Federal Court of Australia

Ozito Industries Pty Ltd v Australian Securities and Investments Commission, in the matter of Ozito Industries Pty Ltd [2020] FCA 1432

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 1322(4)(d) of the Corporations Act 2010 (Cth) (Act), the time specified by ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 (Instrument) for the plaintiff to lodge a ‘Form 389 - Opt in/change of holding entity notice by wholly-owned company relieved from financial reporting obligations’ (Form 389) be extended from a date within four months of the plaintiff’s financial year ending 30 June 2016 to a date 30 days after the date of these orders.

2.    Pursuant to s 1322(4)(c) of the Act, the plaintiff and its current and former directors and officers are relieved from any civil liability in respect of any failure to comply with the following requirements of Part 2M.3 of the Act in respect of the plaintiff’s financial years ending 30 June 2016, 30 June 2017, 31 December 2017, 31 December 2018 and 31 December 2019:

(a)    the requirement to prepare a financial report and a directors’ report under s 292;

(b)    the requirement to have the financial report audited and to obtain an auditor’s report under s 301(1);

(c)    the requirement to report to its members under s 314 within the time required by s 315; and

(d)    the requirement to lodge the foregoing reports with the Australian Securities and Investments Commission (ASIC) under s 319(1),

arising by reason of the plaintiff’s failure to comply with the requirements specified in paragraphs (f) to (i) of section 6 of the Instrument.

3.    Pursuant to s 1322(4)(c) of the Act, the plaintiff and its current and former directors and officers are relieved from any civil liability in respect of the failure to comply with the notice issued by ASIC under s 1274(11) of the Act dated 4 December 2019.

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

REASONS FOR JUDGMENT

O’BRYAN J

Introduction

1    By originating process filed on 28 April 2020, the plaintiff, Ozito Industries Pty Ltd (Ozito), applied under ss 1322(4)(c) and (d) of the Corporations Act 2001 (Cth) (Act) for relief from non-compliance with the financial reporting and lodging requirements of Part 2M.3 of the Act.

2    In May 2016, Ozito’s parent company, Einhell Holding Australia Pty Ltd (Einhell Holding Australia), lodged an application with the Australian Securities and Investments Commission (ASIC) under the ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 (Instrument) seeking relief from the financial reporting requirements under Part 2M.3 of the Act. The Instrument provides a mechanism for relief from compliance with certain financial reporting requirements under the Act in circumstances where a company within a group of companies has executed a deed of cross guarantee with other companies within the group. Specifically, section 5 of the Instrument provides as follows:

5 Financial reporting relief for wholly-owned entities

(1)     A company that was party to a deed of cross guarantee at the end of a financial year (relevant financial year) does not have to comply with any of the following requirements of Part 2M.3 of the Act in relation to the financial year:

(a)     the requirement to prepare a financial report and a directors’ report under paragraphs 292(1)(b) and (c) and paragraph 292(2)(b);

(b)     the requirement to have the financial report audited and to obtain an auditor’s report under subsection 301(1);

(c)     the requirement to report to its members under section 314 within the time required by section 315;

(d)     the requirement to send reports to a member in accordance with a request under subsection 316(1) within the time required by subsection 316(2).

Note: The requirement for a company to lodge a report with ASIC under section 319 of the Act will not apply if the company does not have to prepare or obtain the report: subsection 319(1).

(2)     The directors of a company referred to in subsection (1) do not have to comply with the requirement under section 317 to lay reports before the AGM of the company following the relevant financial year.

3    Ozito believed that it benefitted from financial reporting relief under the Instrument and has not prepared or lodged financial statements or reports for the 2016 financial year and subsequent reporting periods. However, it inadvertently failed to comply with a condition of relief under the Instrument, which was to lodge with ASIC a ‘Form 389 - Opt in/change of holding entity notice by wholly-owned company relieved from financial reporting obligations’ (Form 389) within four months of its financial year ending 30 June 2016.

4    On 3 October 2019, ASIC notified Ozito that it had failed to lodge its financial statements and reports in accordance with s 319 of the Act. On 4 December 2019, ASIC issued a notice under s 1274(11) of the Act requiring Ozito to lodge its financial statements and reports.

5    ASIC has been given notice of this application but has elected not to appear at the hearing of the application. It has issued a letter to Ozito stating that it neither consents to nor opposes the relief sought by Ozito from the Court.

6    For the reasons set out below, I will grant relief largely in the form sought by Ozito.

Procedural history and evidence

7    The application filed by Ozito on 28 April 2020 was supported by unsworn affidavits of its Director, Kai Schmid, and its Chief Financial Officer, Sunil Krishna. The affidavits were not sworn by reason of the difficulties created by the COVID-19 pandemic. They gave the following evidence.

(a)    Ozito was registered on 1 February 1991. Presently, its only director is Mr Schmid, who has been a director since 29 June 2015. Relevantly, Robert Adelski was also a director until 10 May 2017. Ozito is a wholly owned subsidiary of Einhell Holding Australia. There are presently no other subsidiary companies of Einhell Holding Australia. The ultimate holding company of Ozito is Einhell Germany AG (Einhell Germany).

(b)    Prior to the application for financial reporting relief under the Instrument, Ozito had been lodging audited financial statements and reports with ASIC in the ordinary course, as required under Part 2M.3 of the Act, including for the financial year ending 30 June 2015.

(c)    On 3 May 2016, Einhell Holding Australia submitted an application to ASIC for reporting relief under the Instrument accompanied by, amongst other things, a deed of cross guarantee between Einhell Holding Australia (parent entity), Ozito (wholly-owned subsidiary) and Einhell Australia Pty Ltd (another subsidiary, now deregistered) (Einhell Australia) in the form required under the Instrument. The deed was not dated, but it was accompanied by a letter from Balfe & Webb dated 28 April 2016 certifying its contents. I infer that the deed was signed on or about that date. Mr Krishna deposed that, to the best of his knowledge and belief, neither Einhell Holding Australia nor Ozito received any response from ASIC at that time.

(d)    From the time of lodging the application, Einhell Holding Australia prepared and lodged consolidated audited financial reports with ASIC for itself and its subsidiaries, including Ozito. Those financial reports were for the financial year ending 30 June 2016 and 30 June 2017, the 6 month period ending 31 December 2017 (as a result of the Australian companies transitioning to a January-December financial year, to synchronise with the financial year adopted by their ultimate holding company, Einhell Germany), and the financial year ending 31 December 2018.

(e)    On 3 October 2019, ASIC wrote to Ozito noting that it had failed to lodge its financial statements and reports for the 2018 financial year and requiring it to do so within 28 days. On 15 October 2019, Ozito replied, referring to the application for financial reporting relief that had been made by Einhell Holding Australia. On 22 October 2019, ASIC replied and informed Ozito that it had failed to lodge a Form 389 by the required time in order to obtain financial reporting relief. ASIC also advised that if a company fails to lodge a Form 389 on time for the first financial year in which it intends to apply the relief under the Instrument, the company will not be able to apply the relief for the financial year in question, meaning the company will have continuing obligations under the Act to prepare and lodge audited financial reports.

(f)    On 4 December 2019, ASIC issued a notice under s 1274(11) of the Act, requiring Ozito to lodge financial statements and reports for the 2018 financial year within 14 days (i.e. by 18 December 2019).

(g)    Mr Schmid and Mr Krishna deposed to their belief that the failure to lodge the Form 389 in time was an honest mistake. Neither is aware of any reason why the form would not have been lodged. Both genuinely believed that Ozito had the benefit of reporting relief.

(h)    Mr Krishna deposed that he is not aware of any prejudice or injustice that has been, or will be, caused to any person or entity (or the public interest in general) arising from the failure by Ozito to lodge the Form 389 in time or any prejudice or injustice that will be caused to any person or entity (or the public interest in general) as a result of the orders being granted by the Court. Mr Krishna further deposed that he is not aware of any outstanding debts owed to creditors; that based on the financial information available to him, he believes that Ozito is in a good financial position and that any creditors were paid as and when required in the ordinary course of business.

(i)    Finally, Mr Krishna deposed that if Ozito were not granted an extension of time to lodge the Form 389, it would be required to incur substantial costs in preparing, auditing and lodging financial statements and reports for the relevant periods. Ozito and its officers would also be in breach of the financial reporting obligations of the Act and exposed to heavy penalties and sanctions.

8    The application came on for hearing on 21 May 2020. At the hearing, I raised a concern with Counsel for Ozito in relation to the breadth of the relief being sought by Ozito compared with the more limited evidence that had been filed on the application. Ozito sought an order under s 1322(4)(c) of the Act that Ozito and its current and former directors and officers are relieved from any civil liability in respect of any failure to comply with certain financial reporting requirements of Part 2M.3 of the Act. The application assumed that, but for the failure to lodge the Form 389 as required by the Instrument, Ozito would have had the benefit of the Instrument and would have been exempted from the relevant financial reporting requirements under the Act. However, that assumption had not been proved by the evidence.

9    Relevantly, section 6(1) of the Instrument set out numerous requirements that had to be satisfied in order for a company to benefit from the exemption afforded by the Instrument. Those requirements included the following (stated in summary terms):

(a)    the company must be a public company for the relevant financial year, a large proprietary company for the relevant financial year or a small proprietary company to which paragraph 292(2)(b) of the Act applies in relation to the relevant financial year at the relevant time;

(b)    the company must not be a disclosing entity, a borrower in relation to debentures, the guarantor of such a borrower or a financial services licensee;

(c)    there was a holding entity in relation to the company at the end of the relevant financial year (relevantly, the parent of the company and a party to the deed of cross guarantee);

(d)    the relevant financial year and the financial year of the holding entity ended on the same date;

(e)    the holding entity was not a small proprietary company;

(f)    the company has lodged a Form 389;

(g)    before the end of the first financial year in respect of which the company took advantage of relief under the Instrument:

(i)    the directors of the company resolved that the company should obtain the benefit of the Instrument; and

(ii)    the directors of each other entity that is a party to the deed of cross guarantee have made a statement that, in the directors’ opinion immediately before signing the deed, there were reasonable grounds to believe that the entity would be able to pay its debts as and when they become due and payable;

(h)    before the end of the first financial year in respect of which the company took advantage of relief under the Instrument, the directors of the company made a statement that, in the directors’ opinion immediately before the execution of the deed of cross guarantee by the company, there were reasonable grounds to believe that the company would be able to pay its debts as and when they become due and payable;

(i)    at or about the end of each relevant financial year, the directors of the company considered the advantages and disadvantages associated with the company remaining a party to the deed of cross guarantee and taking advantage of the relief afforded by the Instrument and resolved whether the company should continue to remain a party to the deed of cross guarantee;

(j)    the company remained as a wholly-owned entity of the holding entity at all times in the period from the end of the relevant financial year until the date on which consolidated financial statements are lodged with ASIC;

(k)    a company holds office as trustee under the deed of cross guarantee;

(l)    [not applicable in this case];

(m)    before the end of the relevant financial year, an original of the deed of cross guarantee has been lodged with ASIC;

(n)    as at the end of the relevant financial year, each member of the closed group other than the holding entity is a company or a body incorporated in Australia, the United Kingdom, New Zealand, Singapore or Hong Kong;

(o)    [not applicable in this case];

(p)    as at the end of the relevant financial year, no party to the deed of cross guarantee was a body regulated by APRA;

(q)    at the relevant time neither the company nor the holding entity have terminated, repudiated or attempted to repudiate or terminate or agreed to any variation of the deed of cross guarantee except in the circumstances stipulated in the paragraph;

(r)    the holding entity has prepared by the relevant time consolidated financial statements together with notes for the relevant holding entity financial year;

(s)    the consolidated financial statements for the holding entity comply with the requirements specified in the Instrument;

(t)    [not applicable in this case];

(u)    the consolidated financial statements include adequate provision in relation to the liabilities of any parties to the deed of cross guarantee which are not consolidated where it is probable that those liabilities will not be fully met by those parties;

(v)    the notes to the consolidated financial statements contain the information specified by the Instrument;

(w)    the directors’ declaration of the holding entity for the relevant financial year includes a statement as to whether there are reasonable grounds to believe that the members of the extended closed group will be able to meet any liabilities to which they are, or may become, subject because of the deed of cross guarantee;

(x)    if the holding entity’s financial report is required to be audited, the auditor of the holding entity is satisfied that specified paragraphs of the Instrument have been complied with;

(y)    the company has complied with the conditions in section 7 of the Instrument.

10    At the initial hearing, the evidence did not establish that Einhell Holdings Australia (as the relevant holding entity) and Ozito (as the company benefitting from the exemption) had complied with all of the requirements of section 6 of the Instrument. In those circumstances, I considered that the Court should not make an order under s 1322(4)(c) of the Act that Ozito and its current and former directors and officers are relieved from any civil liability in respect of any failure to comply with the applicable requirements of Part 2M.3 of the Act. Rather, on the basis of the evidence before the Court, I considered that it would be appropriate for the Court to make an order relieving Ozito and its current and former directors and officers from any civil liability in respect of any failure to comply with the applicable requirements of Part 2M.3 of the Act by reason of Ozito’s failure to lodge a Form 389 within four months of the plaintiff’s financial year ending June 2016. In other words, the relief would only apply in so far as the civil liability arose by reason of Ozito’s failure to lodge a Form 389 within time.

11    At the hearing, Ozito asked the Court not to make an order in the form that I had proposed but to adjourn the application to enable it to adduce further evidence concerning compliance with the requirements of the Instrument.

12    On 5 and 6 August 2020, Ozito filed further affidavits of Messrs Schmid and Krishna and a short submission. Two of the affidavits were sworn versions of the unsworn affidavits previously filed. In the two supplementary affidavits, the witnesses gave evidence concerning compliance with the requirements of the Instrument. The further affidavits have been provided to ASIC and ASIC has confirmed that it remains of the position that it previously expressed: that is, ASIC neither consents to nor opposes the relief sought by Ozito.

13    The witnesses deposed to their belief that all of the applicable requirements of section 6 of the Instrument were complied with other than paragraphs (f) - (i). In relation to those paragraphs, the witnesses gave the following evidence.

14    Paragraph (f) of section 6 of the Instrument concerns the lodgement of Form 389. The witnesses gave evidence, which I accept, that Ozito failed to lodge that form inadvertently.

15    Paragraphs (g)(i) and (h) of section 6 of the Instrument required the directors of Ozito, before the end of the first financial year in respect of which the company took advantage of relief under the Instrument (i.e. before 30 June 2016), to resolve that Ozito should obtain the benefit of the Instrument and to make a statement that, in the directors’ opinion immediately before the execution of the deed of cross guarantee by Ozito, there were reasonable grounds to believe that Ozito would be able to pay its debts as and when they become due and payable. The witnesses have been unable to locate any such resolution or statement made by the directors of Ozito (who, at that time, were Mr Schmid and Mr Adelski). The witnesses deposed that Mr Schmid had intended to obtain the relief under the Instrument and they are not aware of any reason why the directors would not have passed the resolution or made the statement. They expressed the opinion that Ozito was not insolvent, and had no solvency concerns, at the time of entering into the deed of cross guarantee (or since that date). Having regard to the evidence adduced, I cannot be satisfied that the requirements of paragraphs (g)(i) and (h) of section 6 of the Instrument were complied with, but I am satisfied that any non-compliance was inadvertent.

16    Paragraph (g)(ii) of section 6 of the Instrument required the directors of every other entity which had become a party to the deed of cross guarantee before, relevantly, 30 June 2016 to also make a statement that, in the directors’ opinion immediately before the execution of the deed of cross guarantee by that entity, there were reasonable grounds to believe that that entity would be able to pay its debts as and when they become due and payable. That paragraph applied to the directors of Einhell Holdings Australia and Einhell Australia. No evidence was adduced in relation to the directors of those entities at the relevant time, nor in relation to the required solvency statement. Accordingly, I cannot be satisfied that the requirements of paragraph (g)(ii) of section 6 of the Instrument were complied with. However, given the totality of evidence adduced before me, I will infer that any failure to comply was inadvertent.

17    Paragraph (i) of section 6 of the Instrument required the directors of Ozito, at or about the end of each relevant financial year, to have considered the advantages and disadvantages associated with the company remaining a party to the deed of cross guarantee and taking advantage of the relief afforded by the Instrument and to have resolved whether the company should continue to remain a party to the deed of cross guarantee. Again, the witnesses have been unable to locate any such resolution made by the directors of Ozito (being Mr Schmid and Mr Adelski for the financial year ending 30 June 2016 and Mr Schmid for each subsequent financial year). Mr Schmid has deposed that, in each relevant financial year, he considered whether it was beneficial for Ozito Industries to continue to take advantage of the reporting relief and remain a party to the deed of cross guarantee, and determined that this should occur. Mr Schmid deposed that if he had been advised that the decision was required to be recorded in a formal resolution, he would have done so. Although Mr Schmid was not cross-examined about that evidence, I consider that it is a reconstruction and does not reflect a specific state of mind at the relevant times. I infer that Mr Schmid did not sign the requisite resolution because he was unaware of the requirement for such a resolution. That also leads to the inference that Mr Schmid did not specifically turn his mind to the subject of the resolution in the preceding financial years, because he was not alerted to the need to do so. I accept that, in a general sense, Mr Schmid intended for Ozito to continue to take the benefit of the exemption in the Instrument. But that is not the same as giving specific consideration to the subject of paragraph (i) and making the required resolution. Having regard to the evidence adduced, I cannot be satisfied that the requirements of paragraph (i) of section 6 of the Instrument were complied with, but I am satisfied that any non-compliance was inadvertent.

18    In his second affidavit, Mr Krishna deposed that he is not aware of: any prejudice or injustice that has been, or will be, caused to any person or entity (or the public interest in general) arising from any failure by Ozito to comply with the conditions of the Instrument or any prejudice or injustice that will be caused to any person or entity (or the public interest in general) as a result of the orders being sought by Ozito.

19    Mr Krishna’s second affidavit also exhibited an amended form of proposed orders sought by Ozito on its application as follows:

(a)    a declaration pursuant to s 1322(4)(a) of the Act that Ozito is not ineligible for the reporting relief referred to in the Instrument by reason of any failure by Ozito to comply with any condition or requirement specified in the Instrument;

(b)    an order pursuant to s 1322(4)(d) of the Act that the time specified by the Instrument for Ozito to lodge the Form 389 be extended from a date within four months of Ozito’s financial year ending 30 June 2016 to a date 30 days after the date of these orders;

(c)    an order pursuant to s 1322(4)(c) of the Act that Ozito and its current and former directors and officers are relieved from any civil liability in respect of any failure to comply with the relevant requirements of Part 2M.3 of the Act in respect of Ozito’s financial years ending 30 June 2016, 30 June 2017, 31 December 2017, 31 December 2018 and 31 December 2019, arising by reason of any non-compliance with any condition or requirement specified in the Instrument; and

(d)    an order pursuant to s 1322(4)(c) of the Act that Ozito and its current and former directors and officers are relieved from any civil liability in respect of the failure to comply with the notice issued by ASIC under s 1274(11) of the Act dated 4 December 2019.

20    The short submission filed by Ozito on 6 August 2020 referred to the additional affidavits that had been filed, attached recent correspondence from ASIC and requested the Court to grant the relief in the form of amended orders exhibited to Mr Krishna’s second affidavit. Ozito submitted that it was content for the matter to be dealt with on the papers.

Consideration of the application

21    Subsections 1322(4) to (6) of the Act provide as follows:

Irregularities

…

(4)    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 the rectification of any register kept by ASIC under this Act;

(c)    an order relieving a person in whole or in part from 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 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) or abridging the period for doing such an act, matter or thing or instituting or taking such a proceeding;

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

(5)    An order may be made under paragraph (4)(a) or (c) notwithstanding that the contravention or failure referred to in the paragraph concerned resulted in the commission of an offence.

(6)    The Court must not make an order under this section unless it is satisfied:

(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.

22    In a number of recent cases, orders have been made under s 1322(4) to “regularise” failures to comply with the requirements of the Instrument (or the predecessor instrument, ASIC Class Order [CO 98/1418]): see for example Re Murray River Organics Ltd [2019] FCA 931; (2019) 138 ACSR 365; Re Navitas Bundoora Pty Ltd [2020] WASC 87; Re ComfortDelGro Corporation Australia Pty Ltd [2020] FCA 378; and Car Buyers Australia Pty Ltd v Australian Securities and Investments Commission [2020] FCA 599. Each of those cases summarised the relevant principles to be applied, and it is unnecessary to restate those principles. The cases support the conclusion that the Court has power:

(a)    under s 1322(4)(c) of the Act to make an order relieving a company and its directors from civil liability arising from a failure to comply with the financial reporting requirements of Part 2M.3 of the Act, subject to the condition in s 1322(6)(b) that the person concerned acted honestly; and

(b)    under s 1322(4)(d) of the Act to extend the time limit for filing the Forms and the lodgement of consolidated financial statements under the Instrument,

and in both cases subject to the condition in s 1322(6)(c) that no substantial injustice has been or is likely to be caused to any person.

23    It is necessary to address each of the orders sought by Ozito in turn.

Proposed order under s 1322(4)(a)

24    The first proposed order is a declaration pursuant to s 1322(4)(a) of the Act that Ozito is not ineligible for the reporting relief referred to in the Instrument by reason of any failure to comply with any condition or requirement specified in the Instrument. The proposed declaration was not sought in Ozito’s originating process. It was incorporated into Ozito’s proposed amended orders filed as an exhibit to Mr Krishna’s second affidavit on 6 August 2020. No submissions were addressed to that form of relief. No such declaration was made in the cases referred to above. In the absence of submissions, I am not persuaded that the Court has power to make a declaration under s 1322(4)(a) in the form sought.

25    Section 1322(4)(a) empowers the Court to declare that any act, matter or thing purporting to have been done 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. Thus, the power in s 1322(4)(a) is directed to making valid an act, matter or thing where the invalidity arises by reason of a contravention of a provision of the Act or the company’s constitution. The proposed declaration does not satisfy either element of s 1322(4)(a). First, the proposed declaration is not directed to the invalidity of any act, matter or thing. The proposed declaration does not identify an act, matter or thing that might be invalid and requires validation by the Court. Rather, the proposed declaration concerns Ozito’s eligibility for the financial reporting relief under the Instrument by reason of a failure to comply with the conditions of the Instrument. Ozito’s eligibility to qualify for an exemption is a different subject matter to the validity of an act, matter or thing. While a lack of eligibility removes the exemption afforded by the Instrument, and results in Ozito being subject to the requirements of Part 2M.3 of the Act, it does not render any act, matter or thing invalid. Second, the lack of eligibility results from a failure by Ozito to comply with the conditions of the Instrument. The failure to comply with such conditions is not, in itself, a contravention of the Act; it simply makes Ozito ineligible for the exemption granted by the Instrument, with the result that Ozito was required to comply with the requirements of Part 2M.3 of the Act.

26    I note that the circumstances of this case can be distinguished from the circumstances considered by Colvin J in Re Australian Dairy Farms Ltd [2018] FCA 2056. In that case, his Honour made orders under s 1322(4) to “regularise” an offer to acquire certain stapled securities. Specifically, his Honour made a declaration under s 1322(4)(a) that the offer to acquire the stapled securities was not invalid by reason of a failure to issue a notice to ASX Limited under ASIC Class Order CO 09/425 resulting in a possible contravention of s 727 and s 1012B of the Act. The declaration made by his Honour was directed to validating a particular act (the offer to acquire shares) that would otherwise have been invalid and while the invalidity arose from a failure to comply with an ASIC Class Order, the effect of the failure was to place the offer to acquire shares in contravention of the Act.

27    I will not speculate whether it is possible in this case to formulate a declaration that is directed to validating an act, matter or thing relating to the lodgement of consolidated financial reports by Einhell Holdings Australia in place of separate financial reports from Ozito’s. In my view, the form of declaration sought by Ozito was not a declaration that was able to be made under s 1322(4)(a).

Proposed order under s 1322(4)(d)

28    The second proposed order sought by Ozito is an order pursuant to s 1322(4)(d) of the Act that the time specified by the Instrument for Ozito to lodge the Form 389 be extended from a date within four months of Ozito’s financial year ending 30 June 2016 to a date 30 days after the date of these orders. I am satisfied on the evidence before me that no substantial injustice has been or is likely to be caused to any person by the failure to lodge the Form 389 and that it is appropriate to make that order.

Proposed order under s 1322(4)(c) relating to compliance with Part 2M.3 of the Act

29    The third proposed order sought by Ozito is an order pursuant to s 1322(4)(c) of the Act that Ozito and its current and former directors and officers are relieved from any civil liability in respect of any failure to comply with the relevant requirements of Part 2M.3 of the Act arising by reason of any non-compliance with any condition or requirement specified in the Instrument. At the hearing on 21 May 2020, I expressed some reservation to Ozito’s counsel about the breadth of an order in that form. My concern arose from the fact that the exemption from the financial reporting requirements afforded by the Instrument is subject to a large number of conditions. At the hearing, Ozito sought to “regularise” its failure to lodge the Form 389. I considered that it would be appropriate to make an order relieving Ozito from any civil liability in respect of a contravention of the financial reporting obligations in Part 2M.3 of the Act arising by reason of the failure to lodge the Form 389, but I queried why it would be appropriate to relieve Ozito from civil liability which might arise from some other failure by Ozito to satisfy the requirements of the Instrument. It was for that reason that the initial hearing was adjourned to enable Ozito to adduce further evidence directed to its compliance with the requirements of the Instrument. The further evidence has shown that there are other requirements of the Instrument that have not been complied with by Ozito, particularly the requirements in paragraphs (g) to (i).

30    I have come to the view that the relief granted under s 1322(4)(c) in respect of a contravention of a provision of the Act or a provision of the constitution of a corporation should generally be limited to a contravention arising by reason of identified acts or omissions. In other words, the Court’s absolution should be based on, and limited to, the confessed acts of contravention. The relief should not extend to contraventions arising from other acts or omission that have not been identified and admitted – the relief should not be a “blank cheque”, as it were. Such an approach is consistent with the principle stated by Colvin J in Re EHR Resources Ltd [2018] FCA 997 (at [7]) that “care must be taken to confine relief in a manner which is consistent with the justification for the application”. The reason for confining the relief granted under s 1322(4) is that, for the Court to apply the requirements of s 1322(6), it is necessary to have regard to the admitted acts of omissions that caused the contravention. In relation to the admitted acts or omissions, the Court must consider (amongst other things) whether the relevant person the subject of the order acted honestly, and whether substantial injustice has been or is likely to be caused to any person. If the Court is satisfied of those matters, and considers that it is otherwise appropriate to make the order, the Court will relieve the relevant person from civil liability arising by reason of the act or omission. It would be inappropriate to relieve the relevant person from civil liability, even of the same kind, that arises by reason of different acts or omissions that are not admitted and therefore not known to the Court.

31    Having regard to the evidence adduced in this matter, I consider that it is appropriate to make an order pursuant to s 1322(4)(c) of the Act that Ozito and its current and former directors and officers are relieved from any civil liability in respect of any failure to comply with the relevant requirements of Part 2M.3 of the Act in respect of Ozito’s financial years ending 30 June 2016, 30 June 2017, 31 December 2017, 31 December 2018 and 31 December 2019, arising by reason of any failure to comply with the requirements specified in paragraphs (f) – (i) of section 6 of the Instrument. As set out earlier in these reasons, I accept that the failure to comply with those requirements was inadvertent, not deliberate, and there was no element of dishonesty. I also accept the evidence that has been given that Ozito is in good financial standing and that the failures to comply with the requirements of the Instrument have not caused prejudice to any person.

Proposed order under s 1322(4)(c) relating to compliance with the s 1274(11) notice

32    The fourth proposed order sought by Ozito is an order pursuant to s 1322(4)(c) of the Act that Ozito and its current and former directors and officers are relieved from any civil liability in respect of the failure to comply with the notice issued by the ASIC under s 1274(11) of the Act dated 4 December 2019. Relevantly, s 1274(11) provides that, if a body corporate has defaulted in complying with:

(a)    any provision of the Act that requires the lodging of any return, account or other document; or

(b)    any request of ASIC to amend or complete and resubmit any document or to submit a fresh document;

and fails to make good the default within 14 days after the service on the body corporate of a notice requiring it to be done, a court may, on an application by any member or creditor of the body corporate or by ASIC, make an order directing the body corporate or one of its officers to make good the default within such time as is specified in the order.

33    In the circumstances, it is appropriate to make the order sought by Ozito. ASIC served the notice under s 1274(11) of the Act because it did not have power to retrospectively relieve Ozito from its failure to comply with the requirements of the instrument. I infer from the correspondence from ASIC that is in evidence that, if the Court makes orders in the form I have indicated above, ASIC would not press for Ozito to lodge financial reports in the reporting periods from and including the 2016 financial year.

Conclusion

34    I will make orders in the form indicated in these reasons.

Associate:

Dated:    2 October 2020