 ALR 476 meant that submissions on that topic could now be made, together with further submissions regarding the form of the orders proposed by ASIC. The last of the final submissions of the parties was received by the Court on 22 January 2016.

The claim for disqualification orders

70    ASIC seeks disqualification orders against Dr Biswas, Ms De Cianni and Mr Meerkin pursuant to s 206E of the Act.

Section 206E

71    Section 206E provides (relevantly):

(1)    On application by ASIC, the Court may disqualify a person from managing corporations for the period that the Court considers appropriate if:

(a)    the person:

(i)    has at least twice been an officer of a body corporate that has contravened this Act or the Corporations (Aboriginal and Torres Strait Islander) Act 2006 while they were an officer of the body corporate and each time the person has failed to take reasonable steps to prevent the contravention; or

(ii)    has at least twice contravened this Act or the Corporations (Aboriginal and Torres Strait Islander) Act 2006 while they were an officer of a body corporate; or

(iii)    has been an officer of a body corporate and has done something that would have contravened subsection 180(1) or section 181 if the body corporate had been a corporation; and

(b)    the Court is satisfied that the disqualification is justified.

…

(2)    In determining whether the disqualification is justified, the Court may have regard to:

(a)    the person's conduct in relation to the management, business or property of any corporation; and

(b)    any other matters that the Court considers appropriate.

…

72    The manner in which s 206E(1)(a)(i) is expressed may suggest that it refers to persons who have held two or more appointments as an officer of a company or companies which have committed contraventions of the Act during the person’s appointment. However, s 206E(1)(a) has not been construed in this way. Instead, subs (1)(a)(i) has been held to be enlivened if the person has been an officer of a corporation which has twice contravened the Act and, on each occasion, the person failed to take reasonable steps to prevent the contravention. See ASIC v Pegasus Leveraged Options Group Pty Ltd [2002] NSWSC 310, (2002) 41 ACSR 561 at [102]; ASIC v Maxwell [2006] NSWSC 1052 at [124]; ASIC v Axis International Management Pty Ltd (No 6) [2011] FCA 811, (2001) 84 ACSR 703 at [6]-[7], [18]-[19]; and Re Vault Market Pty Ltd [2014] NSWSC 1641 at [67], [88]. Senior counsel for Dr Biswas and Ms De Cianni did not submit that this understanding of s 206E was wrong.

73    Accordingly, s 206E is to be understood as vesting a discretionary power in the Court to disqualify a person from managing corporations if the Court is satisfied (in a case of the present kind) that:

(a)    a corporation has on at least two occasions contravened the Act;

(b)    the contraventions occurred while the person was a director of the corporation;

(c)    on each occasion the person failed to take reasonable steps to prevent the contraventions; and

(d)    the disqualification is justified.

74    The purpose of provisions such as s 206E has been canvassed in the authorities on many occasions. In relation to the counterpart provision in the Companies Act 1961 (NSW), Bowen CJ in Eq said in Re Magna Alloys & Research Pty Ltd (1975) 1 ACLR 203 at 205:

The policy to which s 122 gives effect is that a person convicted of an offence of any of the types specified in that section is not to be permitted to act as a director or take part in the management of a company. The section is not punitive. It is designed to protect the public and to prevent the corporate structure from being used to the financial detriment of investors, shareholders, creditors and persons dealing with the company. In its operation it is calculated to act as a safeguard against the corporate structure being used by individuals in a manner which is contrary to proper commercial standards.

75    On my understanding, although the High Court held in Rich v ASIC [2004] HCA 42; (2004) 220 CLR 120 that a disqualification is a form of penalty, it did not diminish the notion that purpose of disqualification order is primarily protective: see, for example, [31].

76    The Court’s ability to have regard to circumstances other than those relating to the established contraventions conveyed by s 206E(2) is important in this case. There are many aspects of the conduct of the individual defendants which are pertinent.

The competing contentions regarding reasonable steps

77    ASIC’s claim in the present proceedings is that each of Dr Biswas and Ms De Cianni was a director of Astra Resources when it contravened s 727(1) of the Act on multiple occasions by distributing application forms for offers for the sale of shares in itself. It alleged that each of Dr Biswas and Ms De Cianni had failed to take reasonable steps to prevent the contraventions in that they:

(a)    failed to consider, or to consider adequately, whether the offers required disclosure under Part 6D.2;

(b)    failed to obtain independent legal advice about the disclosure requirements under Part 6D.2 of the Act;

(c)    failed to take any steps to prevent:

(i)    Astra Nominees from making the offers;

(ii)    Astra Resources from distributing the application forms for offers;

(iii)    the brokers from distributing application forms for offers on behalf of Astra Resources;

(iv)    the investors from accepting the offers.

(d)    did not take any steps to ensure that a disclosure document was lodged with ASIC.

78    ASIC made the same allegations with respect to Mr Meerkin, although in his case, it relied upon his directorships of both Astra Nominees and Astra Resources at the time of their respective contraventions.

79    On the findings in the principal judgment, each of Dr Biswas, Ms De Cianni and Mr Meerkin was a director of Astra Resources during the period in which its contraventions of s 727(1) occurred. Mr Meerkin was also a director of Astra Nominees during that same period.

80    By their defence filed on 19 August 2014, each of Dr Biswas and Ms De Cianni pleaded that they (as well as Astra Resources and Astra Nominees) had:

(a)    sought, and taken, advice from, and executed documents as prepared and directed by Mr Meerkin:

(i)    pertaining to corporate governance, capital raising and transaction document matters, obligations and requirements; and

(ii)    so as to ensure the compliance by Astra Resources, Astra Finance and Astra Mining, and themselves, with the requirements of the Corporations Act pertaining to those matters;

(b)    placed their trust and confidence in, and relied upon, Mr Meerkin;

(c)    understood as a result of the advice, instructions and directions given by Mr Meerkin and from Michael Sing Lawyers Pty Ltd that they had met, and were meeting, the requirements of the Corporations Act.

81    In his final submissions, counsel for Dr Biswas and Ms De Cianni submitted that disqualification orders were not appropriate in their cases because:

(a)    their contraventions of s 727(1) were not knowing or intentional;

(b)    they had taken reasonable steps to comply with the Act by causing Astra Resources to obtain professional advice, in particular, legal advice from Michael Sing Lawyers (MSL), an independent firm of solicitors, and they had relied on that advice;

(c)    their disqualification would likely result in substantial losses and, in particular, the loss of the opportunity for the shareholders in Astra Resources to achieve substantial profit from the proposed listings on foreign exchanges;

(d)    there was no evidence of fraud or dishonesty;

(e)    the objects of the Act could be met by the Court accepting their respective undertakings that they will not, for such period as the Court considers appropriate, be directors of, or involved in the management of, any Australian company other than proprietary limited companies of which the shareholders are only themselves and/or their respective family members or which are trustees of a trust in which the only beneficiaries are either themselves or their respective family members.

82    In effect, Dr Biswas and Ms De Cianni accepted that the Court’s findings in the principal judgment established the first two elements for a disqualification order under s 206E, but disputed the existence of the third and fourth elements, contending that it had been reasonable for them to rely on the advice of Mr Meerkin and of MSL more generally.

83    Mr Meerkin accepted that he had been a director of Astra Resources and Astra Nominees at the relevant times and that he failed to take reasonable steps to prevent the contraventions of s 727(1) by both entities.

84    Dr Biswas articulated his reliance on Mr Meerkin in the examination which ASIC conducted pursuant to s 19 of the ASIC Act on 9 January 2014:

Q:    So at the time, in September 2011 – around the time of the roll-up – as a director, how did you satisfy yourself that the fundraising provisions were being complied with?

…

A:    I think I did say it, but purely because the – firstly, we asked Michael Sing Lawyers. They reassured us. If I had any concerns, I asked them to give that advice in December 2011. … Secondly, that they were the sole directors of the shareholding company, Astra Consolidated Nominees, and they were using their trust account to put the application funds in … so I couldn’t do any more than that. I mean, if you asked them how many times I’ve spoken to them, “Did we comply with s 708?” right, and the answer was always “Yes”. So that’s why.

85    As will be seen, the advice which Mr Meerkin gave in December 2011 to which Dr Biswas referred in this answer did not include any advice as to the lawfulness of the conduct of Astra Nominees in offering the shares it held in Astra Resources for sale.

86    Dr Biswas asserted in cross-examination that he and Ms De Cianni had taken all reasonable steps to ensure compliance by Astra Nominees with ss 708 and 727 of the Act:

Q:    Is it your evidence that you took no steps in the period September 2011 to September 2012 to ensure that the shares sold by Astra Consolidated Nominees in Astra Resources [were] sold in compliance with ss 708 and 727?

A:    We took all steps, Mr Pearce. The directors refused (sic) their position that they had to comply. The directors and owners of that company refused (sic) their position. They changed the accounting certificates. It’s only because of our pushing they gave us the advice in December that they didn’t need to comply. … We queried at all times whether Astra Consolidated Nominees could be selling shares to retail investors. The law firm with their trust account changed the accountant’s format. They removed the requirement for sophisticated investors. We only found out later that they were the owners of that company, so they took title on the shares and decided to re-sell them into the markets with their trust account. Even then we persisted to get advice, and they provided that advice in December. But actually, they were providing advice to themselves because the parent company never sold any shares. …

Q:    Are you saying you had no control of Astra Consolidated Nominees?

A:    No control.

…

Q:    So you had no control over what Astra Consolidated Nominees did?

A:    We asked – we kept asking whether they complied with the Act. Most people would just say “Okay, if the lawyers doing it.” but we kept asking and asking and asking, Mr Pearce. What else am I supposed to do when a major law firm, with someone with a practising certificate in two jurisdictions takes ownership of a subsidiary without the knowledge of the parent company and uses – sells shares to their trust account, and then tells the auditor a year later that the parent company owns a subsidiary, which it did not, and in evidence there’s an email from Mr Meerkin to KPMG 7 July 2012, prior to KPMG taking up the audit saying “We did not have to comply with sophisticated investors”. There’s an email from Mr Meerkin to the auditor.

87    The directors and owners to whom Dr Biswas referred in this answer were Mr Meerkin and Ms Lim; the “accounting certificates” to which he referred are those contemplated by s 707(8)(c) which had been circulated with the offers for purchase of shares in Astra Mining Ltd before 8 September 2011; the “advice in December” is Mr Meerkin’s letter of 21 December 2011 to which reference has already been made; and the “law firm” is Michael Sing Lawyers.

Personal details and assessment

88    Dr Biswas is now 55 years old. He has a Bachelor of Engineering degree (1982) and a PhD (1986) both from the University of Queensland and a Master of Business Administration from the Queensland University of Technology (2004). His work history includes 15 years with Royal Dutch Shell (in which he served as a Manager of Mergers and Acquisitions and Manager of Corporate Planning) and the floating of a company on the New Zealand Stock Exchange called EnergyMad Ltd. He was a director of Astra Resources from 13 June 2011 until 21 May 2014. Although ASIC drew attention to the fact that this was 19 days after these proceedings were commenced on 2 May 2014, there is no indication in the evidence that these two events were causally related.

89    Dr Biswas is plainly an intelligent person and on my assessment had a good appreciation of the issues. However, he was not a satisfactory witness. Many of his answers in cross-examination were evasive, non-responsive or argumentative. It was apparent that often he appreciated very quickly the point of a question and the effect which his answers may have. I had the distinct impression that many of his answers were shaped by this appreciation. On numerous occasions, he sought to avoid answering questions. It was very apparent that he also sought to deflect any personal responsibility for the contraventions.

90    I will give illustrations later of the unsatisfactory nature of Dr Biswas’ evidence. It is sufficient to refer to one aspect of his evidence at this stage.

91    Dr Biswas was discomforted when it was put to him that the transfer of assets from Astra Resources to IHL (HK) on 1 June 2015 had been for the purpose of frustrating the orders this Court may make regarding the reimbursement of the amounts subscribed by the 281 investors, characterising it as a decision which he had had little involvement, going so far as to say that the shareholders (by implication, including himself) had not been consulted, and that “it was done by the board and the advisory committee and the group of advisors”. It is difficult to see that it could have been a decision of the advisory board given that its first meeting was not until 2 June 2015, and its role was advisory only.

92    Dr Biswas claimed a lack of knowledge as to a number of matters concerning the transfer of assets generally to IHL (HK) on the basis that he was not a director of Astra Resources or IHL (HK) at relevant times and had not attended relevant meetings. He described his position in the follow passage of evidence:

Q:    So you have a strong interest in and knowledge of the affairs of Incept Holdings Limited, don’t you?

A:        I haven’t been allowed to up to now.

Q:    So you’re completely excluded from decision-making of Incept Holdings Limited?

A:        Totally.

His Honour:    Sorry, what was that answer?

A:        In the decision-making of Incept Holdings …

Q:        No, what was your last answer? I just didn’t catch it.

A:    No, I’m not involved in any of the decision-making of Incept Holdings Limited.

XXN

Q:    You have no knowledge of the affairs of that company?

A:    I have knowledge of the affairs of the company because it’s a public company, its doing things and, in my affidavit, I say that I’m involved with the project side because I can’t be involved in anything else. So I need to be involved with the projects.

93    This evidence was inconsistent with the evidence (to which I will refer later) which Dr Biswas gave concerning the centrality of his role to the proposed listings, finance dealings and projects on which he relied for the contention that his disqualification as a director would be inappropriate. If he does have such a central role, he must know more about the transfers of assets, or the absence of such transfers than he was prepared to acknowledge.

94    To my mind, this evidence was, in any event, implausible, given the evident close relationship between Ms Loprete, the director of IHL (HK) until 23 July 2015, on the one hand, and Dr Biswas and Ms De Cianni, on the other. It was one of the many matters which caused me to doubt the reliability of Dr Biswas’ evidence generally. Other examples could be given. I formed the view that considerable caution should be exercised before accepting the evidence of Dr Biswas on critical topics.

95    Ms De Cianni, who is now 58 years old, did not give evidence at either stage of the trial, but, as noted earlier, an affidavit from her was received in the second stage. She was an executive director of Astra Resources from shortly after its incorporation in 2011 until 21 May 2014 (again some 19 days after the commencement of the present proceedings). Ms De Cianni was again a director of Astra Resources between 24 September 2014 and 9 July 2015. She was also a director of Astra Mining from 28 January 2010 to 15 June 2015. At various times Ms De Cianni has been described as the managing director of Astra Resources.

96    When asked in the s 19 examination to describe her professional qualifications and employment history, Ms De Cianni said that before commencing with the Astra Group of Companies in 2009, she had been in “finance” and before that in “interior decorating”. She said that she had not been employed by Astra Mining but was involved as “a founder” and that she had had “no experience, no nothing”. Ms De Cianni described Mr Meerkin as “a very close friend, and lawyer and someone I trusted and my mentor”. Her involvement in the Astra companies arose from her friendship with Dr Biswas.

97    Mr Meerkin did not give evidence in either stage of the trial. Documents tendered in the trial indicate that Mr Meerkin has an LLB, BCom, LLM and MBA from the University of Melbourne and that he is admitted as a lawyer in Queensland, Victoria, England and Wales, Hong Kong, and Israel.

98    In his s 19 examination, Mr Meerkin said that he had been admitted as a legal practitioner in Victoria in 1980 and that he practised as a solicitor. He had worked for MSL for approximately two and a half years from about August or September 2010, and prior to that had conducted his own practice in Brisbane for about one and a half years.

Did Dr Biswas and Ms De Cianni take reasonable steps?

99    In my opinion, the evidence supports the claims of Dr Biswas and Ms De Cianni that they relied very much on Mr Meerkin for legal advice and for the proper implementation of many aspects of the affairs of Astra Resources and Astra Nominees. The extensive documentary evidence in the trial includes numerous emailed exchanges between Dr Biswas, Ms De Cianni and others in Astra Resources, on the one hand, and Mr Meerkin or Ms Lim, an employed solicitor at MSL who was junior to Mr Meerkin, on the other, which evidence advice or instruction from Mr Meerkin. The affidavits of the two brokers, Mr Critchley and Mr Oxlade, the affidavit of Mr Walker (all of which were received in the first stage of the trial without the deponents being required to attend for cross-examination) and the correspondence from Mr Meerkin to lawyers in the United Kingdom and to KPMG, the auditors, all evidence Mr Meerkin’s central role.

100    There is, accordingly, no difficulty in finding that Dr Biswas and Ms De Cianni did generally rely on Mr Meerkin for legal advice in relation to the affairs of Astra Resources and Astra Nominees. ASIC contended, however, that, in relation to the Astra Resources-Astra Nominees stratagem, it had not been reasonable for Dr Biswas and Ms De Cianni to rely on that advice.

101    I mention one other matter at this stage so that it can be put to one side. In opening his case at the first hearing, Dr Biswas said that he and Ms De Cianni had relied not only on Mr Meerkin, but on the managing partner of MSL, Mr Sing and on MSL generally. He repeated claims to this effect in his evidence. Amongst other things he adduced evidence that MSL had provided legal advice or assistance to a number of companies within the Astra group of companies. I note, however, that there is no evidence of any communication or meeting between Mr Sing, on the one hand, and Dr Biswas and Ms De Cianni, on the other. All of the communications of Dr Biswas and Ms De Cianni with MSL appear to have been with Mr Meerkin or Ms Lim. Further, the claim is inconsistent with Dr Biswas’ evidence about the necessity of needing to have the advice from a lawyer with dual practising certificates to which I will refer later. Accordingly, I do not accept this evidence of Dr Biswas. In my opinion, it was in the nature of a retrospective justification for his conduct and that of Ms De Cianni. This was not a case of a client retaining a firm and then being allocated to a particular practitioner within that firm. Instead, Dr Biswas wished to retain Mr Meerkin and because of that had, in a formal sense, to retain MSL. His substantive relationship at material times was, however, with Mr Meerkin.

102    ASIC submitted that a number of circumstances, considered in combination, indicated that Dr Biswas and Ms De Cianni had failed to take reasonable steps to prevent the contraventions. At the heart of its case, however, was the contention that Dr Biswas and Ms De Cianni had not ensured that Astra Resources had independent legal advice in relation to the stratagem of selling shares in Astra Resources through the medium of Astra Nominees. It contended Mr Meerkin lacked that independence because he was a director of both Astra Resources and Astra Nominees and was, in effect, advising himself as well as Dr Biswas and Ms De Cianni.

103    The evidence in the proceedings did not explore in detail the origins of the idea that Astra Nominees be incorporated, hold shares on trust for Astra Resources, and be the means by which its shares could be sold for fundraising purposes.

104    In his s 19 examination, Mr Meerkin attributed the concept to Mr Richard Walker. Mr Walker was one of the original directors of Astra Resources and had provided advice to Dr Biswas in relation to its establishment. Mr Meerkin said:

We were advised by Richard Walker, prior to the roll-up, to establish Astra Consolidated Nominees and to place a trade–all number of shares in Astra Consolidated Nominees because post roll-up there was going to be escrow restrictions on Astra Resources and there could be no trading of the shares of Astra Resources on the Frankfurt Exchange.

… There was a resolution passed at the EGM of Astra Mining, when the shares were converted to Astra Resources, to permit Astra Consolidated Nominees to be established in accordance with this advice that was given by – I think Richard gave the advice through Gebo Equity Management.

105    Dr Biswas tendered an affidavit from Mr Walker in the first hearing, without being required to have Mr Walker attend for cross-examination. In that affidavit, Mr Walker deposed, amongst other things, that he had been a director of Astra Resources between May 2011 and “approx. July 2012”. He attributed responsibility for Astra Consolidated Nominees and its sale of shares in Astra Resources to Mr Meerkin:

[4]    The Bare Trust Deed and Astra Consolidated Nominees was an arrangement put in place exclusively by Meerkin of Michael Sing Lawyers and Stepping Stone and to my knowledge no other directors of Astra were involved in this process.

…

[6]    Michael Sing Lawyers, to the best of my knowledge handled and conducted share transfers for Astra Consolidated Nominees and provided all legal advices on formation of Astra Consolidated Nominees. I am unaware of any other professional firm acting on behalf of Astra Consolidated Nominees.

[7]    From time to time I received mail packages from Michael Sing Lawyers containing share transfers, such transfers were signed by Meerkin, as a representative of Astra Consolidated Nominees and sent to myself to forward to Computershare. Computershare being the first defendant’s share registry. To the best of my knowledge nobody else from the First Defendant was involved in the transfer of shares from Astra Consolidated Nominees to unrelated third parties.

[8]    On or around April 2012 I queried Meerkin on compliance under section 708 of the Australian Corporations Act. Meerkin confirmed words to the effect that it did not apply as shares were being transferred from Astra Consolidated Nominees and not new issuances.

106    On the evidence presently provided, I do not consider that the Court can be confident as to the origins of the concept. I consider it likely, and so find, that Mr Meerkin had an instrumental role, even if he was not the concept’s originator. Mr Walker may also have had a role in suggesting the stratagem, but the evidence is not sufficient for a finding to that effect.

107    Given Dr Biswas’ role, it is reasonable to infer (and I so find), that he was closely involved with the development of the strategy involving Astra Nominees and its implementation. I am confident that the stratagem would not have been implemented without his approval. It is pertinent in this respect that Dr Biswas acknowledged that the intention of Astra Resources at the time Astra Nominees was incorporated was for it to be a subsidiary of Astra Resources and for Astra Resources to control it. Further, in his s 19 examination, Dr Biswas said:

Barrie Meerkin set it up purely to hold shares in the parent company, Astra Resources PLC, to raise working capital. So if you look at the share application forms they created at that time, it was purely to hold shares in the parent company – eventually Astra Resources – for placing in the market, to raise working capital. … There’s no other purpose or reason, yes, for that, as far as I know.

108    I think it likely, and so find, that Ms De Cianni’s participation in the development of the concept was passive. She went along with what was proposed by her friend Dr Biswas and by Mr Meerkin.

109    In my opinion, it should have been obvious to Dr Biswas and Ms De Cianni (and to Mr Meerkin) at the time that the strategy they were adopting with Astra Nominees was unusual, such that competent independent advice concerning its legitimacy was required. Dr Biswas had considerable familiarity with the fundraising provisions in the Act. I will refer to evidence shortly indicating that that was so. Mr Meerkin can be taken to have had a like familiarity. It is not easy to understand how either could sensibly have thought that the fundraising provisions, and in particular the requirement for a prospectus, in the Act could be so easily avoided by the relatively simple expedient of transferring shares in a company to a subsidiary or some other non-arm’s length company on trust, and then having it sell the shares to the public. Similarly, it is not easy to understand how either could have thought that there would be one rule for the offer of shares in Australia by an Australian company and a different rule for the offer of shares of shares in Australia by a non-Australian company. A moment’s reflection and a reality check should have made each realise that the legitimacy of such a course was improbable. If either had brought some critical thinking to bear in the circumstances, they would have realised the need for competent, independent legal advice as to the strategy’s legitimacy before implementing the stratagem.

110    The circumstance that Dr Biswas and Ms De Cianni considered that Mr Meerkin could give Astra Resources independent advice does not speak well to their judgment as directors of a publicly listed company. Nor does it indicate an understanding by Dr Biswas of his obligations as the chief executive officer of a publicly listed company.

111    ASIC submitted that the need for independent legal advice became even more stark when Dr Biswas requested advice from Mr Meerkin in December 2011. I referred to the request and to Mr Meerkin’s advice at [85]-[88] of the principal judgment, but it is convenient to repeat some of the details presently.

112    On 20 December 2011, Dr Biswas (describing himself as Executive Director/Chief Executive Officer of Astra Resources PLC) sent an email to Mr Meerkin at MSL with the subject line “fund raising advice”. The content of the email was as follows:

Barrie

Need to cover

1.    PLC Pty Ltd and DB

2.    12/20 rule applicability

3.    Need for AFSL

4.    Funds raising (sic) from Australian residents into solicitor’s trust acc of PLC

5.    Funds raised from non-residents to Australia and non-residents to UK

6.    Funds raised from UK residents

7.    Confirmation we are not restricted to professional investors

8.    Confirmation that raising funds off market (from shares held in Astra Consolidated in your trust acc prior to listing) can [be] sold below traded price.

113    Mr Meerkin responded with an email on MSL letterhead on 21 December 2011 with the subject line “Share Application Funds”. The content of the email was (relevantly):

Jaydeep and Silvana,

Advice has been sought to confirm the manner and particulars of the receipt of share application funds from share transfer sales entered into by Astra Consolidated Nominees Pty Ltd (ACN).

[The next four paragraphs, in which Mr Meerkin described the establishment of Astra Nominees and its manner of operation, are set out in [87] of the principal judgment]

Presently, Astra Resources PLC is not issuing any shares to investors for share applications off market. The share applications received are being satisfied by the transfer of existing shares held by ACN in Astra Resources PLC to investors pursuant to share applications received, and then share transfers are executed by ACN in favour of any share applicants. The share transfers are then forwarded to the Share Registry of Astra Resources PLC in the UK, Computershare, for processing and registration.

As Astra Resources PLC is a UK registered company, which is listed on the Frankfurt Stock Exchange, it is not governed by the Corporations Act 2001 (Cth) but the Companies Act (UK) 2006, and the listing rules of the Frankfurt Stock Exchange.

There is no need for Astra Resources PLC to maintain a relationship with an Australian Financial Services Licence holders, as it is neither an Australian company, nor is it issuing any shares or transferring any shares in the Australian jurisdiction for any securities for which the provisions of the Corporations Act 2001 relate.

It is only ACN which is selling, and not issuing shares, to third parties for its shareholding in Astra Resources PLC. It is entitled to sell such shares in the listed entity off market at whatever price it commercially agrees with any purchaser, despite the on market price of the securities on the Frankfurt Stock Exchange.

Please advise if you have any further queries.

114    The advice given by Mr Meerkin in the third last paragraph on this letter was wrong as it overlooked s 700(4) of the Act which provides:

This Chapter applies to offers of securities that are received in this jurisdiction, regardless of where any resulting issue, sale or transfer occurs.

115    In an email to Dr Biswas on 16 March 2013, Mr Meerkin acknowledged that some of the advice he had given in his email of 21 December 2011 had been wrong, but did not identify particular aspects.

116    As at 20 December 2011, some 90 of the 323 share agreements had been effected.

117    Dr Biswas said that he had been prompted to make the request on 20 December 2011 because of his reading of a newspaper article concerning “the Firepower case”. The article concerned an investigation of the sale of shares in Firepower, a foreign company, in Australia and whether it had breached the fundraising provisions in the Act. It caused Dr Biswas to ask Mr Meerkin about activities of Astra Resources and Astra Nominees and whether they were different from those of Firepower. The article was not tendered in evidence but presumably related to the circumstances considered by Gilmour J in ASIC v Axis International Management (No 6). That judgment was delivered on 21 July 2011, five months before Dr Biswas sought the advice from Mr Meerkin.

118    Dr Biswas said that he had had a telephone discussion with Mr Meerkin before sending the email of 20 December 2011. They discussed the matters which he later listed in the email of 20 December. Dr Biswas said that he asked Mr Meerkin to confirm his advice in writing and that the email was in the nature of a reminder to Mr Meerkin of the matters to be addressed. I accept Dr Biswas’ evidence about these matters as it is generally consistent with the references arising from the documents.

119    Dr Biswas acknowledged that in sending the email he was also asking Mr Meerkin to advise on whether Astra Nominees’ on-sale of shares in Astra Resources complied with the fundraising provisions in the Act. He also acknowledged that his email indicated that he had some familiarity with the fundraising provisions in the Act. Despite this, it is apparent that Dr Biswas did not seek advice with respect to s 707(3) of the Act and that Mr Meerkin did not provide written advice on that topic.

120    Dr Biswas sought to explain this by saying that he had telephoned Mr Meerkin after receiving his advice of 21 December, had pointed out that he had not addressed s 707(3), and said that Mr Meerkin had then given him oral advice concerning the effect of s 707(3) which had satisfied him. He did not otherwise indicate the nature of that advice.

121    On my assessment, Dr Biswas’ evidence about having received oral advice concerning the effect of s 707(3) was not convincing, and I do not accept it. I had the distinct impression that Dr Biswas made the claim about the telephone advice from Mr Meerkin when it became apparent to him during cross-examination that Mr Meerkin had not provided advice on all the matters he claimed.

122    It is apparent that Dr Biswas’ email of 20 December 2011 sought advice with respect to particular provisions in the Act: s 708(1), (3) and (4) (“the 12/20 rule applicability”); s 708(10) (“need for AFSL”); and s 708(11) (“professional investors”), as well as other matters. The omission in this context to seek advice about the effect of s 707(3) is striking. It is possible that Dr Biswas did not mention s 707(3) in his email by oversight but that does not seem likely. To my mind, it is probable that, if Dr Biswas had been concerned to have advice in writing about s 707(3), he would have asked Mr Meerkin to provide advice in that form, and, if it had been omitted, that he would have followed up with a request for further written advice. Dr Biswas’ knowledge of the way in which Astra Resources and Astra Nominees operated in relation to the sale of shares meant that it must have been obvious to him that s 707(3) was applicable. I am satisfied that Dr Biswas had that knowledge and think it likely that it was for this reason that he did not seek advice about s 707(3) in a subsequent letter.

123    The letter of 20 December 2011 indicates by itself an understanding by Dr Biswas of the provisions in s 708. Dr Biswas also acknowledged an understanding of the provisions in s 707, saying that he had had that understanding since August 2011:

Q:    … [L]et me try to broadly describe the requirements of 707 and ask if you agree that you understood that, and I’ll ask you when you might have understood that. 707 provides that if you have an issue and a resale of shares within a 12-month period, that a disclosure is required unless you can prove that the issuer didn’t have the purpose that the shares would be resold, and the recipient of the issued shares also didn’t have that purpose. Do you understand that that’s what 707 requires?

A:    I knew that applied to an Australian company. I queried Mr Meerkin on that, and he said it didn’t apply to a UK PLC.

…

Q:    The way I’ve just described 707, you understood that that applied to an Australian company?

A:    Yes, I did.

Q:    And when did that – can you tell us when you first got that understanding?

A:    That it applied to an Australian …

Q:    Yes?

A:    Company?

Q:    Yes.

A:    An Australian company that – we knew that in August 2011 … When we were doing the share certificate – the accountancy.

124    As can be seen, in this passage, Dr Biswas sought to avoid responsibility by saying that he had relied on advice from Mr Meerkin.

125    Dr Biswas said that, in seeking the advice on 20 December 2011, he “was doing my job to make sure that we were governed properly” and that “any responsible director who took their duties properly would ask that question in their mind and go back to their lawyer”. He said that having asked the questions, he was satisfied with Mr Meerkin’s advice that Astra Resources was not governed by the Act but instead by the Companies Act 2006 (UK) and the listing rules of the Frankfurt Stock Exchange. To my mind, Dr Biswas’ statement about what a responsible director would do was tantamount to recognition by him of what was reasonably required. A responsible director of a publicly listed company would not just seek advice from a fellow director who was himself involved in the very conduct in question, but would have sought independent advice. This is especially so given that Dr Biswas was aware of the ASIC investigation of Firepower, a foreign company, in relation to the sale of its shares in Australia.

126    Dr Biswas also said that he had acted responsibly in seeking the advice “because Astra Consolidated Nominees was a subsidiary, and we have important right(s) as a parent company to query that the subsidiary is being operated properly” and that he was seeking “advice about the legal liability of … Astra Nominees and its parent”. As it happens, Astra Nominees was not, strictly speaking, a subsidiary of Astra Resources, but Dr Biswas’ belief as to its status should have served only to underline in his mind the improbability of the stratagem being legitimate.

127    In my opinion, Mr Meerkin’s lack of independence in December 2011 was obvious. First, he was being asked for advice concerning the legality of the conduct of two companies in which he himself was a director. Secondly, the conduct about which he was being asked to advise was conduct which had occurred during his directorships of both companies and on which it seems that he had given express or tacit advice. By this I mean that his participation as a lawyer in aspects of the conduct must have conveyed implicitly his view that the conduct was legitimate. Thirdly, the advice requested of Mr Meerkin concerned his own conduct and that of MSL because they were the persons who were carrying out several of the day to day functions of Astra Nominees in relation to the sale of the shares. These circumstances made it plain that Mr Meerkin was not an arm’s length independent legal advisor.

128    It would be remarkable if Dr Biswas had not recognised Mr Meerkin’s lack of independence. In fact, he said that he had recognised the issue. In cross-examination by Ms De Cianni, he gave the following evidence:

Q:    How did you reassure yourself that Mr Meerkin gave independent legal advice?

A:    I queried – I queried Mr Meerkin of how he could be a director of UK public company and give independent legal advice, because I didn’t think in Australia that was allowed. But he came back to me and advised, in the UK, that was acceptable and that is why he was never a director of Astra Mining Limited. As soon as we formed a PLC, he said that was allowed under the UK Companies Law. Secondly, he provided affidavits to the Federal Court in September 2012 as well as letters to major institutions that he was – the company always was provided with independent legal advice.

129    Dr Biswas also said that in “the period up to [December 2011] we queried his role as independent legal [advisor], and he confirmed”. He went onto say that he accepted Mr Meerkin’s confirmation. He gave the following explanation for not seeking legal advice from others:

Q:    Did you at any point consider exercising your own judgment on that question … of his independence?

A:    We looked for other solicitors, Mr Pearce, who had two practising certificates in this country. We could not find anybody. We didn’t know anybody in the UK at that time. We – we tried everywhere to find somebody with two practising certificates.

Q:    Why did you need a solicitor with two practising certificates, why not two solicitors with one each?

A:    Sorry? No, no. Because – because we believed Mr Meerkin’s point that the grandfathering rule applied. You needed somebody with two practising certificates, otherwise we could have done – gone down the road.

Q:    So you thought you were stuck with Meerkin, is that the position?

A:    Yes. Yes, we did.

Q:    And there was no one else you could get advice from?

A:    We – not – not on these matters which included a UK PLC and Australian subsidiary. We tried, Mr Pearce.

130    As can be seen, Dr Biswas claimed by these answers that there had been no one else from whom he could obtain independent and competent advice, because it required a lawyer who held a practising certificate in both the United Kingdom and in Australia and he could not find such a person.

131    The way in which MSL, and Mr Meerkin in particular, came to be retained by Astra Resources and Astra Nominees was not fully explained in the evidence.

132    In his s 19 examination, Mr Meerkin said that he had become involved with Dr Biswas and Ms De Cianni during the period when he was conducting his own practice. He had procured the incorporation of Astra Mining (then called Centurion Iron Ore Pty Ltd) on 4 September 2009 and had agreed to become a director of that company at that time. Mr Meerkin knew Dr Biswas because a company, Winter Air Limited, of which Dr Biswas was a director, had been a client. He said that Dr Biswas approached him again after he commenced as an employed solicitor at MSL. The evidence did not indicate much about MSL but I infer that in 2011 and 2012 it was a smallish legal firm based on the Gold Coast. Although Mr Meerkin’s statements in his s 19 examination may not be admissible against Dr Biswas and Ms De Cianni, I am inclined to the view that his explanation for the establishment of the relationship is likely to be correct. In particular, as indicated earlier, I consider that it was Dr Biswas who sought out, and retained, MSL because he wished to have Mr Meerkin’s services.

133    In his evidence in the trial, Dr Biswas said that he had selected Mr Meerkin because “we couldn’t find another lawyer who had a UK and Australian practising certificate based in Australia. He’s the only one we knew”. The evidence did not formally establish that Mr Meerkin had dual practising certificates, but I am willing to proceed on the basis that that was so.

134    It is not clear why Dr Biswas considered that Astra Resources had to have a lawyer with practising certificates in both the UK and in Australia. Dr Biswas said in opening:

Mr Meerkin was very specific, that if we had to go for advice – which was later, not during that period, not in that 12-month period, later – you’ve got to find a lawyer with practising certificates in the two jurisdictions, because of the grandfathering rule where the Australian Corporations Act evolved out of the UK Companies Act. We didn’t know any different.

135    As can be seen, Dr Biswas was attributing his perception that lawyers with dual practising certificates were needed to advice given by Mr Meerkin. However, as he seemed to acknowledge in this passage, Mr Meerkin did not give that advice until much later, and well after the time at which Dr Biswas said he had considered the question of independent advice.

136    In my opinion, Dr Biswas’ claim that he could not get independent advice because he did not know another lawyer with dual practicing certificates is extraordinary. It is difficult to accept that a person with Dr Biswas’ obvious intelligence could have seriously thought that that was the case. All Dr Biswas needed was an Australian lawyer with some knowledge of, and experience with, the fundraising provisions in the Act. Such a lawyer could have given competent and independent advice about the lawfulness of the fundraising methods being adopted by Astra Resources and Astra Nominees in this country. There is no shortage of lawyers with these abilities. I do not accept Dr Biswas’ explanation. I consider that he did not seek independent advice because it suited him to be able to act on Mr Meerkin’s opinion, without further enquiry. Having advice from a lawyer in writing was sufficient.

137    Another indication that Dr Biswas was aware of Mr Meerkin’s lack of independence is contained in his affidavit made on 7 October 2015. Dr Biswas deposed that, as Mr Meerkin was not a director of Astra Mining, he had been able to provide independent and legal advice to that company in relation to the establishment of Astra Resources. That may well be so but it implies a recognition by Dr Biswas that Mr Meerkin’s directorships of Astra Resources and Astra Nominees meant that he could not provide independent advice to those companies. In fairness to Dr Biswas, this statement, although in an affidavit, may have been in the nature of a submission, and so I attach only limited weight to it.

138    I have not overlooked the statement of Mr Meerkin in an affidavit Astra filed in proceedings in this Court on 19 September 2012. This was the statement to which Dr Biswas referred in answer to the question from Ms De Cianni which I set out earlier. Mr Meerkin deposed that the executive directors of Astra Resources had, at all material times, “received and acted in accordance with independent legal advice … in respect of all matters pertaining to … capital raising …”. It seems that Mr Meerkin was deposing to his own advice as he described himself as both a director and “legal counsel” for Astra Resources. Plainly, this reflected a failure by Mr Meerkin to understand the truth of his position. It supports the view that he had either represented to, or allowed Dr Biswas and Ms De Cianni to think that he was independent, but I note that the affidavit was not filed until after the 12 month period to which these proceedings relate.

139    There is another difficulty about Dr Biswas’ evidence concerning his request and Mr Meerkin’s response on 21 December 2011. It should have been obvious to Dr Biswas that Mr Meerkin had not addressed the legality of the conduct of Astra Nominees. It was an Australian registered company and the explanation Mr Meerkin gave for the Act not governing Astra Resources was not applicable in its case. The operation of ss 707 and 708 had to be considered separately in relation to Astra Nominees, and it is plain that Mr Meerkin did not do so. Despite his stated concern to ensure that Astra Resources’ “subsidiary” was acting lawfully, Dr Biswas did not actually receive advice to that effect.

140    Much later and after the period (8 September 2011 to 8 September 2012) in which the proscribed conduct occurred, Dr Biswas appreciated that Mr Meerkin had not provided advice concerning the lawfulness of the manner in which Astra Nominees was operating. He then sought further advice from him on that topic. I am satisfied that he was prompted to do so by questions asked by KMPG, the auditors of Astra Resources. On 15 March 2013, Dr Biswas sent an email to Mr Meerkin with the subject line “Astra Resources PLC advice” and with the following content:

Barrie

Can you write about how ACN operates and how it adheres to all capital raising provisions of the Australian Corporations Act.

And how it adheres to the capital raising provisions of UK Companies Act incl. look through.

141    In a second email sent later the same day, Dr Biswas elaborated his request to Mr Meerkin and sought, in part, to dictate its content. The email was as follows:

Barrie

Please address to the directors of Astra Resources PLC with insertions below.

Add a section of how ACN sells shares in non-UK jurisdictions by transfer. There is no look through provisions and hence complies with UK Companies Act.

Explain that ACN complies with Australian Corp Act provisions because share transfers are not bound by sophisticated investor provisions ……….. but fall under provisions ………. and not control provisions.

…

Explain that the rollup of 8th Sept 2011 complies with Australian Corps Act and UK Companies Act. Corps Act allows issue of shares to service providers.

142    Dr Biswas made a third request to Mr Meerkin on 18 March 2013, as follows:

Barrie

I am missing your previous advice on this in my files.

I need Monday please detailed advice on MSL letterhead signed resent to me on:

•    How ACN setup

•    How share sales are conducted and proceeds received

•    What geographic restrictions or investor type restrictions

•    That the share price can be negotiated on case by case basis since this is not an offer

•    How it complies with Australian Corps Act 708 etc referring to provisions and definition of securities for Australian resident investors and non-resident investors

•    How it complies to UK Companies Act with reference to provisions for UK and non-UK investors.

In his evidence, Dr Biswas said that KPMG had told him of the matters to be addressed in the advice.

143    Dr Biswas made yet a fourth request of Mr Meerkin by an email sent on 20 March 2013:

Barrie

I need only one written advice from you now.

It is how share sales facilitated by ACN complies (sic) with Corps Act for non-sophisticated investors. If you can pls send me in morning.

144    These emails were sent well after the period during which the contraventions occurred. Nevertheless, they indicate the kinds of matters about which Dr Biswas and Ms De Cianni, if acting responsibly, should have sought advice before commencing the distribution of offers of shares and, at the least, by December 2011 when Dr Biswas became aware of the issues concerning Firepower. Mr Meerkin provided only draft advice in respect of Dr Biswas’ repeated requests and tendered his resignation as a director of Astra Nominees and Astra Resources on 22 March 2013.

145    In summary, the evidence indicates that Dr Biswas and Ms De Cianni considered compliance with the fundraising provisions of the Act in a formal way only in December 2011; that they obtained advice on that question only from Mr Meerkin; that Mr Meerkin lacked independence; that Dr Biswas and Ms De Cianni did not recognise that that was so or chose in any event to rely on his advice; and that Mr Meerkin did not, in any event, provide advice about the legality of Astra Nominees’ conduct. I consider that Dr Biswas’ explanation for not obtaining competent legal advice from another lawyer is as unmeritorious as it is remarkable. I conclude that Dr Biswas and Ms De Cianni failed to take reasonable steps to prevent the contraventions of s 727(1) by Astra Resources.

146    In relation to Mr Meerkin, it is obvious that he did not take reasonable steps to prevent the contraventions of s 727(1) by Astra Resources and Astra Nominees and he has admitted as much in his filed defence. Mr Meerkin made a similar acknowledgement in the agreed statement of facts (Exhibit A1). It is plain on the evidence that these admissions were appropriate. He did not advert at all to ss 700(4) and 707(3) of the Act. He did not give proper advice to Astra Resources and Astra Nominees about those matters and, furthermore, as my findings in the principal judgment indicate, was actively involved in matters relating to the distribution of offers. It is not necessary to consider his position in further detail.

147    It is not necessary to consider the position with respect to each of the found contraventions separately. My finding is that the failure to take reasonable steps occurred in relation to each of those contraventions.

Is the disqualification of Dr Biswas, Ms De Cianni and Mr Meerkin justified?

148    The principles stated by Santow J in Re HIH Insurance Ltd; ASIC v Adler [2002] NSWSC 483; (2002) 42 ACSR 80 in relation to s 206E have been influential. They have recently been restated by Gordon J in Registrar of Aboriginal and Torres Strait Islander Corporations v Murray [2015] FCA 346 at [220] as follows:

(1)    Disqualification orders are designed to protect the public from the harmful use of the corporate structure or from use that is contrary to proper commercial standards.

(2)    Disqualification orders are designed to protect the public by seeking to safeguard the public interest in the transparency and accountability of companies and in the suitability of directors to hold office.

(3)    Protection of the public also envisages protection of individuals that deal with companies, including consumers, creditors, shareholders and investors.

(4)    A disqualification order is protective against present and future misuse of the corporate structure.

(5)    The order has a motive of personal deterrence, though it is not punitive.

(6)    The objects of general deterrence are also sought to be achieved.

(7)    In assessing the fitness of an individual to manage a company, it is necessary that they have an understanding of the proper role of the company director and the duty of due diligence that is owed to the company.

(8)    Longer periods of disqualification are reserved for cases where contraventions have been of a serious nature such as those involving dishonesty.

(9)    In assessing the appropriate length of prohibition, consideration has been given to the degree of seriousness of the contraventions, the propensity that the defendant may engage in similar conduct in the future and the likely harm that may be caused to the public.

(10)    It is necessary to balance the personal hardship to the defendant against the public interest and the need for protection of the public from any repeat of the conduct.

(11)    A mitigating factor in considering a period of disqualification is the likelihood of the defendant reforming.

(12)    The eight criteria to govern the exercise of the court’s powers of disqualification set out in Commissioner for Corporate Affairs (WA) v Ekamper (1987) 12 ACLR 519 are influential. The criteria were character of the offenders, nature of the breaches, structure of the companies and the nature of their business, interests of shareholders, creditors and employees, risks to others from the continuation of offenders as company directors, honesty and competence of offenders, hardship to offenders and their personal and commercial interests and offenders’ appreciation that future breaches could result in future proceedings.

(13)    Factors which lead to the imposition of the longest periods of disqualification (of 25 years or more), were large financial losses, high propensity that defendants may engage in similar activities or conduct, activities undertaken in fields in which there was potential to do great financial damage, lack of contrition or remorse, disregard for law and compliance with corporate regulations, dishonesty and intent to defraud and previous convictions and contraventions for similar activities.

(14)    In cases in which the period of disqualification ranged from 7 to 12 years, the factors included serious incompetence and irresponsibility, substantial loss, defendants had engaged in deliberate courses of conduct to enrich themselves at others’ expense, but with lesser degrees of dishonesty, continued, knowing and wilful contraventions of the law and disregard for legal obligations and lack of contrition or acceptance of responsibility, but as against that, the prospect that the individual may reform.

(15)    The factors leading to the shortest disqualifications, that is disqualification for up to three years, were although the defendants had personally gained from the conduct, they had endeavoured to repay or partially repay the amounts misappropriated, the defendants had no immediate or discernible future intention to hold a position as manager of a company and the defendant had expressed remorse and contrition, acted on the advice of professionals and had not contested the proceedings.

149    The purpose of provisions such as ss 726 and 727 of the Act is plain. The Explanatory Memorandum for the Bill which led to the Corporate Law Economic Reform Program Act 1999 (Cth) by which the disclosure requirements contained in Ch 6D were inserted into the Act said that “the primary function of prospectus disclosure is to address the imbalance of information between issuers of securities and potential investors”. The 16th edition of Ford, Austin and Ramsey’s Principles of Corporations Law also contains a convenient statement of the purpose of these sections, at [22.010]:

In recognition of the intrinsic connection between information and value of securities the law tempers the normal rules of caveat emptor, by requiring the issuer to disclose information which investors need to make their investment choices. In the case of new issues, this is achieved primarily through the prospectus requirements of the Corporations Act, supplemented by prohibitions of certain conduct such as hawking of securities. The law seeks to ensure the reliability of prospectus information by attaching special civil and criminal liability to those who are responsible for material misstatements or omissions.

The primary focus of the fundraising provisions in Ch 6D of the Corporations Act is to ensure that investors in newly issued securities of a corporation, other than those who are in strong enough position to look after themselves, have access to the information which a reasonable investor would require for the purpose of making an investment decision.

The seriousness of the contraventions

150    Each of the individual defendants in the present case was a director. This meant that their conduct is to be assessed having regard to the duties imposed by s 180(1) of the Act. Section 180(1) provides:

(1)    A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they:

(a)    were a director or officer of a corporation in the corporation's circumstances; and

(b)    occupied the office held by, and had the same responsibilities within the corporation as, the director or officer.

As can be seen, s 180(1) requires directors to exercise their powers and to discharge their duties with the degree of care and diligence that a reasonable person would exercise in the director’s circumstances.

151    A number of matters are pertinent in the consideration of whether disqualifications are justified in the present case and the discretionary power to order disqualification should be exercised. First, the elements of protection of the public and personal deterrence are particularly pertinent.

152    Secondly, this is a case in which there were multiple contraventions. Section 727(1) was contravened in respect of 323 offers of shares and in respect of 281 separate investors. Those investors subscribed some $6,580,895.50 for shares in Astra Resources. They did so without the protection which the law requires of companies seeking investments from persons in their circumstances.

153    The seriousness of the contraventions is underlined by the circumstance that the majority of the investors subscribed $10,000 or less. I accept ASIC’s submission that this is an indication that many of these persons were so called “mum and dad” investors with little or no investment experience. Investment in Astra Resources was speculative, a circumstance confirmed by the fact that the investments of these investors were apparently wholly lost within a relatively short time. In his evidence, Dr Biswas confirmed the speculative nature of the investments. The provision of a prospectus to investors in relation to investments of this kind was especially important.

154    None of the individual defendants has been found to have contravened corporations legislation previously, and none has a criminal record. On the other hand, I note that none has made any offer of reimbursement to the individual investors.

155    Each of the individual defendants was actively involved in the contraventions. Dr Biswas was involved personally in the appointment of brokers to sell the shares in Astra Resources held by Astra Nominees. In his s 19 examination, Dr Biswas acknowledged that the brokers would ring him “quite often” to discuss Astra Resources, that he had met “a few investors”, and that he had understood that brokers were placing shares “in the market”. In his evidence he acknowledged that he had been present at PowerPoint presentations to investors although claiming that these had been “pre-approved by the lawyers”. He also acknowledged that he had known that share application forms were being distributed to non-sophisticated investors, while at the same time stating that Mr Meerkin had told him that there was no restriction in doing so.

156    I am satisfied that Dr Biswas and Ms De Cianni were driving forces behind the establishment of Astra Resources and the share swap. In an affidavit made on 19 October 2015, Dr Biswas described himself as the co-founder (with Ms De Cianni) of Astra Resources and said that he was a “consultant” to it. Later in the same affidavit, he said that he and Ms De Cianni comprised the “senior management team” for the Astra Group of Companies and that together they “handle the development, sales and financing of the [Group’s] Projects and the other high level management of the Group”. Dr Biswas and Ms De Cianni, together with Mr Meerkin and Mr Lavell (an accountant), had formed the panel which conducted the extraordinary general meeting on 15 June 2011 in Adelaide (the EGM) at which the share swap arrangements were approved. The presentation of the resolutions for consideration at that meeting was, in the main, made by Mr Meerkin but Dr Biswas contributed from time to time.

157    The minutes of the EGM record that during the general business stage of the meeting, Dr Biswas made the following presentation:

Mr Biswas stated that before he moved onto the strategies of [the] company, he would like to inform the shareholders that the company is run very carefully. He stated that Ms De Cianni and himself do not act without legal advice, and the accountants have online access to the accounts of the company. He said that everything is conducted in a proper manner.

Mr Biswas then provided a general insight into the strategy of the company. He gave a brief overview of the history of the company and how Ms De Cianni and himself started working on this idea. Mr Biswas said that they considered how they may be able to build mining companies and enter into countries where costs are very low. He said that they agreed that they will only consider sites where mining licences are already in place, so the exploration stage would have been completed. Mr Biswas stated that they started by looking at India. He said that many large multinationals have failed to enter the country. However, Astra is now close to being the first foreign company to finalise a licence to access the market in India.

Mr Biswas said that Ms De Cianni and himself also met with a Hungarian diplomat who advised that mining technology is a good aspect to consider. Mr Biswas said that from the beginning, Ms De Cianni believed that there is no limit to share prices if technology is incorporated into a mining company. Mr Biswas and Ms De Cianni therefore explored the realm and came across T-Steel which is a new steel production technology valued by an international accounting firm to be worth over $6 billion. Mr Biswas stated that Ms De Cianni and himself have acquired the technology and it is very strong.

Mr Biswas stated that there were some serious considerations to take into account in light of the financial crisis. However, they have been very fortunate to meet Paul Czislowski, who owns large amounts of land in Rockhampton. Mr Biswas said that Mr Czislowski has offered to work closely with Mr Biswas and Ms De Cianni and that the venture between the parties has been very successful to date.

158    Ms De Cianni’s contribution at the end of the EGM was recorded in the minutes as follows:

Ms De Cianni thanked the shareholders for attending the meeting and for their continuous support for Mr Biswas and herself. Ms De Cianni said that they treat everyone in the company as family and they will continue working towards a favourable outcome for all their shareholders.

159    It is apparent that Dr Biswas sought to distance himself from the arrangements involving Astra Nominees. He claimed a limited understanding of important elements of the arrangements between Astra Resources with Astra Nominees.

160    I consider that Dr Biswas knew much more about the arrangements than he was prepared to acknowledge.

Obtaining advice from a lawyer

161    ASIC submitted that the evidence disclosed a “practice” of Dr Biswas of “capturing” compliant legal advice. It contended that Mr Meerkin was in this category. In addition, ASIC referred to Astra Resources’ retention of Mr Warming and of Mr Raj. In the view I take of the matter, it is not necessary to make findings about the “practice” for which ASIC contended. What is more pertinent in my opinion is whether Dr Biswas and Ms De Cianni have an understanding of the necessity to obtain independent legal advice on critical matters from persons with the requisite skill, experience and opportunity to provide that advice. There are reasons to doubt that that is so. They seem instead to think it sufficient that they can say that they have had advice from a lawyer, irrespective of the independence and competence of the lawyer, or the opportunity which that lawyer has had to consider the matters on which the advice is being provided.

162    The circumstances of Dr Biswas retaining Mr Warming to provide advice in March 2013 provide an example. I referred earlier to the repeated requests of Dr Biswas to Mr Meerkin in March 2013 for written confirmation that Astra Nominees had not breached s 708 of the Act. On 21 March 2013, Mr Meerkin did provide a draft letter addressed to the directors of Astra Resources, the substance of which was as follows:

During the period (sic) 12 month period 8th September 2011 to 8th September 2012, we wish to confirm that Astra Consolidated Nominees Pty Ltd has not breached the provisions of section 708(1) of the Corporations Act, and has complied with the criteria so established for small scale offerings, and has accordingly not breached the ceiling for the sale of securities under s 708(4).

[Mr Meerkin then set out section 708(1) and 708(4) of the Act].

Whilst Astra Consolidated Nominees Pty Ltd has sold securities and raised funds in excess of the “small scale offerings” prescribed in s 708(1), being 20 issues or sales of shares in any 12 month period in excess of two million dollars, it has done so through compliance with the exceptions to such subsection as noted in the following subsections:

1.    sub-section 708(5)(b); and

2.    sub-section 708(8); and

3.    sub-section 708(10); and

4.    sub-section 708(11); and

5.    sub-section 708(12).

After 8th September 2012, the above exceptions are not required due to sub-section 707(1)-(5).

There are some obvious questions about the reliability of the contents of the advice in this draft letter and it is noteworthy that Mr Meerkin did not provide it on MSL letterhead and did not sign it. It is difficult to think that Dr Biswas could have thought at the time that what Mr Meerkin said in the draft letter was accurate.

163    On the following day, 22 March 2013, Mr Meerkin tendered his resignation of his directorships of Astra Resources and Astra Nominees, with notice of that resignation filed with ASIC on 16 April 2013. Dr Biswas then set about obtaining advice that Astra Nominees had not contravened s 708(1) from another source. He did so on 22 March 2013 by providing a copy of Mr Meerkin’s draft letter to Mr Warming of Warmings Barristers and Solicitors, a firm in Adelaide. On the same day, Mr Warming, using the Warmings letterhead, provided a letter addressed to the directors of Astra Resources which, save for two matters, was in identical terms with that drafted by Mr Meerkin. The two exceptions were the inclusion of the subject heading “Re: Security offerings compliance” and the addition of a penultimate paragraph which read:

We provide this advice based on the written summary and classification of the transactions recently provided by Astra Resources PLC.

Mr Warmings’ adherence to the terms of Mr Meerkin’s draft included repetition of the infelicity in its first line.

164    It must have been obvious to Dr Biswas that Mr Warming’s advice was of little value in the circumstances, given the practical impossibility of Mr Warming having been able to satisfy himself in the very limited time he had had available to investigate, let alone consider, the matters which he was purporting to confirm. Despite this, it seems that he provided Mr Warming’s letter to KPMG in the United Kingdom who had been retained to carry out the audit of Astra Resources for the 2012 financial year. To my mind, this tends to confirm that Dr Biswas attached more importance to having advice from a lawyer than he did to having advice which was both competent and independent.

165    The representation of the Astra Resources defendants in these proceedings provides another illustration. Dr Biswas and Ms De Cianni caused Astra Resources and Astra Nominees to retain Mr Raj and Arrow Law as the solicitor in connection with the proceedings. It must have been obvious that Mr Raj lacked independence as he was a director of Astra Resources from 29 July 2013 until at least August 2014. Yet he had filed the defence on 19 August 2014 on behalf of Astra Resources, Astra Nominees, Dr Biswas and Ms De Cianni. Dr Biswas could not say from whom Mr Raj had taken instructions in respect of Astra Nominees. Nor could he explain how it was proper for Astra Nominees to have the same legal representation when his defence and that of Ms De Cianni was to attribute responsibility for the contraventions to Astra Nominees.

The alleged detriments of disqualifications

166    In addition to emphasising their reliance on Mr Meerkin, Dr Biswas and Ms De Cianni referred to a number of other matters in resisting ASIC’s application for their disqualification. In particular, they emphasised their centrality to the future prospects of businesses forming part of the Astra Group. Dr Biswas deposed to these matters in an affidavit made on 16 October 2015 and in her affidavit Ms De Cianni adopted what Dr Biswas had said.

167    Dr Biswas deposed that he and Ms De Cianni had “founded” Astra Resources in about September 2011 and then continued:

[28]    … Since that time, and through our leadership, skill and relationships, we have developed that enterprise into the Group which is, in summary, an international conglomerate with interests in the resources, agriculture, industrial technology, carbon credits, clean energy, and information/biotechnology sectors.

[29]    The Projects conducted by the Group have local operational staff but they are not capable in development, sales and financing of the Projects and undertaking other high level management.

168    Dr Biswas said that he and Ms De Cianni comprised the “senior management team” for the Group and said that they “handle the development, sales and financing of the Projects and other high level management of the Group”. In his affidavit of 7 October 2015, he had described himself as a “consultant” to Astra Resources.

169    Dr Biswas deposed that he is currently the director of 10 companies incorporated in Cambodia, Nigeria, the Philippines, Hong Kong, Singapore and India. He also deposed that he is “an indirect shareholder, consultant and/or manager of projects being conducted by” some 40 companies within the IHL (HK) structure. IHL (HK) is described as the parent company but another company, Vost Loyal Corporation Limited (HK) (VLC), is said to be the holding company. Dr Biswas gave the following description of the projects being undertaken by the Group:

170    Dr Biswas deposed that IHL (HK) owns or controls each company in the Group and consequently the projects which they are undertaking. He is a consultant to IHL (HK).

171    Dr Biswas then deposed to some of the plans for the Astra Group, which he contended would be frustrated if he and Ms De Cianni were disqualified. First, “in or about September 2015” IHL (HK) had engaged a company identified only in a sealed annexure to his affidavit (Company A), which is described as a Hong Kong based fund manager, to list part of the Projects on the Canadian and Frankfurt Stock Exchanges by means of a dual listing (the C/F X Listing). This is to be effected by means of a back door listing into Lightstone Technologies Limited, which is presently an unlisted Canadian company. Dr Biswas was a director of LTL until 18 September 2015 when he resigned because he had been told by the auditor of LTL that it could not give an unqualified audit while he remained as director. The shareholders in Astra Resources would benefit (Dr Biswas said) because they would be issued shares in LTL equivalent to the number of shares they held in Astra Resources.

172    A second plan is to have the balance of the Projects of IHL (HK) listed on the Hong Kong Stock Exchange (the HK X Listing). Dr Biswas said that IHL (HK) had been approached by an international investment bank (identified as Company B in a sealed annexure to his affidavit) in this regard. Company B and IHL (HK) are presently working towards that end.

173    Next, Dr Biswas and Ms De Cianni deposed to the benefits to investors if the C/F X Listing and the HK X Listing proceed. He identified that benefit to be the increase in the value of the shares in IHL (HK).

174    Dr Biswas then deposed to the centrality of Ms De Cianni and himself to both listings. They will be the persons who promote the listings to fund managers, banks, underwriters and other investment groups by way of “road shows” (the Listing Promotion Work). He said that it is essential that the Listing Promotion Work be done by a person who is a director and, in any event, no one else within IHL (HK), or the Group more generally, has the knowledge of the projects and the necessary skills and contacts to carry out the work.

175    Dr Biswas then deposed that, if the disqualification orders are made, he and Ms De Cianni will be:

(a)    prevented from being a director of all Australian companies;

(b)    prevented from being a director of the overseas listed companies in the Group by reason of the applicable listing rules;

(c)    required to disclose the disqualification order in the documentation to be lodged in respect of the C/F X Listing and the HK X Listing.

The effect, so Dr Biswas deposed, would be that the two listings would cease to be commercially viable and would be unable to proceed.

176    Dr Biswas deposed to other detriments. These related to the pursuit of existing projects within the Group, the pursuit of new projects, and the effect on a finance facility arranged by IHL (HK). In relation to the existing projects, Dr Biswas deposed:

[68]    I am involved in overseeing the Projects, and in particular, relevantly, negotiating and securing:

(a)    sale orders for the projects, mined/generated by the Projects; and

(b)    financing the Projects.

[69]    The Projects are mostly pre-production stage. This means that I have negotiated and have in place conditional orders for the product (with multinational companies), and on the back of those orders, finance for the Projects (again, with multinational companies).

[70]    These two aspects of a project are interdependent. The financiers require the orders to agree to provide the finance, and the order placers require that the finance be in place so that they have a sufficient certainty that the order will be met.

177    In relation to new projects, Dr Biswas deposed:

[73]    [Ms De Cianni] and I are currently pursuing other opportunities on behalf of the Group, e.g., negotiating to purchase an iron ore mine in the Ukraine, acquiring carbon credits in PNG and acquiring coal fusion technology in Germany. These are significant (i.e., in the order of tens of millions of Australian dollars) in commercial opportunities.

178    In relation to the finance facility, Dr Biswas deposed that it is a requirement for each of the Canadian and Frankfurt Stock Exchange listings that LTL have CAD$5 million and €5 million cash, respectively, at bank. In order to meet these requirements, IHL has arranged a finance facility of $9.6 million which Dr Biswas says he has personally guaranteed. He is concerned that if the C/F X Listing does not proceed within the six month period during which the finance facility is available, IHL will be unable to repay the amounts advanced, will be insolvent and will pass into liquidation. He also deposes that he will then be financially ruined if his guarantee is called upon.

179    Dr Biswas deposed that similar detriments would flow from the making of the publication orders sought by ASIC.

Inadequate evidence of the alleged detriments

180    There is good reason to be cautious about accepting these “grand plans” at face value. In the first place, Dr Biswas and Ms De Cianni provided very little by way of hard evidence about the projects, the ownership of them, their current status, financial statements and so on. The Company A and the Company B to which Dr Biswas referred in the confidential annexures do not seem to be known companies, with reputations which may give the Court some confidence. If the various projects are real, with the sort of prospects to which Dr Biswas and Ms De Cianni allude, one would expect that there would be a considerable amount of documentary evidence evidencing their viability. No evidence of this kind has been produced.

181    My reservations arising from the absence of hard evidence is informed in part by the evidence which emerged concerning Dr Biswas’ claims concerning his guarantees of monies advanced to support listing proposals. In his affidavit of 16 October 2015, Dr Biswas deposed that he had personally guaranteed the repayment of the “listing facility” and that he would be “financially ruined” upon the call up of his guarantee if the C/F X Listing did not occur within six months. Given these clear statements, it came as something of a surprise to hear the admission by Dr Biswas in cross-examination that the money which is the subject of his guarantee (also not produced) has not even yet been borrowed, and will not be borrowed if the listings do not proceed.

182    My caution is also increased by the statement of Mr Meerkin in his s 19 examination that, in relation to some of the overseas projects, binding arrangements do not exist:

I’m not trying to overstate the transactions when I say they were joint ventures because they were nothing more than cooperation agreements between a party in one jurisdiction and another party in another. Every document was contingent on Astra Resources being able to conduct an IPO on the Frankfurt Exchange or the London Exchange. There was no consideration payable by Astra Resources for anything other than shares in the company. There was never any cash paid, to my knowledge, by the company – in accordance with the instructions I got.

This is not admissible evidence against Dr Biswas and Ms De Cianni but it does tend to confirm my reservations about accepting their claims at face value.

183    I have already referred to the multiple attempts of Astra Resources to obtain stock exchange listings elsewhere. Those attempts do not inspire confidence that any future attempts will succeed.

184    My caution also arises from the frequent indications in the evidence that the affairs of Astra Resources have not been conducted in a proper manner. In opening the trial for ASIC, Mr Pearce SC described the internal governance of the Astra companies as “shambolic”. On the basis of the evidence disclosed in this trial concerning the conduct of affairs by Astra Mining and Astra Resources in particular, that characterisation is understandable.

185    It is not possible to particularise all the diverse matters giving rise to that impression. However, the action of KPMG, which was retained in 2012 for the audits of Astra Mining and Astra Resources, provides a ready illustration. KPMG Australia was engaged by Astra Mining on or about 4 June 2012 as its auditor and to provide accounting advisory assistance to it. KPMG UK was engaged in the period from mid-2012 to May 2013 to complete the audit of Astra Resources PLC. KPMG Australia assisted KPMG UK with that audit. On 28 May 2013, KPMG Australia lodged a breach notification with ASIC in respect of Astra Mining, noting that it had failed to prepare and lodge audited financial reports and a director’s report within four months after the end of the financial year ending on 30 June 2012 and that they had become aware that the written financial records of Astra Mining “may not have correctly reflected certain share transactions that occurred”. KPMG Australia also noted that Astra had entered into a number of share transactions with related parties without obtaining appropriate member approval and that it had issued shares to a subsidiary in apparent contravention of s 259 of the Act.

186    KPMG UK made numerous requests of Astra Resources while attempting to carry out the audit for the financial year ending on 30 June 2012. It is evident that it had considerable difficulty in reconciling the information provided to it. On 17 May 2013, KPMG UK resigned the auditorship, saying in a letter of the same date to Dr Biswas:

I would like to thank you for the additional information you have sent in recent days in response to various queries that we have raised during the course of our audit work and most recently last week. However, we find that the information received from you raises more questions than it answers and does not provide adequate explanations in relation to the underlying issues.

After careful consideration, we have reached the conclusion that we are not being provided with information which is complete or reliable. In these circumstances, we have concluded that we should resign as auditor of the Company with immediate effect.

187    In a letter addressed to the directors of Astra Resources the same day, KPMG UK said:

The circumstances connected with our ceasing to hold office as auditors of the above Company are a loss of confidence in information and explanations provided by the executive directors in connection with audit work undertaken prior to our resignation in relation to the period ended 30 June 2012.

188    The circumstances which I described concerning the SSAs in the principal judgment provide another illustration of the haplessness with which the internal affairs of Astra Resources and Astra Nominees appear to have been conducted. The references by Dr Biswas in his s 19 examination to unlawful acts of Astra Nominees (which he attributed to Mr Meerkin) which had had to be reversed is another illustration. Dr Biswas also referred to these reversals in his cross-examination in the first stage of the trial.

189    These matters in combination cause considerable doubt in my mind that the foreshadowed detriments will be realised.

The transfer of assets to IHL (HK)

190    The evidence about the transfers of assets from Astra Resources to IHL (HK) provides another basis for concern about whether its business has been conducted in a proper manner. There is some evidence that there has been a complete transfer of the assets of Astra Resources to IHL (HK). This evidence includes the balance sheet for Astra Resources as at 30 June 2015 annexed to the affidavit of Dr Biswas of 16 October 2015. As noted earlier, it indicates that the total current assets of Astra Resources were only €2552.68 and its net assets a deficiency €1,156,728.80.

191    However, the evidence about the transfers is unsatisfactory. The Astra Resources defendants tendered an affidavit from a Mr Nicholas Birdseye, who describes himself as the Australian auditor of Astra Mining for the year ending 30 June 2014. Mr Birdseye is, on the Court’s understanding, an Adelaide based accountant. He did not depose to having held any role in relation to Astra Resources, nor to having been appointed to carry out any function on its behalf in respect of the financial year ending on 30 June 2015. Despite this, he deposed to a number of matters concerning Astra Resources which he said were derived from an examination of records (not identified) of Astra Resources which had been in his possession “prior to late July 2015” and from enquiries he had made of others. Plainly, much of Mr Birdseye’s affidavit is hearsay and its reliability appears dubious.

192    With respect to the transfer of Astra Resources’ assets to IHL (HK), Mr Birdseye deposed:

[12]    Following the recommendation of the Advisory Committee, on 1 June 2015, the First Defendant transferred its assets, creditors and liabilities to Incept Holdings Ltd in Hong Kong. The creditors were defined as being those creditors of the First Defendant as at 1 June 2015. Advantage Advisors prepared all the filings for corporate restructure for the Board.

193    In his evidence, Dr Biswas relied more than once on the correctness of what Mr Birdseye had asserted in this paragraph. I infer that the Advisory Committee to which Mr Birdseye referred was the Advisory Board of Astra Resources which I mentioned earlier in these reasons.

194    It is not easy to see how there could have been a transfer of assets to IHL (HK) on 1 June 2015. As noted earlier, Welly Luck was only incorporated in Hong Kong that day and it did not change its name to Incept Holdings Limited until 14 July 2015. There is no evidence of any shareholder or director resolution of either Astra Resources or IHL (HK) in relation to the transfer. There is no documentation or evidence indicating the means by which the transfers were effected. In relation to the liabilities of Astra Resources, there is no evidence of creditors having provided their consent to the indebtedness of Astra Resources to them being transferred to IHL (HK). One might have expected creditors to be reluctant to provide such consent given that IHL (HK) had an issued capital as at 1 June 2015 of only HKD$1. Dr Biswas was unable to explain how it was that Astra Resources was being wound up in insolvency if all its liabilities had been transferred to IHL (HK). When pressed, he offered the explanation that the winding up may be because of liabilities Astra Resources had incurred after 1 June 2015. I considered that this answer was not truthful. Dr Biswas is well aware that Astra Resources is being wound up on the petition of Credit Veritas in respect of a debt which became due to it by 31 July 2014.

195    The answers of Dr Biswas in cross-examination in relation to the transfer of assets were, on my assessment, evasive. At one stage he said that he had told Mr Sloane, the Chief Financial Officer of Astra Resources, that it was Mr Birdseye, as auditor of “the company”, who had effected the transfers. As noted, Mr Birdseye did not claim ever to have been the auditor of Astra Resources in the financial year ending on 30 June 2015, and it is not in any event readily apparent how it would have been within the normal functions of an auditor to effect such a transfer. I note that in an earlier letter of 12 November 2014, Mr Birdseye had referred to both Astra Mining and Astra Resources and yet had described himself as the auditor to Astra Mining only. Despite the fact that Mr Birdseye did not claim to have been the auditor of Astra Resources, some of Dr Biswas’ evidence seemed to suggest that he did act in that capacity.

196    The evidence of Dr Biswas about the issue of shares in IHL (HK) was also unsatisfactory. Initially he said that the shares in IHL (HK) had not (as at 30 November 2015) been issued to the Astra Resources shareholders because the “mechanical process” takes three months. I observe that more than three months had then elapsed since 1 June 2015. Later, Dr Biswas gave another explanation, namely, that IHL (HK) is “waiting for an EGM to take place on a share consolidation, which has also been advised to shareholders”. Dr Biswas referred in this respect to an email to shareholders from “the directors” of IHL (HK) dated 3 November 2015 which asserted that directors wished “to call an EGM to consolidate the shares on a 2.5 to one basis prior to issuance of share certificates”. The email did not give notice of the EGM and did not indicate when it is to be held. In his evidence on 30 November 2015, Dr Biswas said that he had not been advised of a date for the EGM.

197    On one view of the evidence (and apparently the view which Dr Biswas and Ms De Cianni wish the Court to adopt), the assets of Astra Resources have been transferred to IHL (HK), a one dollar company in which the Astra Resources shareholders do not hold shares. If so, the transfers seem to have been effected without any authorisation by shareholders. Furthermore, there is no evidence that IHL (HK) has passed a resolution to issue shares to shareholders in Astra Resources, let alone that it has issued the shares.

198    Dr Biswas said that he had lodged documents with ASIC advising it of the transfer of shares in Astra Resources to IHL (HK). It is not clear why documents of that kind would be lodged with ASIC, given that Astra Resources is incorporated in the United Kingdom and not in Australia. I note that Dr Biswas did not, in answer to the call by Mr Pearce SC, counsel for ASIC, produce copies of the documents which he said had been lodged with ASIC.

199    For these reasons, I am not willing to accept that the identified detriments are a significant consideration. The projects to which Dr Biswas deposed may not be illusory but there is no basis upon which the Court could conclude that they are viable, or have real prospects of coming to fruition. They are matters to be considered but to my mind do not warrant significant weight being given them.

Ms De Cianni’s position

200    Many of the matters to which I have referred in relation to Dr Biswas apply equally to Ms De Cianni.

201    As already indicated, I consider that Ms De Cianni, like Dr Biswas, should, as the director of a publicly listed company, have recognised the need for it to obtain competent independent legal advice concerning the unusual method of fundraising adopted by Astra Resources. Instead, she seems to have relied passively on Mr Meerkin and Dr Biswas. There is little evidence that Ms De Cianni has at any stage in her directorship of Astra Resources exercised an independent and critical judgment. In fact, with all respect to Ms De Cianni, she seems ill-equipped by reason of background, education or experience to be a director of a publicly listed company, let alone of “an international conglomerate”. It is doubtful that she has met the standard of care required of a director imposed by s 180 of the Act.

202    It is very evident that Ms De Cianni did not really exercise an independent judgment. After acknowledging in her s 19 examination that she had had no experience running a company like Astra Mining, Ms De Cianni professed an absence of awareness of a number of events regarding the transactions involving Astra Mining, Astra Resources and Astra Nominees and, more than once, said that as directors they had simply followed the advice or instructions of others. For example, in relation to the issue by Astra Mining of additional shares after the share swap, Ms De Cianni said “I might have heard about it. I don’t know. Can’t remember, no. No. … [W]hatever we had to do we just did – we were told to do, we did”. Later, in relation to the same question, Ms De Cianni said:

I feel really stupid here, because I really didn’t have a lot to do with this side of it, of the business. Barrie did everything, you know. I’ve never done this, this type of business. This is the first time, and you have to trust somebody, and who’s best to trust is a lawyer, a friend … So whatever he said had to be done, you know, to get this business up and running, we did.

203    When asked whether she had accepted appointment to the Board of Directors of Astra Mining before the EGM on 15 June 2011, Ms De Cianni gave the following answers in her s 19 examination:

I don’t know, darling. I did whatever Barrie told me how we had to do business … I’ve never been really in the corporate world like this … You know, this is the first time and I’m learning as I’m going along. I’m very determined to make things happen. Astra is my family, you know, and there’s nothing I would do to hurt my family.

204    Some of Ms De Cianni’s other answers in the s 19 examination indicate that in relation to many aspects of the affairs of Astra Resources she was out of her depth. When referred in her s 19 examination to cl 3.2 of the SSA effective from 26 August 2011, and asked whether it was referring to a procurement of investment funding for Astra Mining, Ms De Cianni answered “I couldn’t tell you”. This was despite the fact that Ms De Cianni had signed the SSA in her capacity as a director of Astra Mining. Ms De Cianni explained her inability to provide ASIC investigators with details regarding the SSA by saying:

Sweetie, I didn’t deal with any of this sort of thing, you know, and I can’t even remember this … So it wasn’t my real area. It’s not my strength, so what I really haven’t got a lot strength on, I just allowed Jaydeep and – well, Barrie really did everything … Jaydeep just gave me the, you know, “Everything’s fine. Everything, yes. Yes, everything’s fine”.

205    Throughout her s 19 examination, Ms De Cianni repeated her reliance on Mr Meerkin. In relation to Astra Nominees holding shares on trust for Astra Resources, Ms De Cianni said:

It was obviously his idea to do whatever, to set up a bare trust. Who even heard of a bare trust? I didn’t even know what a bare trust was. … And I’m still not a hundred percent … So I just don’t know. It was just Barrie’s idea. He just said, “This is what we’re going to do”.

206    These matters do not inspire confidence that Ms De Cianni has an understanding of her responsibilities as a director. They indicate to the contrary.

The proffered undertakings

207    As noted earlier, counsel for Dr Biswas and Ms De Cianni submitted that the objects of the Act could be met by the Court accepting undertakings from them that they will not, for such period as the Court considers appropriate, be directors of, or involved in the management of, any Australian company other than proprietary limited companies of which the shareholders are only themselves and/or their respective family members or which are trustees of a trust in which the only beneficiaries are either themselves or their respective family members.

208    ASIC submitted that the Court should not accept the proffered undertakings as affording adequate protection to the Australian investing public. It pointed out that the proffered undertakings were made only in respect of Australian companies. They do not extend to directorships of companies incorporated outside Australia which have some connection in Australia and, in particular, a connection constituted by the raising of funds from Australian investors or the use of funds subscribed by Australia investors. In this respect, it is pertinent that Dr Biswas and Ms De Cianni seek to continue involvement as directors in companies in which the 281 investors who are the subject of the present proceedings are said to have some interest.

209    I uphold ASIC’s submission. I consider that the proffered undertakings will not have the same effect as the disqualification orders sought by ASIC.

Mr Meerkin’s position

210    It is not necessary to address Mr Meerkin’s position in detail. He accepted, quite properly, that he had failed to take reasonable steps to prevent the contraventions by Astra Resources and Astra Nominees. His counsel referred to the embarrassment he now feels in having been involved in the contraventions.

211    Mr Meerkin contended that a disqualification for 0-3 years would be appropriate. The bottom end of this range is meaningless. A disqualification for no period is not a disqualification at all. I will treat his submission as though it was one made in the alternative: first that no disqualification at all should be imposed but that if that submission not be accepted, the disqualification should be for a period not exceeding three years.

212    Mr Meerkin made a number of submissions in support of that contention. These were to the effect that he had been an unpaid non-executive director of each of Astra Resources and Astra Nominees (in contrast to the positions of Dr Biswas and Ms De Cianni in Astra Resources); that the mistakes he had made were in his capacity as solicitor rather than in his capacity as director; that he had at all times acted in good faith and with an honest belief that the fundraising activities of Astra Resources and Astra Nominees were lawful; that he did not act dishonestly; and that he should be given credit for his early acknowledgement of the wrongfulness of the conduct of Astra Resources and Astra Nominees during his directorships of those companies, evidenced by the admissions in the defence he filed on 14 August 2014, his cooperation in reaching an agreed statement of facts on 2 September 2014 and his cooperative approach throughout the proceedings.

213    Mr Meerkin provided evidence as to his good character and I have had regard to that. It is to his credit that he is well regarded amongst his professional colleagues.

214    Some of the submissions made on Mr Meerkin’s behalf tended to suggest that his mistakes were made in his capacity as a solicitor, rather than in his capacity as a director. I do not regard this as a mitigating feature. Mr Meerkin’s position as a solicitor and legal advisor to Astra resources gave him the means to prevent the contraction of s 727(1). Not only did he not exercise those means, he in effect encouraged and facilitated the contraventions.

215    Mr Meerkin pointed out that he is now a partner in an incorporated legal practice in Melbourne. I infer that this is the means by which he earns his livelihood. His position as partner makes it necessary for him to be a director of the incorporated legal practice. The suggestion seemed to be that Mr Meerkin’s capacity to earn his livelihood may be compromised by a disqualification order.

216    Mr Meerkin did not provide evidence about these matters, and it is not possible to make findings about them. If disqualification orders will cause particular difficulties in Mr Meerkin’s case, he can apply, pursuant to s 206G of the Act, for an exemption.

General matters

217    I do accept some of the matters emphasised by counsel for Dr Biswas and Ms De Cianni. ASIC has not alleged fraud or dishonestly, and there is no evidence that they set out deliberately to avoid compliance with the Act. On the contrary, there is evidence of attempts by them to comply with the fundraising provisions in some respects. This is not a case in which the Court has evidence of a scam or a fraud.

218    Counsel for Dr Biswas and Ms De Cianni also submitted that it was significant that, with one possible exception, there is no evidence of any investor having complained or having asserted that they would not have made the investment if disclosure of the kind to be expected in a prospectus had been made. I do not attach much weight to this consideration. Many factors may explain the absence of evidence of that kind.

219    Counsel also submitted that the making of the declarations and costs orders, the proffered undertakings and the publicity these would attract, would be sufficient to achieve the purposes of the Act. I do not accept that submission. The contraventions in this case are serious, even though not as serious as those in some cases which come before the courts. The Court should do more than Dr Biswas and Ms De Cianni propose.

Conclusion on disqualification orders

220    I am satisfied that disqualification orders are both justified and appropriate in respect of each of Dr Biswas, Ms De Cianni and Mr Meerkin. I have taken into account in particular the protective purpose of disqualification orders as well as the elements of general and personal deterrence. In the case of Dr Biswas and Ms De Cianni, I have also taken into account their apparent lack of insight into the obligations of a director of a publicly listed company. As I have said, Dr Biswas and Ms De Cianni seem on many occasions to have thought it sufficient to have some legal advice, without addressing for themselves whether that advice could be regarded as both competent and independent. It should have been obvious to them that Mr Meerkin’s advice could not be accepted with question, especially as, if correct, the course he proposed indicated a ready means by which the fundraising provisions in the Act could be circumvented. It is appropriate also to take into account the manner in which Dr Biswas and Ms De Cianni appear to have conducted their directorships.

221    The seriousness of the contraventions warrants, by itself, the disqualification orders.

The period of disqualification

222    As noted earlier, following the High Court decision in Commonwealth v Director, Fair Work Building Industry Inspectorate, I gave the parties the opportunity to make submissions with respect to the appropriate periods of disqualification. ASIC took up that invitation and submitted that disqualifications in the range 15-25 years were appropriate with respect to each of Dr Biswas and Ms De Cianni and a disqualification within the range 10-15 years was appropriate in the case of Mr Meerkin.

223    Dr Biswas and Ms De Cianni indicated that they did not wish to make submissions with respect to the periods of disqualification. As already noted, Mr Meerkin contended for a disqualification in the range of 0-3 years.

224    The parties drew the Court’s attention to a number of cases in which disqualification orders have been made and invited comparison of the circumstances in those cases with those of the present. These included ASIC v Axis International Management (No 6); ASIC v Pegasus; ASIC v Australian Investors Forum Pty Ltd (No 3) [2005] NSWSC 1198, (2005) 56 ACSR 204; ASIC v Elm Financial Services Pty Ltd [2005] NSWSC 1020, (2005) 55 ACSR 411; [2005] NSWSC 1065, (2005) 55 ACSR 544; and ASIC v Beekink [2006] FCA 388, (2006) 57 ACSR 284.

225    I have had regard to these authorities in a general way but do not consider it appropriate to be engaging in a point by point comparison of their circumstances with those in this case. As is already apparent, this case has its own features. In particular, as noted, Dr Biswas and Ms De Cianni did not act without legal advice altogether. Although ASIC drew attention to evidence indicating that Dr Biswas and Ms De Cianni may have benefited personally, it did not suggest that they had acted dishonestly or fraudulently, or without regard to the requirements of the Act at all. In my opinion, disqualifications for the period proposed by ASIC would be unduly severe.

226    I have had regard to the conduct of Dr Biswas and Ms De Cianni in the management of Astra Resources more generally, to which I have referred earlier.

227    I consider that disqualifications for 12 years are appropriate in the case of each of Dr Biswas and Ms De Cianni.

228    The fact that Mr Meerkin was a director of both Astra Resources and Astra Nominees makes his conduct more culpable. However, there are some factors pointing to a disqualification for a lesser period being appropriate in the case of Mr Meerkin. These include his greater insight into the wrongfulness of his conduct and his acceptance of his personal responsibility. Nevertheless, Mr Meerkin allowed his independence as a legal advisor to be compromised. He did not recognise that independent advice was required, particularly when Dr Biswas requested advice on 20 December 2011. He did not recommend that Astra Resources and Astra Nominees then obtain independent advice. Instead, by his conduct, he gave Dr Biswas and Ms De Cianni some cause to think that they were behaving lawfully. Mr Meerkin was a major cause of the contraventions occurring. These considerations mean that, subject to the matters to be mentioned next, Mr Meerkin’s disqualification should also be for 12 years.

229    However, Mr Meerkin should be given credit for his early admissions and cooperation with ASIC in the present proceedings. These matters have facilitated the cause of justice and, as indicated, demonstrate insight on his part. They also indicate that personal deterrence need not have the same prominence in his case.

230    For these reasons, I consider that the disqualification in Mr Meerkin’s case should be for a period of nine years.

231    It will be for Mr Meerkin to consider whether to make an application pursuant to s 206G of the Act in respect of a possible directorship of an incorporated legal practice.

The Cross-Border Insolvency Act 2008 (Cth)

232    The order for the winding up of Astra Resources made in the United Kingdom on 2 November 2015 makes it necessary to refer to the Cross-Border Insolvency Act 2008 (Cth) (the C-BI Act). The C-BI Act gives the force of law in Australia to the Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade Law (the Model Law). Article 15 of the Model Law permits a foreign appointed liquidator to apply to an Australian court for “recognition” of the proceeding in which the liquidator has been appointed. The effect of a foreign liquidation being recognised under Arts 15 and 17 of the Model Law is that any proceeding concerning the debtor’s assets, rights, obligations or liabilities is stayed and the right to transfer, encumber or otherwise dispose of any assets of the debtor is stayed as under s 471B of the Act: see Art 20 of the Model Law and s 16 of the C-BI Act.

233    Articles 25 and 26 of the Model Law contemplate cooperation between Australian courts and foreign courts and liquidators in relation to foreign liquidations even when the foreign liquidation is not recognised in Australia: Gainsford v Tannenbaum [2012] FCA 904; (2012) 216 FCR 543 at [56]. However, there has been no request for cooperation by the High Court of England and Wales, and the liquidators have made no such request.

234    The liquidators have not applied for recognition of the liquidation. As noted earlier, they did not appear at the resumed hearing on 21 December 2015 on behalf of Astra Resources but, instead, were granted leave to intervene and to make submissions with respect to the orders proposed by ASIC.

235    ASIC submitted that the liquidators had had sufficient time in which to decide whether or not to apply for recognition of the liquidation. It contended that, as it appeared that a deliberate decision had been made not to apply for recognition before the resumed hearing on 21 December, the Court should proceed to determine the remaining issues in the proceedings concerning Astra Resources. I consider it appropriate to give effect to that submission but, as will be seen, will in doing so take account of the circumstance that Astra Resources is now in liquidation.

Voidable transactions

236    ASIC seeks orders under s 1101B of the Act in respect of the 323 share purchase agreements into which the 281 investors entered with Astra Nominees. It seeks orders to the following effect:

(a)    that each agreement is voidable at the discretion of the purchaser;

(b)    that each be deemed to be void upon the purchaser notifying Astra Nominees by notice in writing that it wishes to void the transaction in accordance with the Court’s orders;

(c)    that Astra Nominees, within 14 days of the receipt of a notice from a purchaser, provide the purchaser with a refund of all consideration paid by that purchaser in connection with the transaction; and

(d)    Astra Resources be jointly and severally liable for any failure by Astra Nominees to comply with its refunding obligations.

237    ASIC relies for this purpose on s 1101B(1)(a) of the Act which provides (relevantly):

The Court may make such order, or orders, as it thinks fit if:

(a)    on the application of ASIC, it appears to the Court that a person:

(i)    has contravened a provision of this Chapter, or any other law relating to dealing in financial products or providing financial services; or

…

238    The discretionary power thus vested in the Court is subject to the later rider that the Court may make the order only if satisfied that the order would not “unfairly prejudice” any person.

239    The shares in Astra Resources which were the subject of the share purchase agreements are “financial products” as defined: see ss 764A(1)(a) and 92(1)(b) of the Act. The term “dealing in financial products” in s 1101B(1)(a)(i) includes applying for or acquiring a financial product, issuing a financial product and disposing of a financial product: s 766C(1). Furthermore, by s 766C(2), conduct comprising the arranging for a person to engage in the conduct to which subs (1) refers is also dealing in a financial product.

240    Accordingly, the pre-requisites to which s 1101B(1)(a)(i) refers are satisfied in this case.

241    Section 1101B(4) gives examples of the kinds of orders which the Court may make under subs (1). Relevantly, the examples include “an order declaring a contract relating to financial products or financial services to be void or voidable” (subpara (4)(h)), and “any ancillary order considered to be just and reasonable in consequence of the making of an order under any of the preceding provisions in subs (4) (subpara (j)). I will proceed on the basis that s 1101B does authorise the kind of order sought by ASIC.

242    ASIC acknowledged that a voiding order of the kind which it seeks presently has not previously been made under s 1101B(1)(a). It referred, however, to National Companies and Securities Commission v Monarch Petroleum NL [1984] VR 733 and to Australian Securities Commission v Mount Burgess Gold Mining Co (1994) 15 ACSR 714 in which voiding orders had been made under analogous provisions.

243    In Monarch Petroleum, the NCSC sought an order under s 14 of the Securities Industry (Victoria) Code in respect of share purchases effected on a single day following the publication of a bogus letter. That letter had had the effect of increasing the demand for shares in a number of companies. The deception was discovered fairly quickly and trading in the affected companies’ shares was stopped altogether after about 45 minutes. Nicholson J granted orders declaring void all the share transactions on the day in question.

244    In Mount Burgess, Lee J made orders pursuant to s 1114 of the Corporations Law declaring void share transactions occurring after the publication of a letter indicating that a takeover bid would be made in respect of a company when, at the time, the making of such an offer had not been decided. The affected transactions were those occurring in a 24 hour period and, as in Monarch Petroleum, the Court granted interim relief before the share purchases had been registered.

245    The circumstances of Monarch Petroleum and Mount Burgess were accordingly quite unusual and different from those of the present case. In particular, unlike the present case, they concerned transactions which had occurred during a confined period. Nevertheless, the reasons of Nicholson J and of Lee J provide assistance presently. Nicholson J held:

(1)    the exercise of the power to declare transactions void or voidable should be exercised with caution, at 738;

(2)    an application under s 14 of the Securities Industry (Victoria) Code was a proceeding in rem and not inter partes and that the Court is under no obligation to ensure that all persons affected by its orders are before it, at 739;

(3)    regulators such as the NCSC act as watchdogs of the public interest, including the interests of those members of the public seeking to trade upon stock exchanges, at 739;

(4)    providing that the setting aside of the share transactions will occasion minimal injustice to innocent persons, it is appropriate that transactions taking place in a misinformed market should be set aside, at 741;

(5)    it was not in the public interest that multiple investors should be forced to bear losses as a result of deliberate public misinformation or fraud, at 741; and

(6)    the power vested by s 14(8) of the Code, (which has its counterpart in s 1101B(11)) to rescind or vary an order means that courts have a wide discretion by which to mitigate any injustice or detriment which the making of the voiding order may have on particular individuals, at 741-2.

246    In Mount Burgess, Lee J referred to the public interest in the community having confidence that any attempt to distort the market be rendered fruitless and to the public interest in investors having confidence that they will not bear the consequences of participating in a market falsified by misinformation or manipulation, at 720.

247    Lee J also referred to the statement of Ormiston J in Gjergja v Cooper [1987] VR 167 at 170 that:

[W]here a contravention occurs and it seems likely that one or more of those objects will be defeated if an acquisition is allowed to stand, then prima facie any exercise of the discretions given to the Court under the Code which enables all parties to return to the positions they were in before the impugned acquisition took place is a proper exercise of that discretion.

248    On the topic of unfair prejudice, ASIC referred to another passage in the reasons of Ormiston J in Gjergja v Cooper at 218. His Honour noted that in the earlier case of Waldron v MG Securities (A/Asia) Ltd [1975] VR 508 at 532, Pape J had said in relation to a counterpart provision:

The Act gives no guidance as to what constitutes unfair prejudice and it would appear that the Court is left at large to determine each case according to the justice and equity of the circumstances. It may well be that cases will occur where it is obvious from the material presented to the Court that a particular order will unfairly prejudice some person or persons. But in many cases the Court may not be in a position to say whether there will be such unfair prejudice or not in the absence of evidence as to specific transactions and the persons affected by those transactions, and this is particularly the case where, as in this case, there is a multiplicity of individual transactions involving very many people and very large sums of money.

Ormiston J in Gjergja v Cooper then continued:

I will assume for present purposes that the appellants and Mr Richards have established that they would be prejudiced by the making of the orders in this case. It is another matter whether they would be unfairly prejudiced. In the context of the present case the starting point must be that the parties had clearly contravened the provisions of the Code, and the obvious solution was the restoration of the status quo. It is difficult to see why the restoration of the position which applied before the contravention, and the consequences flowing from any order effecting that, should be considered unfair or as causing unfair prejudice, unless that restoration was likely to achieve nothing, or its benefits were so minimal or benefited so few shareholders, that the prejudice far outweighed the benefits likely to be attained. Although an innocent and inadvertent breach may in certain circumstances be excused, the fact that the contraventions were unwitting is no basis for asserting that the prejudice caused by the making of the orders is unfair.

249    Digby J considered the expression “unfairly prejudiced” in the context of s 444GA(3) of the Act in Re BCD Resources (Operations) NL [2014] VSC 259; (2014) 100 ACSR 450 as follows:

[55]    The words “unfairly prejudice” clearly requires more that the identification of prejudice consequential upon the proposed transfer, or likely to result from the proposed transfer. The addition of the qualifying adjective “unfairly” in s 444GA(3), makes it clear that prejudice alone will not trigger the prohibition in s 444GA(3). This is consonant with the purpose of the section because it accommodates the practical need for the section to be able to operate notwithstanding a situation where the grant of leave can be said to give give to some degree of prejudice to members of the company.

…

[57]    The sort of circumstances which may potentially inform the courts as to whether there would be relevant unfair prejudice to the interests of the members of the Company cannot be exhaustively catalogued. However, such circumstances would logically include a comparison of the members’ position in the event that the enforced transfer of shares occurred with the members’ position in the event the transfer did not occur. Therefore, it will be material to consider the value of the relevant shares and what, if any, loss will result if leave is granted; whether the shares are likely to increase in value, and the factors which are likely to bring about that result including the likely timing of such factors.

250    ASIC relied upon the following matters in combination as indicating that voiding orders would be appropriate in this case. First, the purchasers did not receive the appropriate disclosure required by Ch 6D.2 of the Act in respect of the offers of shares. Secondly, the making of the offers in contravention of the Act had a significant effect as some $6,580,895.50 was raised from the 281 investors who had to make their decisions without adequate disclosure. Thirdly, the orders it proposed would not, of themselves, declare the transactions void. Some intervening action by the individual investors would be required. That is to say, no transaction would become void contrary to the will of an individual investor. Fourthly, for those investors who do give the contemplated notice to Astra Nominees, the shares in Astra Resources will revert to Astra Nominees. Accordingly, the setting aside of the shares will not have the effect of either diluting or concentrating shares in other shareholders.

251    Finally, ASIC emphasised the broad discretion granted to the Court by s 1101B(11) to rescind or vary an order in the circumstances of an individual case.

252    I have concluded that the Court should not make the voiding orders sought by ASIC.

253    The winding up of Astra Resources means that there is considerable doubt as to whether the order would have any practical utility. There is no evidence that either Astra Resources or Astra Nominees has the means to refund the amounts paid by any investor. Subject to the recoveries which the liquidators may be able to make, it seems that Astra Resources has little prospect of refunding the monies it received from Astra Nominees in respect of the share purchases. There is no evidence about the financial position of Astra Nominees but it seems probable that, apart from any rights of recovery available to it, its only assets are the shares it holds in Astra Resources and, possibly, a right of indemnity against Astra Resources arising from its position as trustee. For the same reasons, it seems doubtful that these assets and rights will have any value. The Court should not readily make orders which will have no practical utility.

254    Secondly, it is difficult for the Court to be satisfied that the voiding orders sought by ASIC would not have the effect of unfairly prejudicing other persons. The transfers of the shares occurred over an extended period and involved multiple investors. The Court has no information as to whether voiding orders would affect other persons, who have entered into contractual relationships with the investors.

255    Further, under the Act, the claims of shareholders in a company’s liquidation are subordinated to the claims of the company’s creditors (s 563A). The Court was informed that there is no counterpart to s 563A in the Insolvency Act 1986 (UK). However, s 127(1) of the Insolvency Act provides:

In a winding up by the court, any disposition of the company’s property, and any transfer of shares, or alteration in the status of the company’s members, made after the commencement of the winding up is, unless the court otherwise orders, void.

256    It is not possible to determine presently whether the voiding of the shares transfers pursuant to the orders sought by ASIC would constitute a “transfer of shares” or an “alternation in the status of the company’s members” within the meaning of s 127(1). If it would, then there would be questions as to the enforceability of this Court’s orders. If it does not, then it would seem that the investors providing a voiding notice would change in status to unsecured creditors. The Court does not have enough information about the position of Astra Resources or of its other shareholders to be able to reach a state of satisfaction that the orders having the effect of changing the status of certain shareholders in a liquidation would not unfairly prejudice other persons.

257    Accordingly, I decline to make the voiding orders sought by ASIC.

Publicity orders

258    ASIC seeks orders under s 1324B of the Act that Astra Resources and Astra Nominees notify the 281 investors by letters and published advertisements of their contraventions and of the potential rights of those shareholders in the light of the contraventions.

259    Section 1324B provides:

1324B    Order to disclose information or publish advertisements

Without limiting section 1324, if, on the application of ASIC, the Court is satisfied that a person has engaged in conduct constituting a contravention of a provision of Chapter 5C, 6CA or 6D, subsection 798H(1), section 901E or 903D or Part 7.10, the Court may make either or both of the following orders against that person or a person involved in the contravention:

(a)    an order requiring the person to whom it is directed to disclose, in the manner specified in the order, to:

(i)    the public; or

(ii)    a particular person; or

(ii)    a particular class of persons;

the information, or information of a kind, that is specified in the order and is in the person's possession or to which the person has access;

(b)    an order requiring the person to whom it is directed to publish, at the person's own expense, in the manner and at times specified in the order, advertisements whose terms are specified in, or are to be determined in accordance with, the order.

260    ASIC seeks order that each of Astra Resources and Astra Nominees write to each of the 281 investors who purchased shares in Astra Resources from Astra Nominees in the period 8 September 2011 to 8 September 2012 in terms set out in Annexures A and B to its Further Amended Originating Process and, together, cause to be published in specified newspapers an advertisement in the form of Annexure C to that Originating Process.

261    Section 727(1), which was contravened by Astra Resources and Astra Nominees, is located in Ch 6D.3 of the Act and is therefore one of the contraventions to which s 1324B refers.

262    Many of the principles relating to the exercise of the Court’s discretionary power under s 1324B were considered by Gilmour J in ASIC v Axis International Management Pty Ltd (No 5) [2011] FCA 60, drawing on the approach discussed by Stone J in Medical Benefits Fund of Australia Ltd v Cassidy [2003] FCAFC 289; (2003) 135 FCR 1 at [45]-[63]. Gilmour J noted the following propositions, at [289]:

(a)    the power is discretionary and its exercise is informed by the principles developed in relation to the making of publicity orders under ss 80 and 80A of the Trade Practices Act 1974 (Cth);

(b)    the power should be exercised protectively and not punitively;

(c)    any order should be closely related to the contravening conduct and directed to aiding the enforcement of the primary orders and the prevention of repetition of such conduct;

(d)    advertising may also be justified on the basis that it has some public educational effect in relation to the operation of the relevant legislative provisions;

(e)    there may be utility in informing persons who have been misled as to the true position; but

(f)    the effluxion of time may bear upon that utility in a given case.

263    Gilmour J also noted the observations of French J in ACCC v Real Estate Institute of Western Australia Inc [1999] FCA 1387; (1999) 95 FCR 114 at [49], that notices and advertisements be appropriately ancillary to the primary relief granted by the Court.

264    Axis International (No 5) was a case like the present involving contraventions of s 727(1). Gilmour J considered that letters and advertisements of the kind sought by ASIC in this case were appropriate saying:

[291]    The orders sought in this case are directed to bringing, by both letter and advertisement, to the attention of those shareholders who purchased shares in the relevant period and who may have been directly affected by the failure to provide the necessary disclosure that they may have an entitlement to make a legal claim for damages or a refund of the money paid.

[292]    While a considerable time has passed since those shareholders purchased their shares, the limitation period for any action based on the share purchases has not yet passed. Accordingly, some of those shareholders may well have a cause of action, of which they may be unaware, and which they may be able to pursue.

[293]    Further, the advertisement will also have the effect of bringing to the attention of the general public, including those who may be considering fundraising, the relevant provisions of the Corporations Act and the consequences of non–compliance as well as the fact that the corporate regulator will pursue such matters.

265    Following the liquidation of Astra Resources and discussions with its liquidators, ASIC proposed revised forms of letters.

266    I am satisfied that it is appropriate to order both Astra Resources and Astra Nominees to send letters in the revised forms to the 281 investors. The effect of the letters will be to achieve the purposes stated by Gilmour J in Axis International (No 5).

267    I add that the liquidators raised two initial objections to the letters. These were the expense for them in sending correspondence to 281 investors and secondly, that the form of the letter suggested personal responsibility on their part. The revised form of the letters takes account of the second objection. I will order that the letters be sent by email to those investors for whom an email address is provided. This will limit the expense to be incurred by the liquidators.

268    I decline to accede to ASIC’s application that Astra Resources and Astra Nominees also cause advertisements to be published in a number of newspapers. Orders to that effect are commonly appropriate but account must be taken of the expense which will be incurred, and the limited means available to the liquidators of Astra Resources and to Astra Nominees by which to comply with the Court’s orders.

Summary

269    For the reasons given above, I make the following orders:

(1)    The name of the First Defendant be changed to Astra Resources Ltd;

(2)    Each of the Third and Fourth Defendants (Dr Biswas and Ms De Cianni) are disqualified, pursuant to s 206E of the Corporations Act, from managing a corporation for a period of 12 years from the date of this Order;

(3)    The Fifth Defendant (Mr Meerkin) is disqualified pursuant to s 206E of the Act from managing a corporation for a period of nine years from the date of this Order;

(4)    Each of the First and Second Defendants (Astra Resources and Astra Nominees) is, within 14 days of the date of this order, to send a copy of a letter in the form of Annexure A and Annexure B to these orders respectively (to be sent separate to any other communication) to each of the persons named in the first column of the Schedule to the Order made in this proceeding on 14 September 2015, the letters to be sent:

(a)    by email to the email addresses listed in Trial Exhibit A82; or

(b)    if no email address is provided in Trial Exhibit A82 (or if any email sent does not appear to have been validly received), then to any mailing address listed in Trial Exhibit A9, or if not listed in that exhibit, then as listed in Trial Exhibit A82.

(5)    ASIC’s application for an order pursuant to s 1324B of the Act that Astra Resources and Astra Nominees together cause advertisements to be published in newspapers is dismissed;

(6)    ASIC’s application pursuant to s 1101B of the Act that each of the share purchase transactions by the 281 investors is voidable at the discretion of the purchaser, together with consequential orders, is dismissed.

270    I will hear from the parties as to costs.

Associate:

Dated:    20 May 2016

SCHEDULE OF PARTIES