Federal Court of Australia

Enares Pty Limited v Nimble Money Limited [2022] FCAFC 126

ORDERS

THE COURT ORDERS THAT:

1.    The appeal is dismissed.

2.    The appellant is to pay the respondent’s costs of the appeal.

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

REASONS FOR JUDGMENT

The court:

Introduction

1    In this matter the learned primary judge dismissed an urgent application brought by the appellant, Enares Pty Ltd (Enares), to inspect the books and records of the respondent, Nimble Money Ltd (Nimble) pursuant to s 247A of the Corporations Act 2001 (Cth) (the Act). The application was heard over three days on 13, 14 and 16 December 2021, with her Honour delivering judgment together with ex tempore reasons at the conclusion of argument on the last day. At the heart of Enares’ application was an internecine dispute between it, as the largest shareholder in Nimble, and Nimble’s Board of Directors in relation to decisions made by Nimble for the purposes of refinancing certain debt facilities.

2    The urgency of the application before the primary judge arose in the following circumstances. Nimble’s senior debt facility was due to expire on 18 December 2021, and its subordinated debt of $4.5m was due to be repaid on 21 December 2021. That subordinated debt had been issued as “Series 13 Notes” pursuant to a secured note issuance program after two unsuccessful entitlement offers of Nimble shares in April and May 2021 in the circumstances described by the primary judge at PJ [23]-[26]. The Series 13 Notes were issued with a 2% establishment fee, with an interest rate of 16% per annum and for a term of 6 months. The holders of the Series 13 Notes were Nimble’s two major shareholders, Enares and Van Diemens Land Finance Pty Ltd (VDLF), albeit that the latter held the notes through its related entity, Lempriere Pty Ltd.

3    By November 2021, Nimble had reached agreement with its senior debt financiers to renew the existing facility of $30 million, although that was dependent upon the refinancing of the Series 13 Notes or raising equivalent equity. Enares, by its director Mr Thompson, preferred that Nimble’s Board should raise $10m by a rights issue of Nimble shares to existing members rather than refinance with a new issue of subordinated notes. He asserted that the long-term financial interests of Nimble would be better served by raising finance in this way and expressed an interest in Enares underwriting any such issue.

4    Although it appears that Enares initially sought inspection of Nimble’s books for the purpose of securing information which it might use to obtain injunctive relief against the Board in respect of the issuing of new notes, by the time the application was heard an agreement had been reached with new subordinated debt financiers to take new notes. As a result, Enares claimed it sought inspection because it was concerned that the Board members had breached their duties by the decision to issue new notes or that their conduct was oppressive within the meaning of ss 232 and 233 of the Act. It also claimed that it was concerned as to the value of its shareholding in Nimble despite there being no so-called “liquidity event” in respect of which the investors in the company might sell their shares. The primary judge refused the application.

5    As appears from the reasons which follow the appeal should be dismissed. The primary judge was correct to conclude that Enares was neither acting in good faith nor seeking inspection for a proper purpose within the meaning of s 247A of the Act. Her Honour correctly held that, in the circumstances of Nimble’s financial distress and the refinancing options available to it, there was no foundation for Enares’ alleged concerns that the members of the Board breached any duty or acted other than in the interests of the shareholders as a whole in refinancing the subordinated debt by issuing new notes. Enares’ central submission was that Nimble ought to have pursued negotiations with it for the purposes of attempting to effect a rights issue of Nimble shares with it as the potential underwriter. That was rejected by the primary judge who effectively concluded that there was no real opportunity available to the Board to pursue an equity raising strategy. Refinancing by that method had been attempted on a number of occasions over the previous two years without success or any sufficient interest from existing shareholders. Moreover, the so-called proposed rights issue in November then proffered by Enares was conditional and indicative only and amounted to no more than an invitation to negotiate. Given the time constraints on the Board to make a decision, there was nothing to suggest that it erred by refinancing as it did, being in a manner that it had successfully done on previous occasions, rather than gamble on the mere hope that negotiations with Enares would produce an appropriate outcome within sufficient time.

Background

6    Nimble has been in the business of short-term money lending, sometimes referred to as “pay-day” lending. Although it is a public company it is not listed on the Australian Securities Exchange.

7    Its shareholding consists of two large shareholders, Enares which holds approximately 15% of the issued capital and VDLF which holds about 14%. The remaining shareholding consists of 70 other members whom hold between 5.76% and less than 1% of the issued shares.

8    In recent years Nimble has suffered a deterioration in its financial position and, for this and other reasons, in 2019 it adopted a strategy to transition from the short-term money lending business to medium to long-term lending. At the time of the adoption of this new business strategy it was predicted that, after some initial short to medium term negative impacts on its cashflow and revenue through 2021, it would begin to achieve positive returns. Unfortunately for Nimble, the occurrence of the worldwide COVID-19 pandemic impeded its transition to the new market and adversely affected its business operations resulting in a not insignificant downturn in its loan book, number of active customers, and cashflow. The consequence was that it experienced a further deterioration in its financial position in the period from 2019. As at the date of the hearing of the appeal its most recent published audited accounts, being those for the period ending 30 June 2021, recorded it as having sustained a loss after tax of some $5,469,000. In those accounts, which were produced in November 2021, the company’s auditors expressed the opinion that there was material uncertainty as to Nimble’s ability to continue as a going concern. They provided the following explanation:

Going concern

The financial report has been prepared on a going concern basis that contemplates the continuity of normal operating activities and the realisation of assets and the settlement of liabilities in the normal course of business.

For the year-ended 30 June 2021, the Group generated a loss after tax of $5,469,000.

The Group has signed a non-binding term sheet with its existing funders with a facility limit of $30m to refinance the existing borrowings maturing in less than 12 months. The term sheet has been signed by both parties at terms the directors believe are acceptable for the business in its current form. The new borrowings will have a fixed interest rate and a term of 3 years.

The facility is contingent on the Group raising $4.5m of equity or subordinated notes to replace the current subordinated notes. The Group has signed binding term sheets for $4.5m of subordinated notes to replace its existing subordinated notes. Completion is on or around the 21st of December 2021.

As at 30 June 2021, the Group had positive net assets of $7,599,000.

9    As identified by the auditors, it was a condition of the new term sheet with the existing senior lender to re-finance its existing facility that Nimble was to raise $4.5m in equity or subordinated notes to replace the existing Series 13 Notes. Those notes were held by Enares, in an amount of $3.3m, and Lempiere Pty Ltd in an amount of $1.2m. The required date for the completion of the condition was 18 December 2021, being the date on which the then existing debt facility matured. The uncontradicted evidence before the primary judge was that the funding which had been provided by Enares and VDLF via Lempiere Pty Ltd, had been intended to be short term emergency finance. Mr Thompson deposed that it had been intended by him that the notes would be repaid by December 2021 from funds raised through an equity rights issue.

10    It is relevant to note that, as at early October 2021, all members of Nimble’s Board of Directors, save for Mr Edney, had either been removed or resigned, and the Chief Executive Officer was Mr Mackenzie. As appears from the correspondence in evidence, Mr Edney had sought the assistance of certain human resources consultants to identify persons who would be prepared to take on the position as new Board members. That process came to fruition at around late October 2021 when three new members were appointed. Each of the new directors had experience in corporate finance within industries such as health, telecommunications and banking.

11    It would seem that from early October 2021, Mr Edney anticipated that the issuing of new subordinated notes would be required for the purposes of securing the refinancing of the existing senior debt. On 4 October 2021 he sent an email to the existing note holders and other members attaching a term sheet to replace the existing notes and sought to ascertain their appetite to take up the new issue. He identified that, if there was insufficient demand, the company would progress to an entitlement offer.

12    This email prompted Enares’ solicitors, Baker McKenzie, to write to Nimble on 7 October 2021, listing Enares’ concerns about the company’s financial position and the proposal to replace the subordinated debt with new debt rather than undertaking a recapitalisation. On 13 October 2021, Enares’ solicitors again wrote to Nimble and, on this occasion, attached the indicative terms on which Enares would underwrite a rights issue for the purpose of raising $10m. It is referred to in these reasons as Enares’ “October Proposal”.

13    In a response from Nimble’s solicitors, Gilbert + Tobin, the following day, Enares was advised that Nimble was working through the proposal but noted that some elements of it contained some complexity and that it was conditional upon the support of all other shareholders in the company which held more than 1% of the shares. Gilbert + Tobin indicated that Nimble considered that the first logical step was to ascertain the attitude of those shareholders to this important condition. It was stated that no important decisions would be taken prior to the appointment of new directors, such that that it would make sense to meet to discuss Enares’ proposal for recapitalisation once the new Board was in place and prior to it making any decision.

14    The October Proposal was circulated amongst the existing shareholders by an email from Mr Edney on 15 October 2021. It seems that the condition requiring the approval of the members would not be able to be satisfied and, on 22 October 2021, Enares gave notice confirming that the proposal was withdrawn.

15    Correspondence between the parties continued and Mr Edney remained open to a recapitalisation of Nimble despite the current terms of Enares’ offer not being acceptable. On 26 October 2021, Nimble’s solicitors, Gilbert + Tobin, wrote to Enares’ solicitors advising that no action on the recapitalisation would take place until the new directors were appointed and a quorate board was constituted. The letter continued:

Once that has occurred, and the Board has considered and made its judgement on the recapitalisation proposal that is in the best interests of the company, all key shareholders will be informed of the details of the proposed course of action. It is premature to provide those details until the Board has made those determinations.

16    In that letter Gilbert + Tobin identified that Nimble’s position was that it was not appropriate that all key shareholders should be consulted prior to any decision being made as that was at odds with the urgency which the situation required.

17    By 27 October 2021, a new Board had been constituted and, on that date, a letter was sent to the company’s shareholders identifying the new directors and their credentials. The letter also provided an update on the refinancing of debt and advised that a non-binding term sheet had been agreed with the senior debt financier which was on more favourable terms than the previous facility. It further advised that the Series 13 Notes were due to expire and that they needed to be replaced in order to comply with the new term sheet with the senior financer and to support expected growth. The letter continued:

The Board is considering various options available to achieve this, and has begun seeking expressions of interest from both existing key shareholders and new investors alike. Further updates will be provided to shareholders once there are firmer details to share.

18    Although Mr Sulan for Enares submitted that this letter should have been taken as a representation that Enares would be further consulted prior to the making of any determination about the refinancing of existing debt, that construction is not open. Either by itself or in the context of the correspondence which preceded it, the letter was merely indicating that the shareholders will be informed of the company’s decision.

19    The decision to issue a new series of subordinated notes to refinance the Series 13 Notes was made on 10 November 2021, by the Board constituted by Mr Edney and the three new directors. The decision was advised to the shareholders by letter of 10 November 2021, which stated, inter alia:

The Board is pleased to confirm that a binding agreement has been signed with a new investor group (New Investors) to subscribe for $4.5 million of secured subordinated notes (each Notes) issued by Nimble Australia Pty Ltd under its existing secured note issuance program (Note Program), with the agreement being conditional on satisfactory completion of due diligence, a follow-on offering being extended to the company’s shareholders and execution of definitive documentation.

20    The letter identified the interest rates payable in respect of the new notes. The Series 14 Notes interest rate ranged from 16% to 24%, and the Series 15 Notes interest rate was between 10% and 13%. The latter series carried with it options to acquire shares in Nimble at identified prices. The shareholders were advised that the new noteholders would take a mixture of Series 14 and Series 15 notes and that the existing shareholders would be offered an opportunity to subscribe to a follow-on offer of these notes so as to raise a further $2m to $4m. That offer to the existing shareholders is referred to as the “Follow-on Offer”. The letter also stated:

There have been no substantial alternative proposals received that could be progressed and the Board believes that the agreement with the New Investors is in the best interests of the company and the shareholders.

21    The news that Nimble had entered into the new refinancing arrangements drew an immediate response from Enares’ solicitors. In a letter of 11 November 2021, Baker McKenzie advised that:

Our client’s preliminary view is that the Notes and Options Agreement is clearly contrary to the interests of shareholders as a whole and should not proceed. The introduction of significant further debt at the extraordinarily high rates of interest that have been identified is clearly not preferable to capital being raised by way of the issue of new equity to existing shareholders.

22    Later in the letter the extent to which Enares was prepared to participate in an equity raising was identified in the following terms:

Your client accordingly knows that our client is prepared to participate in an equity raising at the right price, has the funds available that are necessary and is supportive of such a raising being open to all shareholders equally.

(Emphasis added).

The letter went on to complain that the Board had not sought to investigate, consider and propose alternative equity raising through existing shareholders. It was asserted that shareholder approval for the refinancing was required and that, in order for Enares to be appropriately informed of the relevant circumstances, Nimble was obliged to provide Enares with an array of identified documents.

23    The following day, being 12 November 2021, Enares by a letter from its solicitors proposed further indicative terms of an alternative equity raising which would be acceptable to it. It is referred to as Enares’ “November Proposal”. However, it came with the following caveat:

Please note that providing these indicative terms to the Company at this time does not constitute an offer by our client that is capable of acceptance as the terms are intended to be indicative and expressed as subject to definitive documentation and due diligence.

24    It is to be observed that the November Proposal priced Nimble’s shares at $0.075, being half of the price payable on the exercise of the options attached to the Series 15 Notes in the first year. The term sheet of the proposed rights issue also included a clause which permitted Enares to terminate the underwriting if Nimble took any further steps to enter into additional debt financing arrangements including the issuing of subordinated notes. This would mean, in effect, that Nimble would be prevented from putting alternative sources of finance in place whilst the rights issue proceeded.

25    On 16 November 2021, the Board sent to its members a letter in which it advised of the indicative non-binding offer from Enares to underwrite a proposed non-renounceable rights issue. The letter advised that the proposed rights issue was intended to raise $8.5m by the issue of new ordinary shares at a price of $0.075 per ordinary share and that the members would receive rights to apply for 1.15 new ordinary shares for each existing ordinary share currently held. The letter observed:

The company wishes to advise shareholders that it is diligently and thoroughly assessing the merits and considerations of the Proposed Rights Issue, in the context of having entered into a binding conditional agreement for the issue of $4.5m Series 14 and 15 Subordinated Notes, with a view to determining whether the Proposed Rights Issue is in the best interests of the company.

26    On 23 November 2021, Nimble sent to its members a shareholder update advising that definitive documentation had been executed by the new investors who had subscribed for the Series 14 and 15 Notes. This indicated that, by that date, the Board had largely declined to pursue the November Proposal.

27    Despite Enares’ further attempts to treat with Nimble about an alternative equity raising in lieu of taking on additional debt, that opportunity was not taken up by Nimble.

28    Mr Thompson and Enares claim to have concerns as to the interest rate payable on the Series 14 and 15 Notes. Mr Thompson deposed that he was of the opinion that it was detrimental for Nimble to assume significant further debt, by way of a subordinated notes issue at high interest rates to “unidentified new investors”, as opposed to pursuing a rights issue pursuant to which further capital would be contributed by existing shareholders. He claimed that such a rights issue would have been a preferable solution to Nimble’s financial difficulties as it did not involve exposing the company to the substantial interest rate obligations.

29    He originally asserted that at the time Nimble determined to make the new notes issue, there existed three matters of concern which influenced the decision. They were:

(a)    That Nimble had only one director, Mr Edney, who was associated with VDLF. It was also suggested that Mr Edney would have passed on to VDLF information which was not available to Enares or Mr Thompson.

(b)    That the new investors are associated with VDLF or with the three new directors who were appointed to Nimble’s Board on about 26 and 27 October 2021. The new debt refunding arrangement was announced by the Board on 10 November 2021 and it is alleged that the new directors could not have had sufficient time to consider the alternative refinancing options; and

(c)    Nimble had refused to meet with Mr Thompson to discuss the refinancing options, including if there were better terms available.

30    From these matters Enares claimed that there may exist a number of direct or derivative claims for relief against Nimble’s directors in respect of the entry into the debt refinancing transactions, or that it may have a claim for relief under ss 231 – 233 of the Act.

31    In the result, Enares made its application to the primary judge under s 247A of the Act for orders that it be entitled to inspect Nimble’s books which it claimed was for the purpose of ascertaining whether it should pursue any causes of action open to it. It claimed that it remained prepared to underwrite an equity rights issue to protect its investment in Nimble because there was a risk that Nimble might fail if the note issue proceeded.

32    The primary judge dismissed Enares’ application. Her Honour concluded that Mr Thompson’s concerns were without any objective foundation and otherwise considered that the making of orders under s 247A was not necessary for Enares to protect its investment in Nimble. Her Honour also concluded that even if the discretion had been enlivened, she would not have exercised it in Enares’ favour.

Legislation

33    It is only necessary to refer to the following part of s 247A:

247A     Order for inspection of books of company or registered scheme

(1)     On application by a member of a company or registered scheme, the Court may make an order:

(a)     authorising the applicant to inspect books of the company or scheme; or

(b)     authorising another person (whether a member or not) to inspect books of the company or scheme on the applicant’s behalf.

The Court may only make the order if it is satisfied that the applicant is acting in good faith and that the inspection is to be made for a proper purpose.

Consideration

34    The appeal consisted of four main grounds. Firstly, it was submitted that the primary judge erred in failing to conclude that the relevant circumstances gave rise to an “issue to investigate” in relation to either a potential derivative suit for breach of directors’ or officers’ duties under s 237 of the Act or a potential oppression suit under s 232 of the Act. Second, it was submitted that the primary judge made several factual errors in her findings which vitiated her conclusion that there was no issue to investigate. The third ground was that errors occurred in the primary judge’s application of the applicable test under s 247A to the circumstances of the case. Finally, it was submitted that by reason of the foregoing errors, the primary judge’s discretion had miscarried.

Ground 1 – An issue to investigate

35    On appeal it was submitted on behalf of Enares that it sought documents under s 247A to enable it to understand the terms of the debt funding arrangements which were to be put in place, the directors’ rationale for entering into them, and to investigate its options or any potential actions available to it. It claimed that the veracity of its pursuit of the documents supported the conclusion that it was “acting in good faith and that the inspection is to be made for a proper purpose” within the meaning of s 247A.

The nature of s 247A

36    The structure of s 247A and, particularly, s 247A(1) is awkward. However, despite its drafting, it is sufficiently clear that it vests discretion in a court to make a relevant order once satisfied that the applicant seeking relief is acting in good faith and that the inspection is to be made for a proper purpose. There was no real attempt in this case to distinguish between the process by which the primary judge ascertained whether she was satisfied of the identified criteria, and the subsequent exercise of discretion which would have been enlivened if the required state of satisfaction had been reached. By its references to House v The King (1936) 55 CLR 499, it would appear that the respondent perceived that the exercise of the discretion was at issue, whereas it may well be that the correct paradigm in which to analyse the primary judge’s conclusion as to her state of satisfaction is by reference to the principles in Avon Downs v Commissioner of Taxation (1949) 78 CLR 353, 360.

37    It is not doubted that for the purposes of s 247A the applicant for relief bears the onus of establishing that it is acting in good faith and for a proper purpose: Praetorin Pty Ltd v TZ Ltd (2009) 76 ACSR 236, 244 [36]; Intercapital Holdings Ltd v MEH Ltd (1988) 13 ACLR 595, 602.

38    The authorities suggest that the expression, “acting in good faith and that the inspection is to be made for a proper purpose”, is a composite one such that it ought not to be parsed and then an attempt made to satisfy each identified element: Barrack Mines Ltd v Grants Patch Mining Ltd (No 2) [1988] 1 Qd R 606 (Barrack Mines Ltd v Grants Patch Mining (No 2)); Knightswood Nominees Pty Limited v Sherwin Pastoral Company Ltd (1989) 15 ACLR 151, 156 (Knightswood Nominees v Sherwin Pastoral); Acehill Investments Pty Ltd v Incitec Ltd [2002] SASC 344 [29] (Acehill Investments v Incitec). They further suggest that the proper purpose asserted must be the dominant or primary purpose for seeking inspection, and if that is shown, it is irrelevant that the applicant may well secure some collateral or incidental benefits from obtaining an order: Unity APA Limited v Humes Limited (No 2) [1987] VR 474, 480; Barrack Mines Ltd v Grants Patch Mining (No 2) at 615. The proper purpose so identified must relate to each category of document which the applicant seeks to inspect: Rasley (Singapore) Pte Ltd v Financial & Energy Exchange Ltd [2020] FCA 1462 (Rasley v Financial & Energy Exchange): such that, if the terms of the application are cast too widely, there is a real risk of undermining the veracity of the asserted purpose.

39    Although there have been many statements attempting to explicate the content of the expression “acting in good faith and that the inspection is to be made for a proper purpose”, they are generally concerned with either of two matters. Firstly, whether the applicant’s asserted purpose or object of inspection is a legitimate one given the nature of the statutory relationship between shareholder, on the one hand, and the company and its directors, on the other? The second aspect is whether the applicant has established by admissible evidence that it, in fact, has the asserted purpose and that the application has been made to advance it. That is, is it pursing the asserted purpose in good faith? There is no doubt that these matters will regularly involve overlapping considerations.

A legitimate purpose for inspection

40    The requirement that inspection is sought for a “proper purpose” requires that the asserted purpose of the application for inspection is related to the rights of the applicant qua shareholder of the company: Ingram (As Trustee For The Ingram Superannuation Fund) v Ardent Leisure Ltd [2020] FCA 1302 [74] (Ingram v Ardent Leisure Ltd).

41    The intended purpose of seeking inspection must relate to the shareholder’s rights and interests in that capacity in relation to the company or its directors. For instance, in Hanks v Admiralty Resources NL (2011) 85 ACSR 101 (Hanks v Admiralty Resources NL) Gordon J found that the shareholders had established a legitimate concern, being one relating to the directors’ decision to recommend to shareholders the sale of a company controlled entity without entertaining offers from competing bidders or disclosing their existence. Conversely, in Ingram v Ardent Leisure Ltd inspection was refused in circumstances where the members sought inspection to assist them in bringing proceedings against the company in respect of conduct allegedly engaged in by the company which had induced them to become members. In other words the purpose was to vindicate their rights as potential investors and not in their capacity as shareholders.

42    For the purposes of this case it is only necessary to observe that seeking inspection of documents in order to ascertain whether there has been a breach of a directors’ duty or whether oppressive conduct has been engaged in, is self-evidently within the scope of a proper purpose: Barrack Mines Ltd v Grants Patch Mining Ltd (1987) 12 ACLR 357 and Barrack Mines v Grants Patch Mining (No 2). It can also be accepted that a legitimate purpose of inspection is the desire of a member to protect their investment in the company: Re Tolco Pty Ltd [2016] NSWSC 1069 (Tolco) [22]-[23]; Rowland v Meudon Pty Ltd (2008) 220 FLR 362, 371 [35], 372 – 373 [41], 373 [43]; Intercapital Holdings v MEH Ltd at 602.

43    Nevertheless, the concept of what is a legitimate purpose must be understood in the context of the relationship between the shareholder and the company, and this necessitates acceptance of the basic rule that shareholders do not ordinarily have access to the courts to challenge directors’ managerial decisions: Acehill Investments v Incitec [29]. Hence mere dissatisfaction with such decisions cannot provide a basis for an order under s 247A: Re Augold NL [1987] 2 Qd R 297, 308; Cescastle Pty Ltd v Renak Holdings Ltd (1991) 6 ACSR 115, 117. The position is different where the concern is that the management decisions made amount to conduct which is “oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member” within the meaning of s 232(1) of the Act. In such cases the concern must be that the decisions are such that no reasonable board may have made them: Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459, 468: Praetorin Pty Ltd v TZ Ltd at 254 [89]. Further, it is not to be thought that the existence of a proper purpose is excluded merely because a shareholder is hostile to the directors, or that if they obtain inspection they will have more information than the other shareholders.

Matters of proof concerning acting in good faith and that the inspection is to be made for a proper purpose

44    The second relevant consideration in relation to s 247A is whether the applicant has established that they are seeking to pursue the asserted legitimate purpose in good faith. Central to many authorities dealing with this issue is the probative strength of the evidence which is said to give rise to the concern relating to the asserted purpose. It is in this context that concepts such as whether it has been shown that there is a “case”, “basis” or “issue” “for investigation” have arisen: Mesa Minerals Ltd v Mighty River International (2016) 241 FCR 241. In that case the concept was addressed by Katzmann J who (at 247 [26]) observed:

Mesa frequently referred in its submissions to the need to establish “a case for investigation”. The expression does not appear in the Act. It is an expression which was used in argument in Intercapital Holdings and which Brooking J deployed in his later judgment in Knightswood. Its utility, as Barrett J put it in Praetorin at [39], is to emphasise the need for an objective basis for intervention.

45    Whilst that ought to be accepted in the sense that, establishing a case for investigation is a pre-requisite for intervention by the Court, its essential purpose was correctly identified by the primary judge (PJ [43]) as, inter alia, establishing that the applicant was acting in good faith. Whilst it is not a substitute for ascertaining whether good faith exists, in the absence of a reasonable basis or foundation for the asserted purpose for which inspection is sought, it cannot be said that the application is being made in good faith, no matter how fervently the applicant may believe in their claim.

46    Moreover, the concept of establishing a “case for investigation” as an element of good faith usefully operates to exclude applications by members who do not have any foundation for concern about a company’s operation but wish to ascertain if something untoward has or may have happened. The section does not permit inspection by shareholders who are unsure about whether the directors have complied with their duty and merely wish to examine the company’s books to satisfy themselves that no breach has occurred: Praetorin Pty Ltd v TZ Ltd, 249 – 250 [64] – [65].

47    In assessing whether there is a “case for investigation”, the Court is not required to decide substantive issues concerning the asserted right or claim: Hanks v Admiralty Resources NL at 113 [37] – [39]. For instance, a shareholder who is concerned about breaches of directors’ duties is not required to establish that they had occurred and the Court should neither determine that or the facts underlying the claim. That said, there needs to be something akin to some tangible support for the concern being something beyond mere belief or assertion: Praetorin Pty Ltd v TZ Ltd, 254 – 255 [94]. The degree to which the member’s concern should be established was addressed by Jackson J in Rasley v Financial & Energy Exchange [2020] FCA 1462 [28]:

The infinite variety of situations that will be encountered in practice means is neither possible nor appropriate to seek to describe any rule that will determine when a case for investigation of this kind is, or is not, made out. It can be said, however, that the cases demonstrate that more than curiosity or general suspicion of a company’s management is required. An applicant must at least be able to articulate a basis on which it might be found that illegal, improper or otherwise undesirable conduct has occurred. In Praetorin at [64]–[65] Barrett J accepted a submission to that effect, agreeing with counsel that it is not enough for an applicant to say that it ‘just wanted to check it out that no-one had done anything wrong, because I have a circularity problem and I don’t know what I don’t know’. Gordon J applied this passage in Hanks at [39].

48    A number of different nomenclatures have been utilised to identify the required standard and were referred to by the learned primary judge (PJ [45]) as follows:

45    It is not necessary that the plaintiff has sufficient evidence to bring or make out an action. Relief under s 247A would be inappropriate if the plaintiff had a complete cause of action: Praetorin at 246 [40]. It is enough that the issue raised by the plaintiff is “substantial and not fanciful”, not “artificial, specious or contrived”: Re Style at 81 [66] – [67]. Pursuing a reasonable suspicion of breach of duty is a proper purpose: Mighty River FC at [22(8)].

However, her Honour later observed that whilst these useful short-hand expressions might be used they cannot replace the statutory requirement that inspection might only be permitted if the applicant is acting in good faith and that the inspection is to be made for a proper purpose. With respect, her Honour was correct to so anchor the application of s 247A to the words used by the legislature rather than apply or adopt any attempted judicial exegesis of them. On the other hand, in the ascertainment of whether the application is made in good faith consideration must be given to whether the applicant’s concerns are “real” or “legitimate” and this requires a more granular analysis of whether there is an objective basis or foundation for the concerns. If there is no “case for investigation” or the applicant’s issues are insubstantial or fanciful, or “artificial, specious or contrived”, the concerns, even if subjectively held, cannot form a basis for an application made in good faith.

The exercise of the discretion

49    The parties did not dispute that once the court is relevantly satisfied that the applicant is acting in good faith and that the inspection is to be made for a proper purpose, the discretion in s 247A is enlivened. Nor was it contested that the touchstone of the exercise of that discretion is what the company ought to tell its shareholder. In Smartec Capital Pty Ltd v Centro Properties Ltd (2011) 83 ACSR 461, Barrett J appeared to address the nature of the residual discretion in the following terms:

[68] In Rowland (above) at [41], Bryson AJ referred to decisions of McPherson J and Warren J, respectively, in Re Claremont Petroleum NL (No 2) [1990] 2 Qd R 310 and Czerwinski v Syrena Royal Pty Ltd (No 1) (2000) 34 ACSR 245; [2000] VSC 125 and said:

[41] The references by McPherson J and by Warren J to information about matters of which a shareholder ought to be informed by the company are not references to information which the company has a legal duty to give to the shareholder. These observations were made in exposition of the operation of legislation which confers a broad discretion on the court, and the operation of that discretion extends to consideration of what the court ought to require that the company tell its shareholder, a different test to what the company has a legal duty to tell its shareholder. If the section was limited to providing means of enforcement for existing legal duties it would take an altogether different form, and the good faith requirement would not be appropriate. In my opinion the assignment of powers of management to the directors, and the non-involvement of shareholders in management of a company are important considerations. Business conducted in the corporate structure could readily be rendered inefficient or disrupted if this power became too ready a vehicle for examination by shareholders of management decisions and documents relating to them. However there is no rule of exclusion and no reason why involvement of a management decision should be a ground for refusal of access to documents; the matter is discretionary. With respect to management decisions a conservative approach to exercise of the discretion is appropriate.

50    In the absence of any detailed submissions as to the nature of the residual discretion in s 247A, as opposed to the formation of the state of satisfaction that the applicant is acting in good faith and that inspection is to be made for a proper purpose, it is not appropriate to consider the question further. However, the structure of the section might suggest that once the required degree of satisfaction is reached the discretion to refuse the order might be constrained by that fact. It might be said that the discretion is one to be exercised in all the circumstances of the case, and that the applicant’s satisfaction of the requirements of the subjective jurisdictional fact of s 247A is likely to be a not insignificant part of those circumstances.

Enares’ alleged concerns in the present case

51    Here, Enares asserted that its primary concern was (ts 19) to investigate why Nimble and its directors chose to engage in what Enares believed to be an imprudent transaction by taking on replacement debt (or possibly increasing it) for three more years, rather than seriously pursuing an equity raising. In broad terms it was suggested that the decision involved some breach of duty by the directors or, perhaps, the engagement in conduct which was oppressive. It also claimed that the chosen strategy had the consequence that its proportionate shareholding might be diluted. In the latter respect, it was concerned that it would not take part in the Follow-on Offer, which was available to existing members, for two reasons. First, it did not wish for Nimble to take on more debt and, second, there was a risk that, through the Series 15 Notes issue, it would increase its shareholding to above 20% after which it could not acquire further shares. The result would be that others might obtain additional shares and thereby alter the proportions of the members’ holdings. In this sense it was submitted that Enares sought inspection for the purpose of protecting its investment in Nimble and to consider whether there was a basis for a potential action under ss 232 or 237 of the Act.

The primary judge’s decision

52    The learned primary judge considered that the foundation of Enares’ asserted concern of wrongful conduct by the directors by taking on further debt rather than pursuing an equity rights issue, (PJ [61]) had “an air of commercial unreality”. Her Honour noted that Nimble’s financial stress did not arise from the directors’ conduct, but had been caused by a downturn in revenue consequent upon the company’s change in business strategy and the COVID-19 pandemic, and that the members were kept informed of the company’s financial position as matters developed. Her Honour observed that, as at the end of 2021, there were signs that the business was improving and that the Board and new investors, as well as current members who took up the Series 15 Notes with associated options, were cautiously optimistic about the company’s future. Her Honour recognised that it was in that context that she was to consider whether there was any question as to the veracity of Nimble issuing the Series 14 and 15 Notes at interest rates that were comparable to, if not slightly less than, that which it had paid under the Series 13 Notes. It was not suggested that the interest was not serviceable and Mr Mackenzie, Nimble’s CEO, gave evidence that Nimble would benefit from the new notes issue because there would be no increase in the level of debt and the interest rates would be lower. He also gave evidence that, on his analysis, the company had sufficient liquidity to service the new debt. Finally, her Honour accepted that a comparison of the option prices under the Series 15 Notes were greater than those proposed by Enares in either of its earlier, but then withdrawn, proposals for an equity rights issue. Under the Series 15 Notes the options were priced at $0.15, $0.20 and $0.25 per option over year one, two and three year terms respectively. By comparison, Enares’ October and November Proposals priced the new shares at $0.0528 and $0.075 respectively. It followed that the debt refinancing arrangement attributed more value to the company than did the equity raising proposals and it gave the company time to secure the benefit of the recovery of its business.

53    Her Honour also determined that the circumstances in which the conduct of the Board occurred did not give rise to any legitimate concerns about its actions. Nimble had attempted to raise additional capital over an extended period of time, including by two proposed equity issues which had received little shareholder support and had failed. The proposed debt refinance was considered to be the only viable alternative and it had the benefit of having the support of the other shareholders and the senior debt financiers, and it had not been criticised by the company’s auditors. In addition, the Follow-on Offer made provision for the participation of existing members and there was no alternative equity rights proposal on offer. In these circumstances, her Honour concluded that Enares’ proposals had been rejected and there was no evidence that an acceptable alternative proposal would be forthcoming in sufficient time to meet the existing debt commitments.

54    The primary judge rejected the submission that Enares had established that there existed some information asymmetry between it and VDLF because Mr Edney was Nimble’s sole director for a period and the nominee director of VDLF. Her Honour considered the evidence in relation to the entitlement of Mr Edney to share information with its nominating shareholder and concluded that there was nothing to suggest that VDLF was receiving information other than in accordance with Nimble’s established protocol. That protocol is referred to in these reasons as the “Information Protocol”.

55    The learned primary judge also rejected (PJ [75]) Enares’ submission that the “debt refinance arrangement between Nimble and the new investors was proposed and accepted at a time when Nimble had only Mr Edney as a director”. The evidence showed that on 9 November 2021 Nimble’s Board resolved to refinance its Series 13 Subordinated Notes through a new issue. By that time three new qualified directors had been appointed and there is nothing to suggest that they would have passed the resolution unless they had been satisfied of its appropriateness. Indeed, the evidence shows that the new directors were extremely well qualified and experienced, as was Mr Edney, and acceptance of Enares’ submission would require an assumption that such persons had not fulfilled their duty to Nimble. There was not a skerrick of evidence that such was the case. To the contrary, the evidence of the CEO, Mr Mackenzie, revealed that all of those directors were involved in the decision-making process from which the determination to refinance the existing debt emerged. Enares did not persist with the allegation that the decision had been made by Mr Edney alone.

56    Her Honour also concluded that Nimble was entitled to keep the identity of the new investors in the subordinated notes confidential, and the Board was apparently satisfied that none of them had any relevant relationship with any of those new investors. Again the allegation that there existed some improper relationship was not pursued on appeal.

57    As a result, the primary judge concluded that Enares’ concerns were no more than bare suspicions. It is apparent that her Honour (PJ [80]) viewed the Board’s resolution to be a management decision with the result that its making did not qualify as a legitimate concern because the decision was not one which no reasonable board could have made. Her Honour was also not satisfied (PJ [80]) that “the potential for the debt refinance to be disadvantageous to Enares compared to implementation of one of Enares’ proposals coupled with Enares’ subjective suspicions about the conduct of management and the Board are sufficient to establish a proper purpose pursuant to s 247A of the Act”. It had not been shown that there was a proper case for the Court to intervene. Enares had only established that it was dissatisfied with the Board’s management decision.

The alleged concern as to directors’ breaches of duty or oppression

58    It can be accepted that if it were established that Enares was seeking to inspect Nimble’s documents in order to investigate possible breaches of directors’ duties or the occasioning of oppressive conduct, the application would be for a proper purpose within s 247A. Such a purpose would appropriately relate to Enares’ interests qua member of Nimble and the concerns would rise higher than mere dissatisfaction with management decisions.

59    However, assuming that Mr Thompson believes, even vehemently so, that conduct of that character has taken place, his beliefs must have some foundational basis. Mr Sulan on behalf of Enares submitted that his client’s concerns were more than idle curiosity and, although that might be accepted, it is not sufficient. As the authorities referred to above disclose, there must be substance to those concerns.

60    The context in which the Board came to make the decision of which Enares complains requires identification. Some suggestion was made in the appellant’s submissions (AS [11] – [12]) that Nimble’s distressed financial position was a consequence of poor management by the Board such that Enares held valid concerns about Nimble’s corporate governance and the continuing value of its investment in it. However, there was no submission that cast doubt upon the learned primary judge’s finding, which was supported by the evidence, that Nimble’s financial position resulted from the impact of COVID-19 as well as its shift from “pay-day” lending to longer-term lending which it anticipated would involve a short to medium-term negative financial impact. Nor was there any submission which undermined the primary judge’s conclusion (PJ [62]) that there “is no suggestion of impropriety in the management of the company being the cause of Nimble’s financial distress”. It follows that the Court must start from the position that Nimble faced difficult financial circumstances which were not of its or the current Board’s making and the latter was faced with a decision as to the best way to proceed in relation to the company’s financial strategy. No submission was made that her Honour’s articulation of the general circumstances confronting the directors was in error.

61    Turning then to Enares’ asserted concerns about the refinancing decision. Whilst reference was made to potential breaches of directors’ duties and oppression in relation to the debt refinance, very little was articulated as to why the Board’s conduct might be so characterised. At its heart, the gravamen of the concern appeared to be that given Nimble’s financial distress it should have raised funds by a rights issue rather than refinancing existing debt. However, in order for this scenario to generate some legitimate concern about the company’s conduct, it is necessary for Enares to assert that entering into the debt refinancing arrangements might have breached the directors’ care and diligence obligations (s 180), good faith obligations (s 181), use of position obligations (s 182), use of information obligations (s 183), or some cognate common law obligation. Alternatively, it would need to assert that the conduct may have contravened the obligation to conduct the affairs of Nimble in the interests of all shareholders (s 232). The difficulty in this case was that whilst terms such as “breach of directors’ duties” and “oppressive conduct” were regularly mentioned, just how the conduct in question might be so characterised was never articulated. At best the broad assertion was made that Nimble’s financial position was so distressed that the debt refinancing strategy could lead it into insolvency. Unfortunately, this was advanced at a high degree of abstraction with no attempt to demonstrate the possibility of the debt refinancing having that consequence. In addition, there was a deal of opacity as to the occasion on when the allegedly wrongful conduct might have occurred. On some occasions it appeared that it was by the decision of the Board on 9 or 10 November 2021 to proceed with a further note issue, however, reliance was also placed by Enares on its November Proposal which was sent to the Board two days after the decision had been notified. On other occasions Enares sought to include the making of the Follow-on Offer as somehow tainting the Board’s conduct even though that was not finally made until 26 November 2021. Overall, there was a temporal vagueness as to when the alleged wrongful acts happened.

62    Another central tenet of Enares’ submissions was that Nimble’s Board ought to have sought to recapitalise the company by issuing new shares. This assumed that the possibility of recapitalising existed as a realistic alternative to the debt refinancing strategy. However, as the primary judge concluded, the difficulty which confronted the Board was that there was no unconditional equity offer available to Nimble which it might accept. Each of Enares’ October and November Proposals were indicative and conditional and not capable of acceptance. At best, the alternative avenue to debt refinancing was attempting to negotiate with Enares to reach an agreement as to the terms of a rights issue which Enares was prepared to underwrite. In that context it is very relevant that there had recently been, at least, two attempts to raise capital by issuing further equity all of which had failed and that suggested that any further attempt would have had doubtful prospects. It is correct that by the time that the Board made its initial decision to issue the new subordinated notes, Enares had only made the October Proposal which had been withdrawn because it apparently lacked the required shareholder support. It was two days after the notification of the Board’s decision, on 10 November 2021, that Enares made the November Proposal. As mentioned, it was expressed not to constitute an offer and, even if it crystallised into one, it would have been conditional on Enares conducting due diligence, agreeing to definitive documentation, and the obtaining of any regulatory approval required.

63    In circumstances where the senior finance facility was due to mature, it is very difficult to discern how the Board might have made a different decision. Had it not determined to issue new notes, the likelihood is that it would have found itself negotiating with Enares about a rights issue from an extremely disadvantageous position and probably one in which it would have been required to accept whatever Enares demanded. Time was not on Nimble’s side. It had deadlines to meet to satisfy the requirements of the senior debt facility. Therefore, it had a choice to continue the existing debt financing regime or pursue negotiations in relation to a rights issue with Enares in circumstances where, the longer any negotiations went on, the stronger Enares’ position would become and, conversely, Nimble’s would weaken.

64    Whilst Nimble did not enter into negotiations with Enares about the latter making a further offer, there is nothing to suggest that any better offer would have been forthcoming, or that further negotiation would have produced an acceptable offer having regard to the course of Enares’ dealings with Nimble concerning rights issues from April to November 2021 summarised at PJ [23]-[33]. In the circumstances it can be expected that if Enares had a better offer in respect of a rights issue it would have made it at the time. There was, with respect, no real choice available to the Board as to the manner in which it might meet the requirements of the senior debt financier other than by a new notes issue.

65    Aside from the fact that there was no viable alternative to the issuing of new notes, that strategy had apparent benefits. As the primary judge found, it would reduce the overall debt burden on Nimble and the evidence disclosed that Nimble was able to service its overall debt. The result was that the Board was generally maintaining the status quo albeit on slightly better terms in circumstances where it was not at risk of default. Although the finding as to the overall debt burden was contested, as is found later in these reasons, the primary judge’s conclusion is sustainable. Perhaps more importantly, Enares did not cavil with the finding that Nimble was able to meet its financial obligations under the new arrangements.

66    A further benefit of the adopted strategy was that the Board had an expectation that Nimble’s financial position would soon improve and the issuing of new notes would provide time for the company to take advantage of these improvements when they occurred.

67    The strategy also had the benefit of maintaining the value of Nimble’s shares when compared to the proposals from Enares. Necessarily, acceptance of Enares’ offer with the concomitant deflation in this share value would create difficulties for any future capital raising by Nimble. This was not contested by Enares on the appeal.

68    It was submitted by Mr Sulan for Enares that the circumstances of the Board’s decision were tainted by the presence of Mr Edney, VDLF’s nominee, whom it was suggested might have improperly provided additional information to VDLF. The primary judge concluded that there was nothing to suggest any impropriety on Mr Edney’s part arising from his association with VDLF and there was no direct challenge to that finding. As her Honour found, there was nothing to suggest that the Information Protocol which Nimble had put in place for the passing of information from nominee directors had not been adhered to by Mr Edney. This issue is considered in more detail below.

69    Further, as the primary judge held, there was nothing to suggest that the new Board did not faithfully carry out their obligations when making the debt refinancing decision or that they had reason not to. On the contrary the new directors were eminently qualified to undertake the onerous task which confronted them and there is nothing to suggest that they, together with Mr Edney, did other than what was required of them. It may well have been that the Board’s decision about refinancing occurred within a relatively short time after the new directors were appointed, however, it is plain that urgent action was called for. Even if it is assumed that the new directors had not sought information as to Nimble’s financial circumstances prior to accepting their appointments there was nothing to suggest that the new members, who were well qualified in debt financing and financial services, were unable to decide upon an appropriate strategy in relation Nimble’s finances within a short period of time. Although Enares’ complaints about the length of available time between the appointment of new directors and the decision on debt refinancing were repeated on appeal, no doubt was cast on the primary judge’s conclusions. Neither was there anything to suggest that her Honour’s finding that the new directors were involved in the making of the decision was in error.

70    In the above circumstances, the primary judge was correct to describe Enares’ asserted concern about the Board’s decision as having had “an air of commercial unreality”. Nimble required additional funds as a matter of some urgency and the reality was that it could either maintain its previous strategy and refinance its debt, albeit with an anticipated easing of its interest burden, or pursue what may have been a chimera in the nature of an acceptable proposal from Enares. In that scenario the Board pursued the only appropriate course open to it. With great respect to the earnest submissions made on behalf of Enares, it cannot be said that there was any foundation for its claimed concern about the Board’s decision on refinancing. No issue was raised concerning the possible existence of any breach of duty or oppressive conduct on the part of the members of the Board. It follows that Enares has failed to demonstrate that there is an “issue for investigation” in relation to some breach of duty, oppressive conduct or, if relevant, poor management decision-making. It may be that Mr Thompson perceived that the outcome of the Follow-on Offer might result in a less favourable outcome for Enares than it desired and, again, whilst that may be true, it is not sufficient. It is the veracity of the Board’s actions which is in issue and there is nothing which raises Enares’ concerns above the level of mere dissatisfaction with them.

71    It was submitted that Mr Thompson was not cross-examined on his affidavit evidence as to Enares’ purpose in making the application and, for that reason, the primary judge ought to have been satisfied that Enares was acting in good faith and for a proper purpose. In his affidavit of 18 November 2021, Mr Thompson deposed that he, on behalf of Enares, had concerns that the management of Nimble was not being conducted for the benefit of the shareholders as a whole, including Enares, in relation to the new funding arrangements which were to meet the immediate and ongoing funding requirements. He also deposed that Enares wished to protect its investment in Nimble and to consider bringing a derivative action or oppression proceedings. Whilst by reason of the absence of any cross-examination it must be accepted that Mr Thompson subjectively held those beliefs and concerns, the essence of the primary judge’s determination was that there was no sufficient foundation for them. For the reasons which have been identified, her Honour’s conclusions in that respect were entirely correct.

72    From time to time the asserted concerns of Enares extended to the protection of its investment in Nimble. This claimed concern was advanced at a high level of generality and without substantial explanation. To a large degree it appears to have been attached to the concern that the debt refinancing strategy would cause Nimble to fail such that Enares would lose the value of its investment. So the submission went, (ts 22) Enares was prepared to underwrite an equity rights issue to protect its investment. However, as is revealed by the preceding discussion, there is no foundation for the underlying concern in relation to the Board’s decision or decision-making process. It follows that there is “no issue for investigation” on this account. On other occasions the alleged concern about the protection of Enares’ investment appeared to be advanced more generally although no explanation of the peril which might have afflicted the investment was provided.

73    It follows that Ground 1 of the appeal fails. The material before the primary judge did not give rise to any issue to investigate with the consequence that Enares could not satisfy the Court that it was acting in good faith in the making of its application for inspection.

Ground 2 – alleged errors in the primary judge’s

74    By Ground 2 Enares submitted that the learned primary judge made errors in her determination of certain facts which resulted in the vitiation of her conclusion that she was not satisfied that Enares was acting in good faith and for a proper purpose. Given the above conclusions it is not strictly necessary to deal with this ground. Leaving aside the contested findings of the primary judge, on the material before the Court, Enares was unable to meet the requirements of s 247A.

The basis of the Board’s rejection of Enares’ November Proposal

75    It was first submitted that in paragraph [66] of her Honour’s reasons the primary judge made a finding in respect of which there was no evidence. That paragraph concluded with the following:

The Board considered the Enares November Proposal for an equity rights issue to be an unsuitable refinancing proposal for Nimble because, inter alia, it:

(a)    heavily discounted the value of the company;

(b)    was subject to completion of due diligence by Enares;

(c)    gave rise to regulatory risks relating to the takeover provisions of the Act; and

(d)    included early termination provisions that prevented Nimble from progressing other refinancing proposals in parallel and restricted the company’s flexibility going forward.

76    It was submitted that, although the Board had not accepted Enares’ November Proposal, there was no evidence that it did so for the identified reasons. A letter sent by Nimble to its shareholders after the commencement of the litigation stated that the Board had considered the debt refinancing proposal and Enares’ proposal and found the former to be preferable although it did not rely upon these identified reasons. Those deficiencies of the November Proposal appeared in Nimble’s written submissions filed for the purposes of the first instance hearing and it appears that the learned primary judge had mistakenly assumed that they had formed the basis of the Board’s rejection of the November Proposal, rather than Counsel’s identification of why it was objectively unsuitable.

77    It is correct that there was no evidence before the primary judge that the Board relied upon the above identified difficulties with the November Proposal in preferring to proceed with the debt refinance strategy. Ms Roughley for Nimble submitted that the primary judge’s reasons should be read as her Honour accepting, on the basis of the material that was before her, that there were sufficient reasons for the Board to proceed with the debt refinancing strategy. It was further submitted that there was more than sufficient evidence before the Court to support each of the matters in paragraphs (a) to (d).

78    At this point it may be relevant to observe that the alleged error occurred in the formation by the primary judge of the state of non-satisfaction that Enares was acting in good faith and for a proper purpose. If so, it may be further relevant whether the alleged error was material in the sense that it vitiated the primary judge’s conclusion that she was not so satisfied. Further, even if the error existed, on the rehearing on appeal the fact that there is substantial objective support for matters in (a) to (d) would be relevant to whether any different conclusion would be reached by this Court as to whether Enares was acting in good faith and for a proper purpose.

79    Whilst it is not possible to read the primary judge’s reasons in the manner in which Ms Roughley submitted, in deciding whether this Court should come to a different conclusion as to whether Enares was acting in good faith and for a proper purpose, it is highly relevant that the objective evidence revealed the deficiencies in the November Proposal which rendered it unsuitable or, at least, far less preferable for Nimble’s requirements. In this respect, the finding of which Enares complains is only as to one of the many of the primary judge’s reasons in paragraph [66] which objectively demonstrated that the November Proposal was obviously unsuitable. Even if it is assumed that the Board did not base its decision on those matters, it does not necessarily follow that there was some demonstrated foundation to Enares’ alleged concerns as to the decision-making process.

80    In the preceding part of paragraph [66] her Honour had identified the contextual difficulties with the November Proposal. They included that attempts had been made previously over 17 months to raise equity without success or shareholder support, that the October Proposal had previously been rejected by the Board such that there was, in fact, no rights offer then available, and that the November Proposal was conditional and indicative only. To the extent to which Enares’ proposition is that there could have been negotiation about variation of the terms of the November Proposal, there was no certainty that an agreement could be reached and, as her Honour found (PJ [66]), it was unlikely that it could be “formulated, negotiated and implemented in time”. Conversely, the debt refinancing was considered to be the only alternative and it had the support of other shareholders and of the senior debt financiers, it had been formulated and had provision for participation by current members, and the auditors had not made any adverse comment about it. For the reasons given above, the chimerical nature of any proposal from Enares was sufficient to dispel any doubt as to the veracity of the Board’s decision. In that sense, the primary judge’s other conclusions in [66] sufficiently support her rejection of the validity of Enares’ concerns even if they attribute to the Board some rationales for rejecting the November Proposals for which there was no evidence.

81    In the part of paragraph [66] of which Enares’ complains, her Honour identified several internal inadequacies of the November Proposal, each of which was real and supported by the evidence. In relation to (a) it cannot be doubted that the option prices in the Series 15 Notes priced Nimble’s shares at approximately two to three times that of the November Proposal, thereby providing a greater valuation of the company. As to (b), the covering letter from Baker McKenzie of 12 November 2021, under which the proposal was sent, made it pellucid that “the terms are intended to be indicative and expressed as subject to definitive documentation and due diligence”. That undoubtedly made the availability of an acceptable proposal being formulated somewhat more of a hope rather than an expectation. Similarly, in relation to (c), the terms of the offer itself identified that the offer was “subject to any regulatory approval required”, which would only have prolonged the period during which a final offer could be carried into effect. The matters in paragraph (d) were also contained in the proposal’s term sheet and had the consequence of limiting Nimble’s ability to consider any competing proposal while any agreement with Enares became unconditional. These internal characteristics of the November Proposal only reinforced its lack of suitability as a method of refinancing for Nimble at the time. Although her Honour may have erred in concluding that these issues with the proposal had been considered by the Board, they are nevertheless relevant as showing that the November Proposal did not warrant any relevant consideration in the circumstances.

82    Therefore, whilst the learned primary judge may have reached an unestablished conclusion about the Board’s assessment of the November Proposal, that error is not material in the sense that had it not been made there was a realistic possibility that her Honour might have reached a different state of mind. Rather, the additional identified deficiencies with the terms of the November Proposal identified in paragraphs (a) to (d) reinforced the appropriateness of the Board’s decision or, more accurately, eschewed any suggestion that it involved some breach of duty or inappropriate conduct.

83    As was referred to above, if it could be said that this error somehow vitiated the primary judge’s conclusion, the obligation would then rest on this Court on the rehearing to ascertain whether it is satisfied that Enares acted in good faith and for a proper purpose. In that assessment it would be impossible not to recognise that the matters in paragraphs (a) to (d) demonstrate the inadequacy of Enares’ proposal.

The alleged finding of improper purpose

84    The next alleged error was said to be in relation to the finding as to the interest which Enares had in seeking the information other than that which had been deposed to by Mr Thompson. In her reasons the primary judge held (PJ [85]):

I am not satisfied that Enares has established a proper purpose by reference to the potential impact the debt refinance may have on the value of its shareholding. By way on (sic) contrast, Enares’ interest in obtaining the information sought for the purpose of furthering its interest as the promoter and architect of an alternative capital raising (whether underwritten by it or by another) is palpable.

85    It was the second sentence in respect of which Enares complained. It was submitted that the finding that Enares’ concerns related to its commercial interests as a financier rather than its interests as a shareholder, was contrary to Mr Thompson’s uncontested evidence that the purpose of the investigation was to protect Enares’ investment and investigate concerns about the debt refinancing transaction. It was submitted that the primary judge’s finding impugned Mr Thompson’s asserted state of mind in circumstances where he had not been challenged on it: Re Combined Projects (Arncliffe) Pty Ltd [2018] NSWSC 649 [18]; Rasley v Financial & Energy Exchange [86] – [87]; Merim Pty Ltd v Style Ltd [2009] FCA 314 (Merim v Style Ltd) at [57] and [65]; Precision Plastics Pty Limited v Demir (1975) 132 CLR 362, 370 – 371.

86    In Nimble’s written submissions for trial served and filed on 10 December 2021, being three days prior to the first instance hearing, it submitted that Enares’ concerns did not relate to its interests as a shareholder but rather to its commercial interests as a prospective financier or underwriter of the rights issue or to its desire to increase its proportionate shareholding in Nimble. Thus Nimble indicated in advance of the hearing that it contested that Enares’ purpose was a legitimate one or indeed the one it had asserted in its evidence, but rather that its real purpose was to promote its interests otherwise than as a shareholder. However, it is also correct that Mr Thompson asserted in his affidavit that Enares did not wish to hold a position as a long-term financier of Nimble nor did it desire to be the underwriter of a share issue. Its position was articulated as being that it would underwrite such an issue in the absence of any other party being prepared to do so. Mr Sulan submitted that whilst the attack on Mr Thompson’s evidence as to Enares’ concerns was telegraphed in the written submissions, nothing came of it as he was not cross-examined. In these circumstances the primary judge erred in making findings inconsistent with Mr Thompson’s evidence given the absence of cross-examination.

87    The primary judge rejected the submission that the failure to cross-examine Mr Thompson had the consequence that Enares’ application must succeed. Her Honour reasoned (PJ [55]) that Nimble had confined the relevant statements in Mr Thompson’s affidavit to his and Enares’ state of mind such that it accepted that they had those subjective concerns, but its opposition to the application was founded upon Enares’ inability to establish that there was “a case for investigation”. That is, whilst Nimble did not contest the subjective beliefs, it submitted that there was no objective foundation for them.

88    If one were to temporarily put to one side the substantial weight of the evidence which undermined Mr Thompson’s claims as to Enares’ purpose for seeking inspection, it might be correct to say that the primary judge ought not to have made a finding inconsistent with Mr Thompson’s sworn testimony in the absence of cross-examination. However, the real difficulty here is that the finding was irrelevant to the application’s outcome. The issue which confronted the primary judge was whether Enares had established that it had a foundation for its asserted concerns which, if established, could have resulted in a finding that the application had been made in good faith. Her Honour found, correctly, that there was no such foundation. Whilst Mr Thompson may have held a subjective belief of some misconduct, it was not reasonably based. Her Honour’s finding to that effect had the consequence that the application failed. Although the second sentence of paragraph [85] may not have been open in the absence of it being put to Mr Thompson, it can be regarded as a statement of emphasis in relation to the initial conclusion. In circumstances where it had been objectively demonstrated that the November Proposal was so lacking in substance that it was essentially irrelevant to the Board’s decision, real doubt must have been raised as to whether Mr Thompson truly held the opinion which he expressed. A perusal of his affidavits suggests that he is an intelligent person of not insignificant business experience. One might expect that a person in his position would have recognised that, in the circumstances confronting the Board, it would have been patently infelicitous for it to pursue negotiations with Enares as opposed to continuing with the hitherto debt financing strategy. The logical conclusion would be that Enares’ actions were motivated by some other concern or purpose and her Honour identified what would appear to be the most likely motivation.

89    The finding that Enares was pursuing an alternative purpose was irrelevant to the outcome of the application. Any error in making it was irrelevant to the primary judge’s immediately preceding finding that she was not satisfied that the application was made by reason of Enares’ concern that some alleged misconduct by the Board might affect the value of its investment.

90    Again, assuming the existence of the error somehow vitiated the primary judge’s conclusion, it is irrelevant to the outcome of the rehearing on the appeal. Even without such a finding this Court can conclude that Enares fell well short of establishing that its application was made in good faith.

Alleged errors which were contrary to the evidence

91    Mr Sulan submitted that the primary judge made a number of additional findings which were either contrary to the evidence or did not arise as a matter of inference.

92    The first was said to appear in paragraph [63] of the primary judge’s reasons where her Honour said:

Second, a comparison of the rates under each of Nimble’s existing financing facilities as against the terms of the proposed New Investors’ Subordinated Notes issue demonstrates that in the context of this company the proposed rates are commercially comparable to those agreed to by the company in the past. Such a comparison also elucidates that the interest burden on Nimble under the new debt arrangement will likely be reduced relative to the status quo.

93    It was submitted that the second sentence was in error because the new debt arrangements did not take into account the amount of the debt which would arise from the members participating in the Follow-on Offer.

94    The Board’s decision of 10 November 2021 involved the replacement of the existing subordinated notes with the new Series 14 and 15 Notes and it was not disputed that the interest burden of those new notes in the first and second years was lower than the effective rate payable under the Series 13 Notes which they replaced. It is also undoubted that the existing debt of $4.5m was to be replaced by new debt in the same amount under the secured note issuance program which Nimble had in place, albeit subject to any participation in the Follow-on Offer. In its notice to shareholders the Board indicated that it had the intention to afford existing shareholders the opportunity to participate in the Follow-on Offer whereby they might subscribe for between $2m to $4m worth of the Series 14 and 15 notes. The Board subsequently made the Follow-on Offer on 26 November 2021, in which it invited applications to subscribe for $3m worth of notes. It was in these circumstances it was submitted that the primary judge erred in concluding that Nimble’s interest burden would likely be reduced relative to the status quo, because the Follow-on Offer had the consequence that additional debt might be taken on. The submission appears to be that whilst the interest rate Nimble was required to pay on the Series 14 and 15 Notes was lower, at least in the first two years, because there was greater debt the cumulative interest payment would be higher.

95    Enares’ submissions in this respect fail to accord context to the impugned finding. At paragraph [63] of her reasons her Honour was concerned with two issues, being the rate of interest payable on the new finance, and the ability of Nimble to service its debt. In so doing her Honour referenced the evidence of Mr Mackenzie, Nimble’s CEO, which she accepted. It was to the effect that he expected there would be no increase in the size of Nimble’s debt, subject to any additional notes issued under the Follow-on Offer, and that the rates under the new refinancing arrangements in the first two years would be less than the effective rates under the existing Series 13 Subordinated Notes. He also expressed the view that Nimble would be able to service the debt on any new borrowings, that stress testing had occurred of Nimble’s ability to repay debt, and that he was satisfied that it had sufficient liquidity to do so. These matters were explained in detail by Mr Mackenzie in his affidavit. In general terms his evidence was that the impact of issuing new notes had been considered and it had been concluded that it would leave Nimble in generally the same position if not slightly better in terms of its interest burden and that the company had the ability to service its new debt.

96    It is apparent from Mr Mackenzie’s evidence and the context in which her Honour was discussing it in relation to the alternative refinancing scenarios, that her Honour’s reference to the size of the debt was to the replacement of the subordinated debt of the then current financiers. Mr Mackenzie had made it clear in his affidavit that his opinion as to the size of Nimble’s debt was subject to notes that may be issued under the Follow-on Offer. It would appear that her Honour understood it in that way as she was acutely aware of the importance of the Follow-on Offer which she had referenced on a number of occasions in her reasons. Relevantly, at the time of Mr Mackenzie swearing his affidavit no new notes had been issued and the time limit for submitting an application under the Follow-on Offer had not expired. It was not suggested that there was any other evidence which her Honour should have considered as to Nimble’s expected debt levels other than that of Mr Mackenzie and the finding was open to her Honour.

97    It was also not suggested that her Honour would have reached any other conclusion had she specifically referenced the possibility of additional debt being taken on as a result of the Follow-on Offer. It might be presumed that any additional funds raised would have been utilised in Nimble’s business in the same manner as the finance raised from the new investors, such that they would generate relatively similar returns which would be sufficient to meet Nimble’s interest liabilities.

98    The second complaint in relation to this finding was that the interest rates on the Series 14 Notes increased in the third year to 24%, which was higher than the Series 13 Notes, such that her Honour’s conclusion about the overall interest burden was incorrect. Again, it is necessary to consider the finding in the context of the material before the Court. Mr Mackenzie’s evidence was referrable to the interest rate in the first two years of the Series 14 and 15 Notes. He did not assert that the third year of the Series 14 Notes would not be higher. His evidence was clear on this and it is unlikely that the primary judge misunderstood it. It is important to note that, central to Enares’ asserted concerns, was that the debt refinancing strategy was inappropriate in the circumstances pertaining at that time, being when Nimble was under financial stress. It was a constant refrain of Enares’ submissions that the Board’s decision was unsatisfactory given Nimble’s financial circumstances at that particular point in time. It is, therefore, unsurprising that the primary judge focused her attention on the relatively immediate effect of the refinancing and sought to ascertain what difference, if any, there would be to the existing debt obligations. As her Honour had noted, the Board had justifiable optimism for the company’s growth as did the current investors and shareholders. In such circumstances it is apparent that her Honour’s reference to the relative interest burden was in relation to the immediate or near immediate effect of Nimble adopting obligations under the new notes issue. There was no information as to what the position might be in two years’ time and that was largely irrelevant to the point in issue. The circumstances show that the issue before her Honour was the immediate effects of the new notes issue and, in that context, her finding was entirely correct.

99    Again, it can be added that even if the higher interest rates payable on the third year of the less popular Series 14 Notes had been regarded as relevant, it is far from apparent that it would have made any difference to the outcome. The nature of Enares’ asserted concern was the debt refinance in the then current circumstances and the fact that the interest obligation might increase in two years’ time must necessarily have been of marginal relevance. That is particularly so in the light of Nimble’s entitlement to redeem the notes at any time without payment of any additional fee. Whether the higher rate would ever be payable was, necessarily, hypothetical.

100    It was next submitted that the primary judge erred in making the finding (at PJ [64]) that, “The Follow-On Offering provides Nimble with equity at a higher valuation than either of Enares’ proposals, which were, in any event, withdrawn.” It was first submitted that this statement was in error because Enares’ November Proposal had not been withdrawn. Whilst the October Proposal had been expressly withdrawn, it is correct that the November one had not. Nevertheless, as at 10 November 2021, Nimble had entered into a binding but conditional refinancing agreement involving the issuing of the new notes. It is apparent that, by that time, the Board had largely determined to pursue the debt refinancing strategy. However, as the facts recited above reveal, the November Proposal was received from Enares on 12 November 2021 and it was sent to the members for their consideration on 16 November 2021. The Board indicated that it would assess the proposal in the context of the conditional agreement which it had entered into with the new investors. By its 23 November 2021 shareholder update, it advised that it had executed definitive documentation with the new investors which carried with it the implication that it had rejected the November Proposal. On the assumption that an error existed because the November Proposal had not been withdrawn, it too was not material. At the time when the Board first agreed to the debt refinancing strategy the October Proposal had been withdrawn and no other live proposal was open for consideration. Despite having entered into an agreement with the new funders, the Board nevertheless considered the November Proposal when it was subsequently presented. Therefore, whilst her Honour may have mistakenly believed the November Proposal had been withdrawn, the practical effect was the same in that when the Board first made the decision to proceed with the debt refinance strategy, Enares had withdrawn the first proposal and had not made any further offer.

101    As the point developed during the appeal the essential question became whether, as at the end of November 2021, the Board should have pursued negotiations in relation to the November Proposal as a potential alternative to the debt refinancing strategy. For the many reasons which have been given, her Honour was correct to conclude that it was not so required. It mattered not whether the November Proposal had been withdrawn by Enares or the Board had rejected it as a viable proposition. The reality was that it did not present as a relevantly viable means of raising finance.

102    The next alleged error was said to be contained in the statement that, “the Follow-On offering provides Nimble with equity”. It was submitted that the Follow-on Offer merely provided for those who took up the Series 15 Notes to exercise an option to purchase equity and that Nimble was not provided with it merely because the notes were taken up. This alleged error involves reading the primary judge’s reasons with an eye attuned to error, rather than fairly. In that part of her reasons her Honour was considering the nature of the benefits from the Follow-on Offer and properly recognised that one such benefit was that it provided members with the opportunity to acquire further equity which, if the opportunity was availed of, would further capitalise the company. In this light her Honour’s statement was correct.

103    Mr Sulan then submitted that the primary judge erred in her conclusions as to Enares’ claims about the alleged information asymmetry as between it and VDLF. It had been submitted to the primary judge that because Mr Edney was VDLF’s nominee director he would have provided additional information to it which was not available to other shareholders. In particular, it was said that her Honour erred in finding that Mr Edney “was not freely passing information to the 14% shareholder, VDLF”. Mr Edney did not give evidence at the hearing although no point was taken in that respect. However, Mr Mackenzie was cross-examined about his understanding of Mr Edney’s communications with VDLF. The relevant evidence was recorded in the primary judge’s reasons as follows:

And Mr Edney is the director that you understand to be associated with the shareholder VDL; correct?---Yes.

And, in effect, he’s a nominee of VDL, isn’t he?---I’m not sure the exact – the exact relationship in terms of whether he’s a nominee or whether – whether he’s – yes, on how his directorship has been formed.

Yes. But you would fully expect him to be reporting matters back to VDL as to what’s going on with the company, wouldn’t you?---Yes.

Yes. And so VDL, being a 14 per cent shareholder, has got access to a whole lot of information that the 15 per cent shareholder, being my client, doesn’t have access to; you would agree with that?---I know there are some document – some – what’s the word I’m looking for? Is a documented procedure for what – what that sharing is entitled to and when it’s not entitled.

Yes. Well, to your knowledge, Mr Edney knows who the new investors are, doesn’t he?---Yes.

And to your knowledge, one of the pieces of information the company is seeking to keep away from my client is who those new investors are?---Yes.

So you’re accepting, as the CEO, that there’s going to be information asymmetry between the two major shareholder groups?---Yes.

And that’s a position that the company is happy with, that is, that one shareholder group has a lot more information about the new investors than another.

MS ROUGHLEY: I object.

104    It is notable that Mr Mackenzie was not asked whether information about the identity of the new investors was the type of information which a nominee director might pass on to their nominating shareholder. If it had been intended that a submission was to be made that Mr Mackenzie had accepted that was the case, that matter ought to have been squarely put to him. It was not.

105    In the submissions to this Court Mr Sulan stated:

… but I did put it to Mr Mackenzie, the CEO, and the relevant part of the transcript is recorded at paragraph 70, and in effect, I said, “You would fully expect him to be reporting matters back to VDLF as to what’s going on with the company?” And he said yes. And then later on, one of those pieces of information was who the new investors were …

And so we were saying, “well, come on, just at least tell who these new investors are”, and he was accepting that Mr Edney would know that, and he was, no doubt, passing it back to VDLF.

106    Those submissions materially misstate Mr Mackenzie’s evidence. He did not agree with the proposition that Mr Edney would pass on the information about the identity of the new investors to VDLF. Rather, the evidence can only be taken as being that Mr Edney passed on the information which he was entitled to under the company’s Information Protocol. The primary judge concluded that the information as to the identity of the new investors may have fallen within the prohibitions in the Information Protocol and, in the light of Mr Mackenzie’s evidence, there was no reasonable basis for believing that Mr Edney had disclosed the identity of the new investors.

107    Mr Sulan challenged the primary judge’s conclusion that the information in question fell within the scope of the prohibition in the Information Protocol, although he did not explain why that conclusion was incorrect. Clause 3(a) of it provided that nominee directors might provide information to a nominating shareholder unless, inter alia:

(a)    the information falls within one of the following categories or types, in which case it must be redacted and removed, prior to any provision of the information to a Nominating Shareholder:

…

(3)    information regarding any product, service, transaction or other matter relating to Nimble’s business where the Nominating Shareholder has (in any capacity) a relevant or competing interest in that product, service, transaction or other matter;

108    It seems that the prohibition in cl 3(a)(3) of the Information Protocol is sufficiently wide to cover the information in question. The identity of the new investors was information regarding a matter relating to Nimble’s business where VDLF had a relevant or competing interest in it. The Series 15 Notes granted to the holders an entitlement to exercise options to acquire shares in Nimble at the identified prices. The issue of additional equity in the company is a matter in which VDLF must surely have a “relevant or competing interest” as any new issue of shares will necessarily result in a dilution of the proportion of its 14% holding. Further, the potential for the introduction of new substantial shareholders to Nimble is a matter in which VDLF would have had a relevant interest. It is, with respect, difficult to read the broad words of cl 3(a)(3) of the Information Protocol in any other manner.

109    However, Mr Sulan further submitted (ts 24) that the primary judge’s finding was in error because Nimble did not submit at the first instance hearing that the reason why it could be inferred that Mr Edney was not passing on information was because of the requirements of the Information Protocol. The complete answer to this is that her Honour’s finding was entirely consistent with the evidence which had been adduced on this topic. Although it was only lightly touched upon, Mr Mackenzie’s evidence was that any information passed on to nominating shareholders was in accordance with the documented procedure in the Information Protocol. In the context of Enares alleging that there existed some information asymmetry arising from Mr Edney’s position it is unclear why the learned primary judge was not entitled to rely upon the substance of Mr Mackenzie’s evidence and consider the terms of that document to ascertain whether information as to the identity of the new investors would or would not be disclosed.

110    It is relevant that there was not a skerrick of evidence that Mr Edney had passed the alleged information on to VDLF. All that Enares relies upon is an assumption that it might have occurred. In the context where Enares’ bore the onus of establishing that it was bringing the application in good faith and for a proper purpose it was required to establish the existence of some substance to its concerns and there was nothing but speculation in relation to this issue of passing on information. Accordingly, the primary judge was correct when she held (at PJ [74]), “I do not think there is a reasonable basis for inferring that VDLF (as opposed to Mr Edney) is receiving information concerning the refinancing arrangements including the New Investors’ Subordinated Notes”. As a result, her Honour concluded that there was no information asymmetry of the type alleged such there was no foundation for the asserted concern.

111    It was also submitted by Mr Sulan (AS [23]) that inspection should be permitted under s 247A on the basis that it would correct the alleged information asymmetry as between Enares and VDLF. However, if VDLF had been given information in accordance with the Information Protocol as accepted by the Board, it is not immediately apparent why the Court should upset the consequences of the legitimate internal arrangements which the company has in place. In circumstances where there is no question about the legitimacy of the Information Protocol, inspection should not be permitted merely to circumvent the company’s internal procedures which, it might be presumed, had been agreed upon by the members. In this respect it is relevant that Enares had appointed its nominee, Mr Fitzalan, to the Board in May 2021, but he had been removed as a Board member at a general meeting. There was no evidence as to why it had not appointed a replacement nominee.

112    Enares also submitted that the primary judge focused upon irrelevancies. First, it was submitted that her Honour placed weight on the fact that the cause of the financial distress suffered by Nimble was not the result of mismanagement but was caused by COVID-19 and the company’s long-term change of business strategy in which a downturn was expected. However, her Honour’s findings in this respect (PJ [62]) were for the purpose of providing context to the decision which the Board was to make and, in particular, for demonstrating the “air of commercial unreality” in Enares’ submissions. As her Honour identified, the company had suffered significant financial difficulties but also that there were signs that the business and financial circumstances were improving, and that optimism was being demonstrated by financiers and members alike. This was an important contextual matter in which to ascertain whether there was any suggestion of inappropriate conduct by the Board which was required to act in response to immediate difficult financial circumstances albeit with the prospects of improvement in the near future. Rather than being irrelevant, her Honour was obliged to consider the context in which the impugned decision was made or in which the alleged conduct occurred.

113    It was also submitted that her Honour erred by considering the high interest rates which were payable pursuant to the Series 13 Notes. It was contended that merely because Nimble had paid high interest under those notes and would pay rates which were high, but not as high, under the Series 14 and 15 Notes, that was not a reason to issue the latter notes. It was submitted that the focus on the comparative interest rates distracted from Enares’ objective concern that the financially distressed Nimble should not enter into a transaction which replaced high interest finance with other high interest finance. The difficulty for that submission is that the reduction in the interest rate payable to be achieved by the debt refinance strategy was particularly relevant in circumstances where Enares was claiming to be concerned about the ongoing financial pressure on the company. Again, this was far from an irrelevant consideration. To that it can be added that it had not been shown that the interest rates payable in any way imperilled Nimble’s financial security. The only evidence was that it had the ability to service the new debt arrangements at the new interest rates.

114    A complaint was also made that her Honour had relied upon Mr Mackenzie having “stress tested” Nimble’s ability to repay the interest on the Series 14 and 15 Notes. It was submitted that as the notes matured in three years it was difficult to predict what might occur such that any such testing could only have been of little weight. Complaint was also made that Mr Mackenzie’s asserted belief that based on the current financial forecasts Nimble would return a profit and be able to pay the debt, was insufficient evidence on which her Honour might act. The precise legal nature of these criticisms was not entirely clear. It was acutely relevant to whether there was an objective foundation for Enares’ concerns that the CEO had assessed the company’s ability to repay the principal and interest on the new loans, and had formed the view that profits would be forthcoming. The same could be said of the CEO’s consideration that the company would soon return to a profitable position as was reflected in the option prices in the Series 15 Notes offer.

115    Finally, it was submitted that her Honour should not have given weight to the fact that by November 2021 there was insufficient time to formulate or implement an equity rights issue. It was said that the correct question should have been whether there was time in October 2021 to implement an equity issue and that Enares’ concern was that it should have been pursued with vigour from that earlier time. In support of this submission Mr Sulan relied on the circumstances which arose in Hanks v Admiralty Resources NL where the member sought and obtained inspection long after a decision had been made in circumstances which, so it was said, were less concerning than the present. However, in that case Gordon J had determined that there was a clear basis for investigation. The circumstances in which the Board’s decision had been made raised questions about whether the directors had complied with their fiduciary duties when they did not entertain competing offers in relation to the subsidiary entity which was being sold. Here, the circumstances are quite different. There was no express or articulated basis for any apprehension that any legal wrong had been done. On the contrary, it would have been surprising if the Board did not pursue the debt refinancing strategy which generally maintained the status quo but, instead, attempted to have negotiated a rights issue with Enares despite the absence of any evidence that any better offer would be forthcoming.

116    In relation to the specific complaint that the Board should have pursued the rights offer earlier, it is to be kept in mind that the October Proposal required the approval of all members who held over 1% of the shares. That approval had not been forthcoming and the offer was withdrawn. No new proposal emerged until 12 November 2021, being after the Board had entered into the binding but conditional agreement in relation to the new notes. Even then, the November Proposal was indicative only and, even if it matured into an actual offer by Enares, it would have been conditional in any event. For the reasons referred to above there was nothing which required the Board to pause to pursue uncertain negotiations with Enares.

117    It follows that the alleged errors relied upon by Enares were either irrelevant or not made out on the material. It must also be said that the alleged errors, even if they were all made out, would not have affected the outcome. They do not alter the underlying premise that, as a matter of substance, the debt refinancing strategy was the only course open for the Board. Therefore, if the alleged errors vitiated the primary judge’s conclusion, on this appeal they do not alter the conclusion that Enares has not established that it was acting in good faith and for a proper purpose.

Grounds 3 and 4 – The application of the test in s 247A and the discretion

118    It was submitted that, while the primary judge accurately identified the test to be applied under s 247A, she erred by failing to apply that test or by failing to properly apply it by reference to the evidence. The principles applicable to s 247A are summarised at [39]-[47] above. Given our conclusions in relation to appeal grounds 1 and 2, it follows there was no error in her Honour’s application of the applicable test to the evidence before her. The primary judge was, as the appellant accepted, cognisant of the applicable principles. Her Honour applied them in an orthodox way.

119    It was submitted that if this Court determined that the primary judge erred in her conclusion that she was not satisfied that Enares was acting in good faith and that its intended inspection was for a proper purpose, the Court should exercise the discretion in Enares’ favour. As has been mentioned, that approach is not correct. If it were concluded that her Honour erred by not being relevantly satisfied, the obligation on this Court is to reach its own conclusion as to whether it is satisfied that Enares was acting in good faith and for a proper purpose. It is only if that conclusion is reached that this Court would then be in a position to exercise the discretion. For the reasons that have been given, Enares has not established before this Court that there is any objective foundation for its alleged concerns in relation to the Board’s conduct.

Discretionary matters

120    If it were assumed that Enares established that the discretion was enlivened in this Court, it was submitted that it should be exercised in its favour because there was nothing in the circumstances of this case which would negate the exercise of discretion in its favour.

121    The learned primary judge concluded that the scope of the inspection sought by Enares was too wide for the purposes for which it claimed to pursue it. The relevantly asserted purpose was to ascertain whether any derivative actions are available against the directors or whether any oppression has occurred. In this respect it sought to inspect the documents relating to the Board’s decision to proceed with the debt refinancing. However, it had already been provided with the terms of the Series 14 and 15 Subordinated Notes and further information about them is otherwise available on a confidential basis. Relevantly, it had sufficient information to ascertain whether it had any relevant claim to pursue. The primary judge also held (at PJ [89]) that Enares sought “commercially sensitive information considered or generated by the Board that would place it in a superior position or alternatively undermine Nimble’s standing or ability to negotiate with its current financiers or alternate financiers in the future”. It is apparent that her Honour would have refused inspection of those documents and nothing was advanced by which that conclusion could be shown to be in error.

122    Enares claimed to be concerned to know how Nimble might redeem the Series 15 Notes at any time prior to maturity without paying any additional fees. The affidavit of Mr Mackenzie had deposed to this ability and Mr Sulan submitted that his client was entitled to know full details of the mechanism of how that was to occur. He further submitted that Enares was concerned to ascertain the terms on which the options attached to the Series 15 Notes expired once repayment had occurred. However, here it seems that all that Enares is concerned about is to know the terms of the commercial dealings between Nimble and its external financiers. If it had been shown that there was some foundation to the asserted concerns it might be expected that Nimble would be required to allow inspection of such documents because it would relate to the issue of whether the Board ought to have considered an alternative refinancing strategy. However, as the first hurdle was not surmounted there is no need to consider further the circumstances in which the discretion might have been exercised.

Conclusion

123    It follows that the appeal must be dismissed. The appellant should pay the respondent’s costs of the appeal.

Associate:

Dated:    4 August 2022