FEDERAL COURT OF AUSTRALIA

Novonix Limited, in the matter of Novonix Limited [2019] FCA 2198

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to section 1322(4)(d) of the Corporations Act 2001 (Cth), the time specified under paragraph 7(f)(ii) of the ASIC Corporations (Share and Interest Purchase Plans) Instrument 2019/547 (ASIC Instrument) for the plaintiff to give a notice to the Australian Securities Exchange (ASX) under paragraph 7(f)(ii) of the ASIC Instrument in respect of the plaintiff's share purchase plan announced 16 December 2019 is extended to 4:00pm (Brisbane time) on 17 December 2019.

2.    Pursuant to section 1322(4)(a) of the Corporations Act:

(a)    the offers of securities and distribution of an application form pursuant to the plaintiff's share purchase plan dated 16 December 2019 (SPP Offers); and

(b)    any applications for the securities the subject of SPP Offers that were received on or before the making of these orders

are not invalid by reason of by reason of any contravention of section 727 of the Corporations Act or any failure to issue a notice to ASX in accordance with paragraph 7(f)(ii) of the ASIC Instrument.

3.    As soon as reasonably practicable, the plaintiff must publish on the ASX Markets Platform an announcement disclosing the terms of these orders.

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

5.    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

JACKSON J:

1    The ASIC Corporations (Share and Interest Purchase Plans) Instrument 2019/547 (Cth) permits offers of securities to be made under share purchase plans without the disclosure to investors that would otherwise be required under the Corporations Act 2001 (Cth). On 17 December 2019, Novonix Limited made a share purchase plan offer to its current shareholders, with the intention of relying on the Instrument. It did not, however, comply with one of the requirements in the Instrument, under which it needed to give a notice containing certain statements to the Australian Securities Exchange (ASX) within 24 hours before the making of the offer. The notice was, rather, given approximately three and a half hours after the offer was made.

2    Novonix sought an order extending the time by which it was required to give the requisite notice, and a declaration that the offer and relevant applications for shares are not invalid. These are my reasons for granting those orders at the hearing on 20 December 2019.

Statutory framework

3    Part 6D.2 of the Act concerns disclosure to investors about offers of securities (other than crowd-sourced funding offers under Part 6D.3A). An offer of securities for issue needs disclosure to investors under Part 6D.2 of the Act unless s 708 or s 708AA says otherwise: s 706. Also, an offer of securities for sale within 12 months after their issue needs disclosure under Part 6D.2 if the securities were issued without disclosure to investors, and (broadly speaking) the securities were issued or acquired with the purpose of on-sale and s 708A does not say otherwise: s 707(3).

4    Section 727(1) prohibits an offer of securities that needs disclosure under Part 6D.2 unless a disclosure document for the offer (such as a prospectus) has been lodged with the Australian Securities and Investments Commission (ASIC).

5    Section 741(1) empowers ASIC to exempt a person from any provision of Chapter 6. ASIC made Instrument 2019/547 pursuant to that power (and another power that is not presently relevant): Instrument s 3.

6    Under s 6 of the Instrument, a body (that is, a body corporate) which is admitted to the official list of ASX does not have to comply with Part 6D.2 or Part 6D.3 (in which s 727 is found) for an offer of shares for issue under a share purchase plan as defined in the Instrument. Novonix is such a body, because its fully paid ordinary shares are listed on ASX. However the exemption only applies if the body complies with requirements and conditions set out in the Instrument.

7    The requirement relevant here is that the issuer has, within 24 hours before the offer, given a notice to ASX that contains certain statements and information: Instrument 2019/547 s 7(f)(ii). The notice must say that the company has complied with Chapter 2M of the Act (financial reporting and audits) and s 674 (continuous disclosure). It must also set out any 'excluded information' as defined in s 708A(7) which, broadly speaking, is information which investors would reasonably require in order to make an informed assessment about the company and the terms of the relevant securities, but which has been excluded from a continuous disclosure notice in accordance with the listing rules.

8    Similar requirements apply to a cleansing notice issued under s 708A(5)(e) and s 708A(6). So while a notice complying with s 7(f)(ii) of Instrument 2019/547 is not, strictly speaking, a notice issued under those provisions of the Act, I will nevertheless refer to it as a cleansing notice.

9    Novonix seeks relief under s 1322(4)(a) and s 1322(4)(d) of the Act in relation to a failure to comply with the cleansing notice requirement in Instrument 2019/547. Section 1322(4)(a) authorises the court to declare:

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…

10    Section 1322(4)(d) authorises the court to extend:

the period for doing any act, matter or thing or instituting or taking any proceeding under this Act or in relation to a corporation (including an order extending a period where the period concerned ended before the application for the order was made)…

11    In both cases the court may make such consequential or ancillary orders as it thinks fit.

12    Section 1322(6) imposes limits on those broad powers. Under s 1322(6)(a), the court must not make a declaration as to validity under s 1322(4)(a) unless at least one of three described conditions are satisfied. Here, Novonix relies primarily on the requirement that the court be satisfied that it is just and equitable that the order be made. Under s 1322(6)(c), in every case the court must be satisfied that no substantial injustice has been or is likely to be caused to any person.

The circumstances of the failure to comply here

13    The following account of the facts comes from an affidavit sworn by Novonix's company secretary, Suzanne Yeates. Ms Yeates is a chartered accountant and company secretary, who has acted in that role for ASX listed companies for approximately five years.

14    Novonix is 'an integrated developer and supplier of high-performance materials, equipment and services for the global lithium-ion battery industry with operations in the USA and Canada and sales in more than 14 countries'. At the time of swearing the affidavit it had 128,137,680 fully paid ordinary shares on issue, held by 1,763 shareholders.

15    In the course of considering how to raise capital, Novonix received legal advice that it could rely on Instrument 2019/547, provided it issued a notice complying with requirements including the one outlined above. So the company was aware of the need to issue a cleansing notice within 24 hours before making the offer.

16    Novonix's board of directors considered making an offer under a share purchase plan at meetings on 13 and 16 December 2019. The company decided to announce its intention to make the offer more than 24 hours prior to sending the offer to shareholders. As a result, the announcement could not contain the necessary cleansing notice. It appears that some time between 13 and 16 December a draft announcement was prepared, which as a result of that proposed timing did not include a cleansing notice.

17    Due to various directors of Novonix travelling and considering alternative proposals, the decision to proceed with and announce the share purchase plan was delayed. It is not abundantly clear, but I infer from the affidavit that the decision to make the offer was made at a board meeting on 16 December 2019. At the same time the board confirmed that no director was aware of any excluded information, and authorised Ms Yeates to release a cleansing notice as required by Instrument 2019/547.

18    The ASX announcement of the share purchase plan was made on 16 December 2019, presumably after the board had approved the offer. It did not include the cleansing notice.

19    Novonix's share registry provider, Link Market Services, sent the offer to shareholders who had elected to receive notices by email at around 12.20 pm (Brisbane time) on 17 December 2019, that is, the following day. On the same day, Link Market Services sent the offer by express post to other shareholders.

20    Approximately half an hour after the email offers were sent out, Julian Atkinson, who appeared as counsel on behalf of Novonix in this application and was advising Novonix about the offer, telephoned Ms Yeates. He told her he had noticed from ASX announcements that Novonix had not given the cleansing notice to ASX within 24 hours before the offer was made, as required under Instrument 2019/547. It seems that the offers had been sent to shareholders without anyone first checking with Ms Yeates or Mr Atkinson that the company had complied with necessary regulatory requirements.

21    Mr Atkinson immediately spoke to a senior manager at ASIC who said that a court application was required to rectify the non-compliance, and that the cleansing notice should be given to ASX immediately. Ms Yeates then arranged for the notice to be announced to ASX at approximately 3.40 pm that day, that is, almost three and a half hours after the offers were sent out.

22    According to Ms Yeates, the failure to lodge the cleansing notice before the offers were sent out was:

an honest inadvertent oversight of the lodgement timeframe specified under 7(f)(ii) of the ASIC Instrument caused by delays in launching the SPP [share purchase plan] within the schedule as initially planned by NOVONIX (meaning that as a result the SPP announcement and Notice ought to have been announced together), Link [Market Services] not confirming with me that offers could be made prior to sending offers by email at 12.21pm on 17 December 2019, and multiple demands on my time during the 24 hour period prior to Link effecting the making of offers under the SPP.

23    As at 3.30 pm on 18 December 2019, Link Market Services had received two applications for 29,803 shares for a total of $15,200. It is not possible to determine with absolute certainty whether the applications were made before or after the cleansing notice was announced. However I infer they were made after the announcement, which occurred a short time after the email offers were sent out and before any postal offers could have been received.

24    Novonix did not withdraw the offer before the hearing of this matter at which orders were made, and it received further applications after the issue of the cleansing notice. At the time of the hearing it had not issued any shares under the share purchase plan.

Consideration

25    Novonix has standing to apply for relief under s 1322(4): Re Sprint Energy Limited [2012] FCA 1354 at [40].

26    In Re Australian Dairy Farms Limited and Dairy Funds Management Limited [2018] FCA 2056, Colvin J considered whether the power to extend time limits under s 1322(4)(d) authorised the court to extend a time limit under an ASIC class order which was then in force and which, like Instrument 2019/547, was made pursuant to ASIC's powers under s 741(1)(a). For the reasons his Honour gave there, the court is empowered to extend the time limit in s 7(f)(ii) of the Instrument.

Just and equitable

27    In order to make an order under s 1322(4)(a), the court must be satisfied, relevantly, that it is just and equitable that the order be made. In Talga Ltd v MBC International Limited (1976) 133 CLR 622 at 634, Stephen, Mason and Jacobs JJ, considering whether it was just and equitable under the Banking Act 1974 (Cth) that a transaction should be treated as being valid, observed:

… The court will have before it an existing transaction replete with all its surrounding facts and circumstances and in their light will determine what is just and equitable. In doing so it will certainly be exercising a wide discretion but this is a commonplace of the curial process; the court will be bound to act judicially, exercising its discretion by reference only to such considerations affecting the transaction as, on an examination of the legislation, may be seen to be material to the decision which it is called on to make. Irrelevant matters, matters such as the plaintiffs instanced in the course of argument, which have no rational connexion with the policy of the regulations but would be expressive only of the personal predilections of the Court, cannot be allowed by it to play any part in its decision.

28    In Re Wave Capital Limited [2003] FCA 969; (2003) 47 ACSR 418 at [29] French J (as he then was) made the following observations about the 'broad legislative policy' behind s 1322 being:

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 effects without prejudice to third parties or to 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. Each application for the exercise of the Court’s relieving power will require consideration of all the circumstances of the case to ensure that the indulgence sought is appropriate and does not undermine the requirements of the Act. Like the discretion to validate invalid share issues under s 254E, the power conferred by s 1322 must be exercised having regard to the requirements of the purposes of the Corporations Act and any other relevant statutes whose application may be in issue. It must also be exercised having regard to the interests of all parties affected and the public interest in ensuring compliance with statute law and company constitutions. Evidence of a blatant disregard of the provisions of the Act or the constitution of the company may lead to refusal of relief: Re Onslow Salt Pty Ltd (2003) 198 ALR 344 [[2003] FCA 429] and cases there cited. The provision is however remedial in character and should be given a liberal construction: In the Matter of Insurance Australia Group Ltd [2003] FCA 581 at [27] per Lindgren J citing Re Australian Koyo Ltd (1984) 8 ACLR 928 at 930 and Elderslie Finance Corporation Ltd v Australian Securities Commission (1999) 11 ACSR 157 at 160.

29    I am satisfied here that Novonix's failure to comply with Instrument 2019/547, and so its failure to comply with the Act, was inadvertent.

30    The company sought to explain the failure partly on the basis of delays after the preparation of the draft announcement, which the company initially intended to be made at a time when it could not usefully include the cleansing notice. I accept that the existence of that draft is one factor that contributed to the oversight, since it is understandable, if regrettable, that the draft was used without considering whether it should be amended to include the cleansing notice.

31    But that is not the main explanation for Novonix's non-compliance. Rather, it seems to me that the direct cause was that Link Market Services sent out the offers without anyone checking first whether the necessary cleansing notice had been given to ASX. There is no evidence as to how this happened. There is nothing to indicate whether there were any systems in place to ensure that offers were not sent out until compliance with all regulatory requirements was confirmed. It would seem that there were not, but it is also possible that Novonix did have such systems in place, and that for some reason they failed. The evidence does not say.

32    Be that as it may, it is clear that the error was inadvertent and there is nothing to suggest that it was not an honest error. It is also relevant that Novonix acted promptly to rectify its non-compliance; if a company failed to act promptly, granting relief may serve to undermine the public interest in ensuring compliance with the Act. I am satisfied that it is just and equitable in the circumstances of the present case to make orders to avoid unnecessary liability and inconvenience to the company and its shareholders. The requirement in s 1322(6)(a)(iii) permitting the court to make an order under s 1322(4)(a) is satisfied.

Substantial injustice

33    The other requirement that needs to be satisfied before the court may make the orders sought is the one in s 1322(6)(c), that no substantial injustice has been or is likely to be caused to any person. There will inevitably be some overlap between that and the 'just and equitable' requirement, as it is difficult to conceive of circumstances where it is just and equitable to grant an order that causes substantial injustice.

34    Ms Yeates deposes to her belief that since the making of the offers, Novonix has been in compliance with its financial reporting and continuous disclosure obligations, and has not withheld any excluded information from disclosure. She is not aware of any prejudice suffered by shareholders or others as a result of the failure to comply with Instrument 2019/547. Given my finding that the two potentially relevant applications were made after the cleansing notice was announced, I accept that there has been no prejudice to any relevant party. Nor is there anything to suggest that there will be any prejudice in future.

35    I am satisfied that no substantial injustice has been or is likely to be caused to any person. Given that the company acted promptly to rectify the situation before any applications were made or any securities were issued, there is no need to make an order giving interested parties the ability to apply to set aside the orders: cp. Australian Dairy Farms Limited at [19].

Whether to grant the orders sought

36    The reasons set out above in relation to the 'just and equitable' criterion and the requirement of no substantial injustice are in favour of extending the time limit in s 7(f)(ii) of Instrument 2019/547 and declaring that the offers and applications are not invalid by reason of any non-compliance.

37    There is nothing to suggest any blatant disregard for the requirements of the Act on the part of anyone acting for Novonix. Also, the company does not seek to relieve itself or its officers from any civil liability in respect of its contravention.

38    The interests of the company's shareholders are important in deciding whether to grant the relief sought. Not granting the orders would have required the company to withdraw the share purchase plan. The company needs to raise capital in order to meet its obligations to fulfil a contract to supply product to Samsung SDI, and there is evidence in Ms Yeates's affidavit that withdrawing the offer may result in any further fundraising being undertaken at a discount to the issue price under that offer. I accept that could prejudice Novonix's existing shareholders.

39    Also, it is in the interests of shareholders who do acquire shares as a result of the share purchase plan that they may on-sell the shares within 12 months, if they wish, without needing to give disclosure. Extending the period under Instrument 2019/547 for giving the cleansing notice will bring such on-sales within the terms of ASIC Corporations (Sale Offers That Do Not Need Disclosure) Instrument 2016/80 (Cth), and so will facilitate on-sales: see Instrument 2016/80 s 5(4)(a). It is in the interests of shareholders that the orders sought will confirm their ability to rely on the latter Instrument, and that is consistent with the requirements and policy of the Act.

40    It is also relevant to note that ASIC has provided a letter indicating that it does not oppose the application (nor does it support it).

41    For all these reasons, I made orders extending the 24 hour time period for a cleansing notice required under Instrument 2019/547 and declaring that offers and applications made in relation to the share purchase plan announced on 16 December 2019 are not invalid.

Costs

42    Novonix seeks no order as to costs.

43    In Re Force Commodities Ltd [2019] FCA 1815 at [59]-[60], McKerracher J noted the surprising volume of applications like this one in the Western Australian registry of this court. As his Honour observed, 'each such application occasions costs to a company, cost probably borne by shareholders who would reasonably be entitled to anticipate regulatory compliance'.

44    I have considered whether, as in Wave Capital, an order should be made that the costs of the application are not to be borne by the company. However it is unclear where the liability for costs would fall, if I were to make such an order. And in view of what I have said about the role of the company's share registry, it is unclear where they should fall. In the circumstances of the present case, the costs of the inquiry into those questions which would be necessary to avoid injustice would be disproportionate to the subject matter of the application: see Re iCandy Interactive Ltd [2018] FCA 533; (2018) 125 ACSR 369 at [131]-[132]. In those circumstances I made no order as to costs.

Associate:

Dated:    24 December 2019