FEDERAL COURT OF AUSTRALIA

Force Commodities Ltd, in the matter of Force Commodities Ltd [2019] FCA 1815

ORDERS

THE COURT ORDERS THAT:

1.    Leave be granted to the plaintiff to amend the originating process in terms of the minute of proposed amended originating process filed herein.

2.    The minute of proposed amended originating process do stand as the amended originating process and further service be dispensed with.

3.    Pursuant to ss 1322(4)(a) and 254E of the Corporations Act 2001 (Cth), the issue of the shares referred to at item 1 of Annexure A is validated and confirmed.

4.    Pursuant to s 1322(4)(a) of the Act, it is declared that any offer for sale or sale of the shares referred to at item 1 of Annexure A during the period from the date of issue until 14 October 2019 is not invalid by reason of:

(a)    the failure to give a notice to the Australian Securities Exchange (ASX) under paragraph 7(f)(ii) of the Australian Securities and Investment Commission (ASIC) Class Order 09/425 within the 24-hour period prior to the issue of the shares; and

(b)    the seller’s consequent failure to comply with s 707(3) and 727(1) of the Act.

5.    Pursuant to s 1322(4)(a) of the Act, it is declared that any offer for sale or sale of the shares listed at items 2 to 14 of Annexure A during the period from the date of issue until 14 October 2019 is not invalid by reason of:

(a)    The failure to issue a valid cleansing notice under s 708A(5)(e) of the Act or a cleansing prospectus under s 708A(11) of the Act, to exempt the seller from the obligation of disclosure under the Act; and

(b)    the seller’s consequent failure to comply with s 707(3) and 727(1) of the Act.

6.    Pursuant to s 1322(4)(c) of the Act, any sellers of shares referred to in Annexure A save for present and past directors and officers of the plaintiff are relieved from any civil liability arising out of any contravention of ss 707(3) and 727(1) of the Act.

7.    A sealed copy of these orders is to be served on ASIC as soon as reasonably practicable and upon service of these orders on ASIC, ASIC is to include these orders on its database.

8.    As soon as reasonably practicable a copy of these orders is to be sent to the last known email address of each person to whom the shares referred to in Annexure A were issued.

9.    The plaintiff make a request forthwith of the ASX for the class of securities ‘4CE’ to be reinstated to quotation on the ASX.

10.    As soon as reasonably practicable and prior to the reinstatement of the class of securities ‘4CE’ on the ASX, the plaintiff is to publish an announcement on the ASX markets announcement platform in which a copy of these orders is included.

11.    For a period of 28 days from the publication of these orders on the ASX markets announcement platform, any person who claims to have suffered substantial injustice or is likely to suffer substantial injustice by the making of any or all of these orders has liberty to apply to vary or to discharge these orders.

12.    There be no order as to costs.

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

REASONS FOR JUDGMENT

MCKERRACHER J:

INTRODUCTION

1    Force Commodities Ltd, applies for orders pursuant to s 1322(4)(a) of the Corporations Act 2001 (Cth) to:

(a)    validate trading in Force Commodities’ shares issued pursuant to the 14 securities issues (Securities Issues); and

(b)    relieve any sellers of those shares from civil liability arising out of such sales

    (the Application).

2    On 1 November 2019, the Application came before the Court for hearing, Force Commodities having applied ex parte and on an urgent basis for remedial orders. I was satisfied it was appropriate to make the orders sought by Force Commodities for the reasons which follow.

EVIDENCE

3    The Application was supported by the following affidavits:

    The affidavit of Mr Brewer, director of Force Commodities, affirmed 24 October 2019, which deposed to information concerning the Securities Issues.

    The affidavit of Mr Kinstlinger, affirmed 28 October 2019, who was Force Commodities’ company secretary from this appointment on 10 August 2010 until his resignation on 31 August 2017. He was joint secretary with Mr Fry from 1 April 2017 until his resignation.

    The affidavit of Mr Fry affirmed 25 October 2019, who was appointed as the company secretary of Force Commodities on 1 April 2017 and resigned on 5 February 2019. He was joint secretary with Mr Kinstlinger from his appointment date until Mr Kinstlinger resigned on 31 August 2017.

    The affidavit of Mr Pitcher, affirmed 25 October 2019, who was the current company secretary of Force Commodities (at the time of deposing his affidavit), having been appointed on 5 February 2019.

4    There was also an affidavit of Mr Tydde, solicitor for Force Commodities, sworn 31 October 2019, which annexed correspondence with the Australian Securities Exchange (ASX), the Australian Securities and Investments Commission (ASIC) and also with an individual from Computershare Investor Services Pty Ltd, Force Commodities’ share registry.

STATUTORY REGIME

5    Chapter 6D of the Act imposes disclosure obligations in relation to the issue and sale of shares. In some circumstances, those requirements may be met by the issue of a notice that complies with s 708A(6) (generally known as a cleansing notice): s 708A(5). More generally, if a prospectus has been lodged in accordance with s 708A(11), no further disclosure is required under Pt 6D.2.

6    Some provisions allow securities the subject of the regulation in Pt 6D.2 to be issued without disclosure. However, if that is done then the party to whom the securities are issued may not be able to on-sell the shares within 12 months without that party itself providing disclosure. Therefore, if the issuer does not issue a valid cleansing notice or a prospectus at the time of issue then there is a prospect that the party to whom the securities are issued must itself cause such disclosure if it wishes to on-sell those securities within 12 months. Such a party may well be unaware of such a requirement.

7    The provisions of Pt 6D.2 of the Act which engage the cleansing notice exception are, relevantly, as follows:

706    Issue offers that need disclosure

An offer of securities for issue … needs disclosure to investors under this Part unless section 708 or 708AA says otherwise.

707    Sale offers that need disclosure

Only some sales need disclosure

(1)    An offer of securities for sale needs disclosure to investors under this Part only if disclosure is required by subsection (2), (3) or (5).

…

Sale amounting to indirect issue

(3)    An offer of a body’s securities for sale within 12 months after their issue needs disclosure to investors under this Part if:

(a)    the body issued the securities without disclosure under this Part; and

(b)    either:

(i)    the body issued the securities with the purpose of the person to whom they were issued selling or transferring the securities, or granting, issuing or transferring interests in, or options over, them; or

(ii)    the person to whom the securities were issued acquired them with the purpose of selling or transferring the securities, or granting, issuing or transferring interests in, or options over, them;

and section 708 or 708A does not say otherwise.

…

708A    Sale offers that do not need disclosure

...

Sale offer of quoted securities––case 1

(5)    The sale offer does not need disclosure to investors under this Part if:

(a)    the relevant securities are in a class of securities that were quoted securities at all times in the 3 months before the day on which the relevant securities were issued; and

(b)    trading in that class of securities on a prescribed financial market on which they were quoted was not suspended for more than a total of 5 days during the shorter of the period during which the class of securities were quoted, and the period of 12 months before the day on which the relevant securities were issued; and

(c)    no exemption under section 111AS or 111AT covered the body, or any person as director or auditor of the body, at any time during the relevant period referred to in paragraph (b); and

(d)    no order under section 340 or 341 covered the body, or any person as director or auditor of the body, at any time during the relevant period referred to in paragraph (b); and

(e)    either:

(i)    if this section applies because of subsection (1)––the body gives the relevant market operator for the body a notice that complies with subsection (6) before the sale offer is made …

…

(Notes omitted.)

8    The time limit is prescribed by s 708A(6) as follows:

(6)    A notice complies with this subsection if the notice:

(a)    is given within 5 business days after the day on which the relevant securities were issued by the body; and

(b)    states that the body issued the relevant securities without disclosure to investors under this Part; and

(c)    states that the notice is being given under paragraph (5)(e); and

(d)    states that, as at the date of the notice, the body has complied with:

(i)    the provisions of Chapter 2M as they apply to the body; and

(ii)    section 674; and

(e)    sets out any information that is excluded information as at the date of the notice (see subsections (7) and (8)).

(Notes omitted.)

9    Section 1322 of the Act contains a number of remedial provisions relating to ‘irregularities’. Subsections 1322(1), 1322(2), 1322(3), 1322(3AA), 1322(3A) and 1322(3B) confer upon the Court powers to determine the consequences for the validity of proceedings under the Act where there have been failures to comply with the Act of a kind specified in these subsections. Section 1322(4) then confers the following power:

Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes:

(a)    an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation;

(b)    an order directing rectification of any register kept by ASIC under this Act;

(c)    an order relieving a person in whole or in part of any civil liability in respect of a contravention or failure of a kind referred to in paragraph (a);

(d)    an order extending the period for doing any act, matter or thing…

and may make such consequential or ancillary orders as the Court thinks fit.

10    Section 1322(6) contains certain pre-conditions to the making of an order under s 1322. Those pre-conditions are:

(a)    in the case of an order referred to in paragraph (4)(a):

(i)    that the act, matter or thing, or the proceeding, referred to in that paragraph is essentially of a procedural nature;

(ii)    that the person or persons concerned in or party to the contravention or failure acted honestly; or

(iii)    that it is just and equitable that the order be made; and

(b)    in the case of an order referred to in paragraph (4)(c)—that the person subject to the civil liability concerned acted honestly; and

(c)    in every case—that no substantial injustice has been or is likely to be caused to any person.

11    The principles relevant to the granting of relief under s 1322 were reviewed recently by Banks-Smith J in Re ICandy Interactive Limited (2018) 125 ACSR 369. In that review, her Honour identified the following principles which are also pertinent to the present application:

(a)    ‘[w]hen determining whether someone has acted honestly for the purposes of s 1322 of [the] Act’, the Court will look ‘to an absence of evidence of dishonesty’ (at [54]);

(b)    the Court will also take into ‘account whether the applicant has taken prompt action to remedy the error’ (at [54]); and

(c)    the concept of acting honestly can also embrace the following (at [55]):

(i)    ‘inadvertence or a failure to turn their mind to the relevant issue’;

(ii)    ‘an active, but incorrect, consideration of a legal issue as well as failure to consider the issue at all’; and

(iii)    a ‘failure to understand or appreciate the significance of non-compliance’.

12    In Re Wave Capital Ltd (2003) 47 ACSR 418 (at [29]), French J observed that s 1322, together with s 1318 (conferring a power to excuse officers, auditors, expert or insolvency administrators from liability for negligence, default or breach in certain circumstances) and s 1325D (conferring a power to excuse the consequences of a contravention of Chs 6, 6A, 6B or 6C having regard to whether it was caused by inadvertence or mistake, a lack of awareness or circumstances beyond the control of a party):

may be taken to reflect a broad legislative policy that the law should not inflict unnecessary liability or inconvenience or invalidate transactions because of non-compliance with its requirements where such non-compliance is the product of honest error or inadvertence and where the court can avoid its effect without prejudice to third parties or the public interest in compliance with the law. That broad policy does not authorise the court lightly to set aside the requirements of the Act where they have not been observed.

13    Section 1322(4) is remedial in nature and is, therefore, to be given a generous interpretation: Weinstock v Beck (2013) 251 CLR 396 and NMRA Ltd v Gould (1995) 18 ACSR 290 (at 292). Orders can be made with retrospective effect: Re Golden Gate Petroleum Ltd (2010) 77 ACSR 17 (at [42]).

14    However, as Colvin J observed in EHR Resources Ltd, in the matter of EHR Resources Ltd [2018] FCA 997 (at [7]):

… care must be taken to confine relief in a manner which is consistent with the justification for the application. Ordinarily, it will not be appropriate for relief to be granted protecting those who have been involved in the breach of the disclosure provisions, unless it is necessary in order to protect the interests of current shareholders who hold shares. An order that any offer for sale or sale of shares is not invalid by reason of the failure to comply is of this character. In making such orders, there must be due regard for the interests of current shareholders who usually are not heard on the application due to the impracticality of giving separate notice to all such parties.

Section 254E CA

15    While s 1322(4)(a) enables the Court to confirm that shares are not invalidated by reason of a contravention, s 254E allows the Court to positively validate and confirm a share issue. Section 254E of the Act provides:

254E    Court validation of issue

(1)    On application by a company, a shareholder, a creditor or any other person whose interests have been or may be affected, the Court may make an order validating, or confirming the terms of, a purported issue of shares if:

(a)    the issue is or may be invalid for any reason; or

(b)    the terms of the issue are inconsistent with or not authorised by:

(i)    this Act; or

(ii)    another law of a State or Territory; or

(iii)    the company’s constitution (if any).

(2)    On lodgment of a copy of the order with ASIC, the order has effect from the time of the purported issue.

16    Section 254E of the Act should be construed widely. In Laserbond Limited (ACN 057 636 692), in the matter of Laserbond Limited (ACN 057 636 692) [2007] FCA 2056 (at [25]), I said:

In the circumstances of this case there is no doubt that the company has brought an application in relation to a purported issue of shares which may be invalid for any reason. In construing the meaning of ‘invalid’ in s 254E, the liberal approach is again applied. This is because of the remedial purpose behind the section and thus requires that ‘invalid’ includes ‘void’. This is consistent with the approach taken in the cases on which Austin J commented in Howard v Mechtler [1999] NSWSC 232;  (1999) 30 ACSR 434 at [47]-[48]. It was also expressly the view of Lee J in Golden Gate 50 ACSR at [34] where his Honour said:

I am satisfied that s 254E uses the word ‘invalid’ in a broad sense to encompass not only an issue of shares which is liable to be declared void under the Act but also an issue of shares which the Act stipulates to be void (see : Swan Brewery Co Ltd (No 2) (1976) 3 ACLC 168 per Gillard J at 171-2; cf Harman v Energy Research Group Australia Limited [1986] WAR 123 per Brinsden J at 127).

17    In Laserbond I also noted that the Court’s discretion in relation to making remedial orders under s 254E is substantially the same as the approach to be adopted in relation to the making of validating orders under s 1332 of the Act.

18    Orders can be made under s 254E notwithstanding that the non-compliance was with provisions of Class Order 09/425 as opposed to a provision of the Act. In Australian Dairy Farms Limited, in the matter of Australian Dairy Farms Limited and Dairy Funds Management Limited [2018] FCA 2056, Colvin J made orders under s 254E extending the time for giving a notice to ASX under para 7(f)(ii) of ASIC Class Order 09/425 (CO 09/425) and declaring an offer to issue stapled securities to be not invalid. Colvin J found that there was a contravention of a provision of the Act by reason of the failure to fall within CO 09/425 so as to obtain exemption from disclosure, so that a declaration could be made under s 1322(4)(a) that the subject offer was not invalid. The Court also found that an order could be made under s 1322(4)(d) extending the time for compliance with the notice requirement.

THE SECURITIES ISSUES

19    The Securities Issues the subject of this Application were set out in a table in Mr Brewer’s affidavit (the Table). He deposes to it having been prepared with the assistance of Computershare and Force Commodities’ solicitors. The Table records as follows:

20    I note for completeness, that orders were originally sought for the validation of 15 securities. However, the Court was subsequently advised that this securities issue, set out as item 2 in the Table, was made pursuant to share purchase plans. Force Commodities sought to obtain exemption from disclosure through compliance with CO 09/425, which was issued by ASIC under s 741(1)(a) and s 1020F(1)(a) of the Act. The instrument provided ASX-listed issues of shares and interests under purchase plans with relief from the requirement to prepare a prospectus or product disclosure statement if certain conditions were met. (I note CO 09/425 was subject to a sunset clause with a date of 1 October 2019 and has since been remade, with an adjustment to certain conditions, in ASIC Corporations (Share and Interest Purchase Plans) Instrument 2019/547). Initially it appeared that there were breaches of the conditions relating to the $15,000 limit on the acquisition of shares under share purchase plans over a 12-month period, in relation to the item 2 securities issues. After further inquiries were made by advisers to Force Commodities, it became clear that there were no breaches of the conditions in relation to the $15,000 expenditure limit.

21    The sixth column entitled ‘Category’ indicates whether the Securities Issue was accompanied by an invalid cleansing notice (Category 1), or without a cleansing notice (Category 2). None of the Securities Issues was made with a cleansing prospectus.

22    The seventh column of the Table records that there has been some secondary trading in relation to shares issued under all of the Securities Issues. Accordingly, orders under s 1322(4)(a) and s 1322(4)(c) of the Act are sought in relation to the 14 Securities Issues, to validate trading in shares issued pursuant to the Securities Issues and to relieve sellers from any civil liability arising from breaches of s 707(3) and s 721(1) of the Act. I note there is a carve out in the orders made under s 1322(4)(c) of the Act. The orders made on 1 November 2019 provide ‘any sellers of shares … Act’. The reason for the carve out is that two past directors of Force Commodities were recipients of some of the uncleansed shares and on-sold them within 12 months. This was raised by ASIC. In ASIC’s letter, annexed to the affidavit of Mr Tydde, in which ASIC confirmed it ‘neither supports nor opposes the Application and does not intend to appear’, it was noted that relevant to it reaching this position was the fact that the Application does not seek relief in respect of any contraventions of the law committed by Force Commodities, its directors or its officers. ASIC reserved its rights in respect of contraventions (if any).

23    An additional issue arises in relation to the item 1 of the Securities Issues. This issue of securities was also made pursuant to a share purchase plan. Force Commodities sought to obtain exemption from disclosure through compliance with CO 09/425. The cleansing notice issued by Force Commodities in relation to the item 1 of the Securities Issues made on 30 July 2014 did not qualify as a notice to ASX under para 7(f) of CO 09/425 because it was issued after, and not within 24 hours prior to, the Securities Issues. The consequence is that exemption from disclosure under para 7 of CO 09/425 was not achieved and item 1 of the Securities Issues was arguably invalid. Force Commodities seeks validating orders pursuant to s 254E of the Act for this securities issue.

24    It is appropriate to turn to consider the Security Issues as they were made under each of the respective company secretaries.

Securities Issues under Mr Kinstlinger

25    Items 1, 3, 4, 5, 6 and 7 of the Securities Issues were made by Mr Kinstlinger.

26    Mr Kinstlinger did not at material times have a complete understanding of the requirements for a valid notice to ASX under para 7(f)(ii) of CO 09/425 so as to achieve exemption from disclosure. This led to Force Commodities’ failure to comply with CO 09/425 in respect to the item 1 of the Securities Issues.

27    As to items 3 to 7 of the Securities Issues, Mr Kinstlinger’s understanding about the circumstances when a cleansing notice should be issued was lacking.

28    In his affidavit, Mr Kinstlinger deposes (at [11]-[16]):

11    At the times when the Items 1 and 2 Securities Issues were made my understanding about cleansing notices (and cleansing prospectuses) was largely based on ad hoc advice that I received from solicitors from time to time, prior to commencing as company secretary for [Force Commodities]. I have not had any formal training in the fundraising provisions of the Act.

12    My general understanding was that placements to sophisticated investors did not require any disclosure for on-sale under section 708A of the Act because:

(a)    section 708A of the Act only applies if section 707(3) of the Act applies;

(b)    section 707(3) of the Act does not apply if section 708 of the Act or 708A of the Act says otherwise; and

(c)    section 708(8) of the Act says otherwise because an offer of securities does not need disclosure if the acquirers are sophisticated investors as defined.

13    I did not appreciate the difference between the requirements to cleanse an issue of securities for disclosure and to cleanse an issue of securities to allow secondary trading. My understanding was that a cleansing notice was only required for any securities issue made to retail investors, such as a share purchase plan, rights issue or other form of prorate security issue.

14    As to share purchase plans, my understanding was that a company could exempt itself from disclosure if it issued a notice to ASX under paragraph 7(t) of ASIC Class Order 09/425 (Cleansing Statement).

15    I prepared Cleansing Statements for the Items l and 2 Securities Issues because they involved the offer of securities, including to retail investors, pursuant to a share purchase plan.

16    I now know that the Items 1 and 2 Securities Issues were not fully compliant with the requirements under Class Order 09/425. …

29    He deposes to a similar lack of appreciation regarding disclosure for a securities issue in relation to items 3 to 7 of the Securities Issues. Relevantly, Mr Kinstlinger deposes (at [21]):

If I had known that a cleansing notice (or cleansing prospectus) was required for the Items 3 to 7 Securities Issues, I would have ensured that such a document was lodged by [Force Commodities]. I did not at any time knowingly fail to follow the fundraising requirements under the Act.

Security Issues under Mr Fry

30    Mr Fry was the company secretary when items 8 to 13 of the Securities Issues were made, each of which related to the issue of shares upon the conversion of options. Mr Fry did not appreciate that cleansing notices should have been issued so as to enable immediate trading in these shares. In his affidavit, Mr Fry deposes (at [10]-[11]):

10    At the times when the Items 8 to 13 Securities Issue were made my understanding was that a cleansing notice was not required when new shares were issued as a result of the conversion of options that had the prior approval of shareholders and the shares being issued were of the same class as other issued shares in the company.

11    In hindsight, I should have obtained legal advice as to whether a cleansing notice (or cleansing prospectus) is required following the conversion of options. This was an oversight on my part. I would have taken steps for a cleansing notice (or cleansing prospectus) to be lodged, if I had known that such a document was required.

Security Issues under Mr Pitcher

31    Mr Pitcher was the company secretary when items 14 and 15 of the Securities Issues were made. The cleansing notices for these Securities Issues were not valid, as Force Commodities’ shares had been suspended for more than five days in the 12-month period preceding the dates of issue. Mr Pitcher deposes in respect of item 14 of the Securities Issues:

9    When the Item 14 Securities Issue was made it was my understanding that a cleansing notice or cleansing prospectus should be lodged within 5 days of an issue of securities so that recipients would be immediately able to freely trade those shares on the ASX.

10    When I caused [Force Commodities] to issue a cleansing notice with the Item 14 Securities Issues I mistakenly assumed that [Force Commodities’] shares had been suspended for only 5 days during the previous 12 months. I now know that this was not correct, and that the position was that:

(a)    [Force Commodities] went into a trading halt on 30 April 2019 to manage its continuous disclosure obligations as it expected to make a material announcement in relation to the acquisition of a new project within the coming days (Foreshadowed Announcement). …

(b)    the trading halt was to continue until the earlier of 2 May 2019 (being the maximum period prescribed under the Listing Rules of the ASX) or the release of the Foreshadowed Announcement;

(c)    however, [Force Commodities’] securities were suspended from official quotation from the commencement of trading on 1 May 2019 due to its failure to lodge the relevant periodic report …;

  (d)    the Foreshadowed Announcement was made on 9 May 2019 …;

(e)    [Force Commodities] released its periodic report on the ASX on 10 May 2019 …; and

(f)    [Force Commodities’] securities were reinstated to trading on 10 May 2019 (after close of the market). …

11    When I prepared the cleansing notice for the Item 14 Securities Issue I did not review [Force Commodities’] announcements referred to in paragraph 10 above. I assumed that given that [Force Commodities] was suspended from 2 May 2019 … and as the Foreshadowed Announcement was made on 9 May 2019, the total suspension period was 5 trading days so that [Force Commodities] could issue the cleansing notice.

12    If I had carefully reviewed the announcements referred to in paragraph 10 above, I would have noted that [Force Commodities’] securities had been suspended for a total of 8 days in the 12-month period ending on 23 July 2019. This was an oversight on my part. I would have taken steps for a cleansing prospectus to be lodged, if I had appreciated that a cleansing notice could not be issued. I did not at any time knowingly fail to follow the fundraising requirements under the Act.

32    As to item 15 of the Securities Issues, all of which went to a sophisticated investor, Mr Pitcher deposes (at [15]-[17]):

15    At the time when the Item 15 Securities Issue was made, my understanding about cleansing notices and cleansing prospectuses was as set out in paragraph 9 above.

16    When preparing the documents for the Item 15 Securities Issue I made the same mistake as I did for the Item 14 Securities Issue, in that I assumed, without checking [Force Commodities’] announcements, that the suspension period for the preceding 12 months had been a total of 5 days.

17    In hindsight, I should have reviewed the relevant announcements. This was an oversight on my part. I would have taken steps for a cleansing prospectus to be lodged, if I had known that a cleansing notice could not be issued. I did not at any time knowingly fail to follow the fundraising requirements.[sic] under the Act.

Knowledge of the invalid cleansing

33    The problem with the cleansing notices for items 14 and 15 of the Securities Issues was pointed out in an email from ASX sent on 2 October 2019 to Mr Brewer.

34    Force Commodities then took legal advice and made further inquiries which revealed the prior uncleansed securities issues. Mr Brewer had expected that the company secretaries would have ensured that all of the Securities Issues were cleansed so as to permit immediate trading after issue.

35    On 3 October 2019, Force Commodities requested an immediate trading halt be granted by the ASX for Force Commodities’ securities. In accordance with Listing Rule 17.2, Force Commodities announced that the trading halt is sought to ‘allow the Company to seek clarification and make an announcement regarding compliance with the secondary trading provisions of the [Act]’.

36    Force Commodities subsequently requested, on 7 October 2019, an immediate voluntary suspension of trading in its securities. The request, annexed to the ASX’s market announcement, provided the following information to the market:

Further Information

The Company has become aware that a small number of share issues made over the past few months were, inadvertently, not validly cleansed so as to permit their immediate trading.

Whilst it has received no related complaints, the Company is taking all necessary steps to rectify any such breaches on an expedited basis and will shortly lodge a cleansing prospectus under section 708A(11) of the [Act] to cleanse all such shares so that subsequent trading is not subject to secondary trading restrictions under the Act.

Once the cleansing prospectus is lodged, the Company will file an application with the Federal Court of Australia seeking declaratory relief and ancillary orders relating to the prior trading in these shares, so that on-sale prior to the issue of this prospectus will be validated and will not attract any civil liability. The Company understands that there are reasonable prospects that the validating orders will be made.

The ASX has advised that the Company’s securities will not be reinstated to trading until such time as orders are made by the Federal Court of Australia.

The Company will continue to update the market with any developments including the hearing date following lodgement of the Federal Court application.

37    On 14 October 2019, Force Commodities lodged the cleansing prospectus.

38    On 25 October 2019, Force Commodities’ solicitors lodged the Application in this Court.

CONSIDERATION

39    It is appropriate to start by observing that Ch 6D of the Act is concerned with fundraising. As I observed in Golden Gate (at [24]):

Chapter 6 is designed to ensure that investors are provided with all information that they and their professional advisers would reasonably require to make an informed assessment in connection with securities offered for issue or sale. This includes the rights and liabilities attaching to securities (and the underlying securities in the case of interests in or options over securities) and the assets, liabilities, financial position and performance, profits and losses and prospects of the body that is to issue or issued securities (or the underlying securities in the case of interest in or options over securities) that are offered for issue and, in certain cases, for sale to investors.

40    Section 707 is an anti-avoidance provision designed to prevent the avoidance of disclosure requirements. In Golden Gate (at [27]), I identified the purposes as being to:

... prevent the policy of Chapter 6D being circumvented by the issue of securities or offer of sale of securities to a party to whom disclosure is not required (under s 708 or s 708AA) and that party then offering those securities for sale to investors without disclosure.

41    I turn to first consider relief under s 1322 of the Act.

Whether validating orders should be made under ss 1322 and 254E

Orders under s 1322 of the Act

42    Force Commodities submitted, and I accepted, that it was an interested person, for the purposes of s 1322(4) of the Act, because it was someone ‘whose material legal rights or pecuniary or other economic interests are or may be substantially affected by’ its failure to issue a cleansing notice: see Golden Gate (at [44]); Caeneus Minerals Ltd, in the matter of Caeneus Minerals Ltd [2018] FCA 560 (at [38]) and Classic Minerals Limited, in the matter of Classic Minerals Limited [2018] FCA 2039 (at [34]).

43    Secondary trading has occurred in relation to all of the Securities Issues, as appears from column 7 of the Table. Accordingly, sellers have breached s 707(3) of the Act. This qualifies as an ‘act, matter or thing that may be invalid by reason of a contravention’.

44    The requirements under s 1322(6) are all satisfied.

45    Force Commodities relied on the just and equitable ground in s 1322(6)(a). I am also satisfied that Force Commodities acted honestly, for the purposes of s 1322(6)(a)(ii). The company secretaries made honest mistake about the need for cleansing notices and the requirements for a valid notice. The same type of mistake was made about the requirements for a valid notice under para 7(f)(ii) of CO 09/425.

46    Orders under s 1322(4)(c) relieving shareholders from civil liability should also be made. It is probable that any person who was issued with shares under any of the Securities Issues or purchased and on-sold such securities did so in the bona fide belief that the shares were tradable without having to make disclosure under s 707(3) of the Act: see, for example, TV2U International Limited, in the matter of TV2U International Limited [2016] FCA 1556 (at [40]) and Re Silver Lake Resources Ltd (2012) 87 ACSR 436 (at [19]).

47    The contravening shareholders acted honestly, so that the requirement under s 1322(6)(b) is satisfied.

48    No substantial injustice would be likely to result from the making of the orders. Cleansing notices could have been issued for items 3 to 13 of the Securities Issues. A cleansing prospectus could have been issued for items 14 and 15 of the Securities Issues. Item 1 of the Securities Issue was not exempt from disclosure only because of the timing error in issuing the notice to ASX.

49    If the orders were not made, then there may be substantial injustice to sellers of such securities, given that any sales may be void or voidable. The general body of shareholders would be prejudiced by reason of the continuing suspension from official quotation.

50    There is nothing about Force Commodities’ conduct that could outweigh the reasons for exercising the discretion by making the orders sought. Force Commodities has explained the errors and it acted promptly to rectify the situation.

51    There is no evidence of any substantial misconduct, serious wrongdoing or flagrant disregard of the corporate law or the company’s constitution so as to warrant refusal of the relief sought: Wave Capital (at [29])

52    Force Commodities did not seek relief from civil liability for itself or its officers under s 1322(4)(c) of the Act, so that there is no bar to proceedings being brought against Force Commodities for damages, or civil penalty, or prosecution for breaches of the Act. An avenue which, as noted, ASIC has reserved.

53    Sellers who consider that they have suffered detriment as a result of the making of the orders are protected.

54    It is in light of these considerations that I considered the orders sought under s 1322 were appropriate.

Orders under s 254E of the Act

55    As noted, the Court’s approach is similar to the approach when considering the making of orders under s 1322(4) of the Act.

56    By para 1 of the amended originating process Force Commodities sought the following order:

1.    A declaration pursuant to ss 1322(4)(a) and 254E of the [Act] that the issue of 5,229,383 ordinary shares in [Force Commodities] on 30 July 2014 is validated and confirmed.

57    For the reasons given in respect of the s 1322 remedial order, I made the s 254E order.

CONCLUSION

58    I was satisfied the orders sought were appropriate. For the reasons given by Colvin J in Re Poseidon Nickel Ltd (2018) 129 ACSR 57 (at [90]-[92]), it was appropriate no cost order be made.

59    One further matter should be noted by way of conclusion. The Western Australian District Registry of the Court has been the recipient of a significant volume of applications for remedial orders of this nature. Western Australia appears to be disproportionately represented in this regard. I refer to the following judgments in the last 18 months (with a number before this time as well):

    Caeneus Minerals Ltd (9 April 2018)

    Clancy Exploration Limited, in the matter of Clancy Exploration Limited [2018] FCA 569 (10 April 2018)

    ICandy Interactive Limited (13 April 2018)

    Castillo Copper Limited, in the matter of Castillo Copper Limited [2018] FCA 602 (13 April 2018)

    Wangle Technologies Ltd, in the matter of Wangle Technologies Ltd [2018] FCA 864 (7 June 2018)

    EHR Resources Ltd (17 July 2018)

    Poseidon Nickel Ltd (17 July 2018)

    Pursuit Minerals Limited, in the matter of Pursuit Minerals Limited [2018] FCA 1127 (30 July 2018)

    Australian Dairy Farms (10 October 2018)

    Queensland Bauxite Ltd, in the matter of Queensland Bauxite Ltd [2018] FCA 2113 (27 November 2018)

    Classic Minerals Limited (12 December 2018)

    Spectur Limited, in the matter of Spectur Limited [2019] FCA 867 (6 June 2019)

    Golden Rim Resources Ltd, in the matter of Golden Rim Resources Ltd [2019] FCA 1206 (2 August 2019)

60    The need for this volume of such applications is surprising. Each such application occasions costs to a company, cost probably borne by shareholders who would reasonably be entitled to anticipate regulatory compliance.

Associate:

Dated:    5 November 2019

Appendix A