Federal Court of Australia

MB Vic Pty Ltd, in the matter of MB Vic Pty Ltd [2022] FCA 874

ORDERS

THE COURT ORDERS THAT:

Extension of time to lodge opt-in notices

1.    Pursuant to s 1322(4)(d) of the Corporations Act 2001 (Cth) (the Act) the time specified by:

(a)    ASIC Class Order: Wholly owned Entities [CO98/1418] (Old Class Order) for each of:

(i)    MB Vic Pty Ltd (MB Vic) (formerly known as Boon 3 Pty Ltd) in respect of the 2016 financial year;

(ii)    Motors Tas Pty Ltd (Motors Tas) in respect of the 2016 financial year;

(iii)    AP Townsville Pty Ltd (AP Townsville) in respect of the 2016 financial year;

(iv)    Crampton Automotive Pty Ltd (Crampton Automotive) in respect of the 2016 financial year,

         to lodge the notice required by condition k of the Old Class Order; and

(b)    ASIC Corporations (Wholly Owned Companies) Instrument 2016/785 (New Class Order) for each of:

(i)    WS Motors Pty Ltd (WS Motors) in respect of the 2017 financial year;

(ii)    Falconet Pty Ltd (Falconet) in respect of the 2019 financial year,

(iii)    Automotive Holdings Group Pty Limited (formerly known as Automotive Holdings Group Limited) (AHG) in respect of the 2020 financial year,

to lodge the notice required by condition 6(1)(f) of the New Class Order,

(referred to in these orders in respect of the Opt-in notice lodgement obligation as the Relevant Financial Year for each plaintiff) is extended to 11 August 2022.

Extension of time to lodge opt-out notices

2.    Pursuant to s 1322(4)(d) of the Act orders that the time specified by:

(a)    the Old Class Order, as continued in application by paragraph 13 of the New Class Order, for each of:

(i)    AP Motors No. 1 Pty Ltd (AP Motors No. 1) in respect of the 2016 financial year;

(ii)    AP Motors No. 2 Pty Ltd (AP Motors No. 2) in respect of the 2016 financial year;

(iii)    Adtrans Group Pty Ltd (formerly Adtrans Group Limited) (Adtrans) in respect of the 2016 financial year;

(iv)    EG Eager & Son Pty Ltd (EG Eager & Son) in respect of the 2016 financial year;

(v)    Eagers Nominees Pty Ltd (Eagers Nominees) in respect of the 2016 financial year;

(vi)    Nundah Motors Pty Ltd (Nundah Motors) in respect of the 2016 financial year;

         to lodge the notice required by condition ka of the Old Class Order; and

(b)    the New Class Order for AP Townsville in respect of the 2017 financial year, to lodge the notice required by conditions 6(1)(y)(i) and 7 of the New Class Order,

(referred to in these orders in respect of the Opt-out notice lodgement obligation as the Relevant Financial Year for each plaintiff) be extended to 11 August 2022.

Extension of time to correct notes to financial statements

3.    Pursuant to s 1322(4)(d) of the Act:

(a)    for the purposes of the Old Class Order, the time for Eagers Automotive Limited (as a “Holding Entity” in respect of one or more “Wholly-owned Entities” within the meaning of the Old Class Order) to have prepared and lodged with ASIC consolidated financial statements within the meaning of the Old Class Order in relation to the financial year ending 31 December 2016 (FY 2016 Statements);

(b)    for the purposes of the New Class Order, the time for Eagers Automotive Limited (as a “holding entity” in respect of one or more “wholly-owned entities” within the meaning of the New Class Order) to have prepared and lodged with ASIC consolidated financial statements within the meaning of the New Class Order in relation to the financial years ending 31 December 2017 (FY 2017 Statements) and 31 December 2018 (FY 2018 Statements);

   is extended to 11 August 2022.

4.    Pursuant to s 1322(4) of the Act:

(a)    the FY 2016 Statements the subject of paragraph 3(a) above are to be substantially the same form as the consolidated financial statements originally lodged with ASIC by Eagers Automotive Limited on 22 February 2017, save for any amendments necessary to ensure compliance with paragraphs (i)(ii), (iii), (v) and (vi) of the Old Class Order in relation to the financial year ended 31 December 2016 (where in relation to paragraph (i)(iii) of the Old Class Order, it will only be necessary to provide the requisite details as at 31 December 2016);

(b)    the FY 2017 Statements the subject of paragraph 3(b) above are to be substantially the same form as the consolidated financial statements originally lodged with ASIC by Eagers Automotive Limited on 21 February 2018, save for any amendments necessary to ensure compliance with paragraphs 6(1)(v)(ii), (iii), (v), and (vi) of the New Class Order in relation to the financial year ended 31 December 2017 (where in relation to paragraph 6(1)(v)(iii) of the New Class Order, it will only be necessary to provide the requisite details as at 31 December 2017);

(c)    the FY 2018 Statements the subject of paragraph 3(b) above are to be substantially the same form as the consolidated financial statements originally lodged with ASIC by Eagers Automotive Limited on 20 February 2019, save for any amendments necessary to ensure compliance with paragraphs 6(1)(v) (ii), (v), and (vi) of the New Class Order in relation to the financial year ended 31 December 2018.

5.    Pursuant to s 1322(4) of the Act, and for all purposes of the Old Class Order and the New Class Order, the FY 2016 Statements, the FY 2017 Statements and the FY 2018 Statements as prepared and lodged by Eagers Automotive Limited in accordance with paragraphs 3 and 4 above, are deemed and taken to have been prepared and lodged by Eagers Automotive Limited with ASIC on 22 February 2017, 21 February 2018, and 20 February 2019 respectively.

Lodgement of 2017 Amendment to Deed of Cross Guarantee

6.    Pursuant to s 1322(4)(d) of the Act the time for the lodgement of the document entitled “Deed of Amendment and Restatement” and dated 30 January 2017 with ASIC for the purposes of satisfying the requirement of “lodged with ASIC” in paragraph (e) of the definition of “deed of cross guarantee” in the New Class Order be extended to 15 March 2022.

Consequential orders

7.    Pursuant to s 1322(4)(c) of the Act the plaintiffs and their current and former directors are relieved from civil liability in respect of any failure to comply with the applicable requirements of Part 2M.3 of the Act, by reason of the failures:

(a)    in the case of each of MB Vic, Motors Tas, AP Townsville, Crampton Automotive, WS Motors, AHG and Falconet, to lodge a Form 389 Opt-in notice for the corresponding plaintiff within 4 months of the end of the Relevant Financial Year;

(b)    in the case of AP Motors No. 1, AP Motors No. 2, Adtrans, EG Eager & Son, Eagers Nominees, and Nundah Motors, to lodge a Form 399 Opt-out notice for the corresponding plaintiff within 4 months of the end of the Relevant Financial Year;

(c)    to identify the members of the closed group and the extended closed group in the notes to the financial statements as required by:

(i)    cl (i)(ii) of the Old Class Order in respect of the 2016 financial year; and

(ii)    cl 6(v)(ii) of the New Class Order in respect of the 2017 and 2018 financial years;

(d)    to give details (including dates) of parties to the deed of cross guarantee which, during or since the relevant financial year, have been added by an assumption deed, been removed by a revocation deed or were the subject of a notice of disposal as required by:

(i)    cl (i)(iii) of the Old Class Order in respect of the 2016 financial year; and

(ii)    cl 6(v)(iii) of the New Class Order in respect of the 2017 financial year;

(e)    to set out the additional consolidation information in the notes to the financial statements as required by:

(i)    cl (i)(v) of the Old Class Order in respect of the 2016 financial year; and

(ii)    cl 6(v)(v) of the New Class Order in respect of the 2017 and 2018 financial years;

(f)    to set out the additional consolidation information in the notes to the financial statements as required by:

(i)    cl (i)(vi) of the Old Class Order in respect of the 2016 financial year; and

(ii)    cl 6(v)(vi) of the New Class Order in respect of the 2017 and 2018 financial years;

(g)    to lodge with ASIC an amendment to a deed of cross guarantee to reflect amendments to ASIC Pro Forma 24 as required by the definition of “deed of cross guarantee” in paragraph 4 and cl 6(m) of the New Class Order, in respect of the 2017, 2018, 2019, 2020 and 2021 financial years;

(h)    in the case of the following plaintiffs, to comply with sections 292(1), 301(1), 314(1) and 319(1) of the Act in the following years:

(i)    the plaintiffs in Annexure A in respect of the 2016 Financial Year;

(ii)    the plaintiffs in Annexure B in respect of the 2017 Financial Year;

(iii)    the plaintiffs in Annexure C in respect of the 2018 Financial Year;

(iv)    the plaintiffs in Annexure D in respect of the 2019 Financial Year;

(v)    the plaintiffs in Annexure E in respect of the 2020 Financial Year,

(vi)    the plaintiffs in Annexure F in respect of the 2021 Financial Year,

to the extent that they were required to do so as a result of the omissions referred to in paragraphs 7(a) to (g) above.

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

Annexure A

List of plaintiffs to be granted relief in respect of any failure to comply with ss 292(1), 301(1), 314(1) and 319(1) of the Corporations Act 2001 (Cth) in respect of the 2016 Financial Year:

Annexure B

List of plaintiffs to be granted relief in respect of any failure to comply with ss 292(1), 301(1), 314(1) and 319(1) of the Corporations Act 2001 (Cth) in respect of the 2017 Financial Year:

Annexure C

List of plaintiffs to be granted relief in respect of any failure to comply with ss 292(1), 301(1), 314(1) and 319(1) of the Corporations Act 2001 (Cth) in respect of the 2018 Financial Year:

Annexure D

List of plaintiffs to be granted relief in respect of any failure to comply with ss 292(1), 301(1), 314(1) and 319(1) of the Corporations Act 2001 (Cth) in respect of the 2019 Financial Year:

Annexure E

List of plaintiffs to be granted relief in respect of any failure to comply with ss 292(1), 301(1), 314(1) and 319(1) of the Corporations Act 2001 (Cth) in respect of the 2020 Financial Year:

Annexure F

List of plaintiffs to be granted relief in respect of any failure to comply with ss 292(1), 301(1), 314(1) and 319(1) of the Corporations Act 2001 (Cth) in respect of the 2021 Financial Year:

REASONS FOR JUDGMENT

DERRINGTON J:

Introduction

1    In these proceedings the plaintiff companies apply for orders pursuant to s 1322(4) of the Corporations Act 2001 (Cth) (the Act) seeking relief from historical non-compliance with certain procedural and administrative requirements of two ASIC Class Orders. The first being the ASIC Class Order:- Wholly-owned Entities [CO 98/1418] (the Old Class Order) and the second being its successor, the ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 (the Instrument). They are collectively referred to in these reasons where appropriate as the “Class Orders”.

2    For present purposes the essence of the Class Orders is that a relevant entity, being a member of a group of companies, will be relieved of its financial reporting obligations under, relevantly, Part 2M.3 of the Act if certain conditions are met. Here, the plaintiffs, who are members of the Eagers Group of companies, intended to take the benefit of the Class Orders but failed to satisfy the required conditions and by their application they seek to remediate those omissions with the consequence that the benefits of the Class Orders will apply. Necessarily, in order to achieve the desired outcome the orders must have retrospective effect.

3    In general terms the orders sought by the plaintiffs relate to five types of issues being:

(a)    issues relating to the lodging of opt-in or “Form 389” notices with the Australian Securities and Investments Commission (ASIC), which are sought to be addressed by orders pursuant to s 1322(4)(d) of the Act extending the time for such forms to be lodged to 14 days after the date of the orders;

(b)    issues concerned with the lodging of opt-out notices with ASIC, which are also sought to be addressed by orders pursuant to s 1322(4)(d) of the Act extending the time for such forms to be lodged to 14 days after the date of the orders;

(c)    corrections to the notes to financial statements in the accounts of the group which are sought to be addressed by:

(i)    extending the time for lodging compliant financial statements to 14 days after the date of orders pursuant to s 1322(4)(d) of the Act;

(ii)    specifying the form of the financial statements as being the same as those lodged for the relevant year except for those changes required to ensure compliance;

(iii)    deeming that lodgement as sought in paragraphs 3 and 4 of the application be taken to have occurred on the dates they were originally lodged;

(d)    issues relating to the lodgement of the amended Eagers Group deed of cross guarantee with ASIC which is sought to be addressed pursuant to s 1322(4)(d) of the Act by extending the date for compliance with that lodgement requirement to 15 March 2022;

(e)    pursuant to s 1322(4)(c) of the Act, relief from civil liability for the plaintiffs and their former and current directors in respect of any failure to comply with the applicable requirements of Part 2M.3 of the Act or the Class Orders.

4    ASIC has been served with the application, the plaintiffs’ submissions and the proposed orders. Subject to the Court making orders generally in the form of those proposed, it has indicated that it neither supports nor opposes the plaintiffs’ application. It also indicated that it did not intend to appear at the hearing.

Legislative provisions and principles

5    Prior to considering the background of this matter it is convenient to identify the statutory provisions on which the plaintiffs rely and some of the principles which guide their application.

6    Relevantly, s 1322(4) of the Act empowers the Court to make orders of the following type, either conditionally or subject to such terms as it thinks fit:

(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;

…

(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 …

7    In Weinstock v Beck (2013) 251 CLR 396, 414 [39] it was observed that this provision is intended to:

reflect a long-standing legislative recognition that mistakes will happen in corporate governance and that it is not in the public interest that the validity of decisions made in relation to corporations be unduly vulnerable to innocent errors which may be corrected without substantial injustice to third parties.

See also Re Order of AHEPA NSW Incorporated [2018] NSWSC 458 at [22] - [24].

8    Further, it is well accepted that the section affords the Court power to make an order in respect of a broad range of contraventions or failures “to relieve a company, and its current and former directors and officers, from any civil liability in respect of any contravention by reason of a failure, inter alia, to lodge forms with ASIC”: Re Murray River Organics Ltd (2019) 138 ACSR 365, 370 [29]. That, of course, is consistent with the nature and purpose of the power to alleviate the consequences of technical or procedural non-compliance with the statutory requirements.

9    In this context it is also helpful to refer to Hill J’s comments in Re ex parte; Navitas Bundoora Pty Ltd [2020] WASC 87 where it was said:

32    An application under s 1322(4)(d) involves what is, in essence, a two stage process. As was stated by Barker J in Blaze Asset Pty Ltd v Target Energy Ltd:

First, the Court needs to determine whether, having regard to the circumstances of the case and the general objects of the [Act] it is appropriate to make an order extending a relevant period, or abridging a relevant period. Secondly, if those circumstances are made out, then the Court must address the question whether any substantial prejudice has been or is likely to be caused to any person by the making of such an order.

33    Section 1322 confers broad authority on the court to extend time where the statutory pre-requisites are met. The power must be exercised having regard to the interests of all parties affected and the public interest in ensuring compliance with the Act. It must also take account of the general objects and purposes of the relevant statutory provision of the Act imposing the time period; the court’s order must not undermine the object of the relevant requirement.

10    Further, it is important that any orders remediating the consequences of non-compliance clearly identify that which is being retrospectively excused. For that reason it is accepted that, in its application, the plaintiff must identify the act, matter or thing in respect of which it seeks relief, and identify the nature of the invalidity in respect of which validation is sought. Further, in general terms, the Court’s orders should be in declaratory form.

11    Despite the breadth of the power in s 1322(4), s 1322(6) imposes some restrictions as to the occasions on which it might be exercised. They are as follows:

(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.

12    In relation to subparagraph (6)(b) it is a precondition to the exercise of power under s 1322(4) that “the person subject to the civil liability concerned acted honestly”. In Re iCandy Interactive Ltd (2018) 125 ACSR 369, 378 – 379 [54] - [57] Banks-Smith J observed that the word “honest” carries its “ordinary meaning” of:

without deceit or conscious impropriety, without intent to gain improper benefit or advantage for himself, herself or for another, and without careless or imprudence to such a degree as to demonstrate that no genuine attempt at all has been [made] to carry out the duties and obligations of his or her office.

13    Her Honour accepted (at 379 [55]) that the concept of “honesty” embraces “inadvertence or a failure to turn [one’s] mind to the relevant issue”.

14    It is accepted that an indicia of honesty is the taking of prompt action by the plaintiff to remedy the error or omission: Re iCandy Interactive Ltd at 378 [54]. This directs attention to whether the plaintiff acted reasonably promptly in commencing an appropriate inquiry as to whether any statutory obligations had not been met and, once it became aware of any non-compliance, whether it acted with expedition to move the Court for orders excusing the breaches. Nevertheless, promptness in responding is only an indicator and relief may be granted despite a large effluxion of time between the contravention or non-compliance and the making of the application for relief: ComfortDelGro Corporation Australia Pty Ltd [2020] FCA 378 [45] and [52] per Beach J.

15    In relation to the requirement in subparagraph (6)(c) that the Court be satisfied that “no substantial injustice has been or is likely to be caused to any person”, Bowen CJ in Eq in Re Compaction Systems Pty Ltd and the Companies Act [1976] 2 NSWLR 477, 493 with reference to s 366(3) of the Companies Act 1961 (NSW), explained its scope in the following manner:

[T]he word “injustice” in this provision requires the Court to consider any real, and not merely insubstantial or theoretical, prejudice which will be suffered by, for example, a member by the making of an order, and to weigh this in the scales against the prejudice to the company, other members and creditors, if an order be not made. In other words, it is insufficient to show that there may be some prejudice to a member if, on a consideration of the whole matter, the overwhelming weight of justice, as it were, is in favour of making the order.

(Citations omitted).

16    In other words the test is transactional and imposes a qualitative and evaluative assessment of the competing consequences for the parties affected. In Re Flight Centre Technology Pty Ltd [2022] NSWSC 367 [30] - [31] the determination of the existence of any relevant prejudice was couched in terms of whether the Court was satisfied that no substantial injustice had been or is likely to have been caused to any person by the making of the order, where the order would simply preserve the position to which the company would have been entitled, had it complied with the statutory obligation. The Court would be so satisfied where there is no evidence suggesting that any third party could have acted to its detriment as a result of the non-compliance.

17    There exists a residual discretion whether to make or refuse the order: Re Wesfarmers Ltd; Ex parte Wesfarmers Ltd (No 2) [2018] WASC 357 at [35]. In Re Bremick [2021] NSWSC 533 at [16] Black J identified some of the regularly recurring considerations:

[R]elevant factors in determining whether to extend the time in which a form is to be lodged with ASIC, in order to obtain relief from financial reporting requirements under the Corporations Act and to provide relief from civil liability in respect of any past failure to comply with those requirements include whether the non-compliance arose as a result of imprudence, carelessness, or wilful ignorance of the law; whether the steps taken by the plaintiff were likely sufficient, in substance, for the relevant relief instrument to achieve its object, whether public policy would be undermined by the making of such orders; whether the plaintiff acted reasonably promptly in commencing an appropriate inquiry once it became aware of the error; and whether ASIC opposed the relief sought.

The circumstances in which the contraventions occurred

The nature of the group of companies

18    Eagers Automotive Limited (Eagers) is the ultimate holding company of a group of 189 companies, which carry on automotive retail businesses in Australia and New Zealand. The other plaintiffs are wholly owned or controlled subsidiaries of Eagers and have been either since 2016 or from various times after 2016. The entities which form part of the group will be referred to collectively as the Eagers Group.

19    The person responsible for compliance by the group with the requirements of the Class Orders has, since 2008, been a Mr Denis Stark. He was, from that time the group’s general counsel, and remained in that role until January 2022. He has also been the company secretary for the various members of the Eagers Group over that period.

20    The other person of relevance in this matter is Mr Euan Hyslop who joined the business in April 2016 and is the “general manager corporate finance” for the Eagers Group. Since his appointment he has had oversight of aspects of the preparation of the Eagers Group statutory accounts.

21    There are a number of other persons who, since 2016, have had directorial control over the companies which are the subject of this application and relief is also sought for their benefit. They are specifically identified in the affidavit material filed in support of the applications.

The relevant non-compliance

22    The statutory regime for the financial reporting requirements for certain entities and, in particular, for large proprietary companies is found in Part 2M.3 of the Act.

23    Relevantly, a “large proprietary company” is defined in s 45A(3) of the Act as a proprietary company satisfying at least two of three criteria, the content of which has varied in some respects over time. However, in general terms the definitional requirements have been that the consolidated revenue, consolidated gross assets and/or number of employees of the company and the entities that it controls exceed certain values (currently $25 million, $12.5 million and 50, respectively). A “public company” is defined in s 9 as generally any company other than a proprietary company.

24    In broad terms the reporting requirements of large proprietary companies are:

(a)    prepare a financial report and a directors’ report for each financial year under ss 292(1) and 298(1);

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

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

(d)    lodge the above reports with ASIC under s 319(1).

25    By s 341 of the Act, ASIC is empowered to make an order in writing relieving a class of companies and other entities from, inter alia, the reporting requirements under Part 2M.3, including the obligations referred to above.

26    In the present case the Old Class Order was first issued on 13 August 1998 and had effect for financial years ending on or after 1 July 1998. It had been amended several times since and on 29 September 2016, it was revoked at which time the Instrument commenced to have effect.

27    In relation to these Class Orders it was observed by Gleeson J in Car Buyers Australia Pty Ltd v Australian Securities and Investments Commission [2020] FCA 599 at [24], that the “principal requirement” of the Class Orders which must be satisfied is:

that the company seeking to be relieved of the reporting obligations in Pt 2M.3 must be a party to a deed of cross-guarantee, the rationale being that such a deed protects creditors and other stakeholders from any disadvantage that may arise from an inability to access a company’s financial reports.

28    The evidence before this Court demonstrates that each of the plaintiff companies are currently and were at the conclusion of each of the financial years in respect of which relief is sought, a party to the relevant Eagers Group Deed of Cross Guarantee. It follows that those who had dealt with any of the plaintiff companies could take advantage of the benefit of the cross guarantee if it were needed.

29    The relevant version of the Eagers’ deed of cross guarantee was entered into in 2007 and amended in 2008. With the introduction of the Instrument, it was amended again in January 2017.

30    The Old Class Order and the Instrument imposed procedural or administrative conditions to be satisfied in order for a particular company to obtain relief from the financial reporting obligations under Part 2M.3. It is the non-compliance with these requirements in respect of which the relief is now sought.

The omission to lodge Opt-in and Opt-out notices

31    Condition (k) of the Old Class Order and condition 6(1)(h) of the Instrument require certain notices to be lodged with ASIC (a form 389) by companies that wish to take advantage of the financial reporting relief, relevantly to these proceedings, within a 4 month period after the end of the first financial year of reliance on the class order. These are referred to as Opt-in notices.

32    Conversely, where a company ceases to rely on the class order for reporting relief, condition (k) of the Old Class Order and conditions 6(1)(y)(i) and 7 of the Instrument require that it lodge a notice with ASIC (a form 399) within a 4 month period after the end of the first financial year in respect of which it ceases to rely on the reporting relief. This is referred to as an Opt-out notice.

33    The evidence shows that the following companies omitted to lodge Opt-in notices in respect of the first year of their intended reliance on the reporting relief under the Class Orders:

(a)    MB Vic, Motors Tas, AP Townsville and Crampton Automotive in respect of the 2016 financial year;

(b)    WS Motors in respect of the 2017 financial year; and

(c)    Falconet in respect of the 2019 financial year.

34    The evidence further reveals that the following companies omitted to lodge Opt-out notices in respect of the first year of their intended non-reliance on the reporting relief:

(a)    AP Motors No. 1 Pty Ltd, AP Motors No. 2 Pty Ltd, Adtrans Group Pty Ltd, EG Eager & Son Pty Ltd, Eagers Nominees Pty Ltd, and Nundah Motors Pty Ltd in respect of the 2016 financial year; and

(b)    AP Townsville in respect of the 2017 financial year.

35    Mr Stark has given evidence of the circumstances in which the omissions to file the Opt-in and the Opt-out notices occurred. He acknowledged that he was the person with responsibility for their lodging, however, as he was not a member of the corporate finance team which had knowledge of the changes which might render it appropriate to give such a notice, it was his practice for him or his team to seek advice from the Eagers Group corporate finance team. In the ordinary course information was sought for each reporting period as to whether any companies would be seeking the benefit of the Class Orders for the first time, and he would lodge Opt-in notices based on that advice. Where he was advised that relief was no longer required he would file the requisite Opt-out notices.

36    In his evidence Mr Stark has provided examples of his having sought the required information in 2015 and 2016 in respect of the immediately preceding calendar years. Unfortunately, he has been unable to locate any emails making a similar request in relation to the 2016 or 2017 financial years.

37    In respect of Falconet, and in the context of a merger with the Automotive Holdings Group, he provided copies of the email correspondence he had about which companies in that group needed to lodge Opt-in notices although this did not include Falconet.

38    Mr Stark has not been able to identify the precise cause of how it was that the oversights in lodging the Opt-in notices and the Opt-out notices occurred. He opines that it was the result of an inadvertent breakdown in communication between the corporate finance team and the legal team, such that it was not brought to his attention that there was a need to lodge those notices in the relevant years. Mr Hyslop has also provided evidence of the circumstances of non-compliance and he too is of the opinion that it was the result of a breakdown in communication between his team and the legal team in respect of Opt-in and Opt-out notices.

39    There has been a further oversight to lodge an Opt-in notice in respect of the 2020 year. That omission was in respect of Automotive Holdings Group Pty Limited (at the relevant time known as Automotive Holdings Group Limited) (AHG). AHG was part of the Automotive Holdings Group that merged with the Eagers Group in 2019. It did not qualify for reporting relief in its own right under the Instrument for 2019 and was issued a specific instrument by ASIC which provided it with reporting relief, subject to specific conditions (the AHG Instrument). One of those conditions was the lodgement of a modified form of Opt-in notice. A further condition was that AHG file an Opt-in notice, if that was required, in accordance with the Instrument in respect of the immediately following financial year. The evidence reveals that Mr Stark received legal advice that the lodging of a further Opt-in notice would be required in order for AHG to rely on the Instrument. Unfortunately, Mr Stark says that he did not recall receiving that advice with the result that no additional notice was lodged. This oversight in respect of AHG happened in the context of the modified Opt-in notice in fact having been lodged the previous year, the attention which Mr Stark was required to devote to meeting the challenges to the business as a result of COVID-19, and a change in personnel in the Eagers Group legal team during a period of significant disruption.

Correction of notes to consolidated accounts

40    The Class Orders each require the lodgement of consolidated statutory accounts with ASIC which extend to any company seeking reporting relief. There is no doubt that statutory accounts covering each of the plaintiff companies were lodged by the Eagers Group for each of the financial years from 2016 to 2021.

41    Nevertheless, the Class Orders contain prescriptive requirements as to the contents of the consolidated accounts. By cl 6(1)(v) of the Instrument, the following requirements are identified:

6    Where financial reporting relief applies

(1)    The relief in section 5 is available to a company and its directors in relation to a relevant financial year where all of the following are statisfied [sic]:

(v)    the notes to the consolidated financial statements:

…

(ii)     list the parties to the deed of cross guarantee as at the end of the relevant financial year, separately identifying:

(A)     the members of the closed group; and

(B)     the other members of the extended closed group; and

(iii)     give details (including dates) of parties to the deed of cross guarantee which, during or since the relevant financial year, have been:

     (A)     added by an assumption deed; or

     (B)     removed by a revocation deed; or

     (C)     the subject of a notice of disposal; and

…

(v)     if the consolidated financial statements cover entities which are not members of the closed group, set out the additional consolidation information in respect of the consolidation of the entities which are members of the closed group (after eliminating all transactions between members of the closed group); and

(vi)     if the consolidated financial statements cover entities which are not parties to the deed of cross guarantee, set out the additional consolidation information in respect of the consolidation of the holding entity and those entities which are parties to the deed of cross guarantee and controlled by the holding entity (after eliminating all transactions between parties to the deed of cross guarantee); and

42    It is not in doubt that the statutory accounts for the group were not prepared strictly in accordance with the requirements of the Class Orders. Mr Hyslop has given evidence that corrective amendments to the accounts for the years 2016 to 2018 have been prepared and orders are sought permitting the amendments to be made and the time for the filing of the accounts to be extended so that the amendments can be incorporated. Drafts of the proposed amendments are annexed to Mr Hyslop’s affidavit. The proposed amendments to the statutory accounts will render them compliant with the requirements of the Class Orders as they existed at the time and will remediate the omissions made in the original accounts.

43    In relation to the requirement in cl 6(1)(v)(ii) that there be specific identification of the companies in the closed group and those in the extended closed group, it is apparent that the companies listed in the accounts are not so identified. However, all of the relevant companies are referred to in the list of the companies in the group and, in respect of each, it is indicated whether the company is a wholly owned subsidiary or otherwise controlled in the sense of the holding company having a controlling shareholding. If the company is wholly owned it would be within the closed group of companies. The extended closed group is the closed group plus any other company controlled by the holding entity and which is a party to the deed of cross guarantee. It follows that in respect of this particular requirement, all that is missing is the specific statement as to which group the particular companies belong. Despite the absence of that information, as the nature of the shareholding is identified, the answer to that question would be readily apparent to a person with knowledge of the requirements of the Class Orders. It follows that the omission in the accounts in this respect, whilst regrettable, is not significant in the context of the information provided.

44    Similarly, the omission in relation to the requirement in cl 6(1)(v)(iii) that the parties to the relevant deed of cross guarantee that have been added or removed during or since the relevant financial year be identified is relatively minor. From the amendments which are sought to be made to the statutory accounts it is clear that all of the companies in the group were in the relevant years parties to the deed, save in relation to two years where only two companies were not. It may well have been an assumption that all of the companies in the group were parties to the deed and which would have been substantially correct. It is difficult to see how any detriment could flow from the failure to specify that the companies in the group were party to the deed.

45    The statutory accounts also failed to set out the additional consolidation information required by cl 6(1)(v)(v) of the Instrument, being that in respect of the entities which were members of the closed group, and cl 6(1)(v)(vi), being that in relation to the members of the group who were parties to the deed of cross guarantee controlled by the holding entity. It would appear that the purpose of these provisions is to provide a financial picture of the group both in relation to the closed group and in respect of the members who are party to the cross guarantee. It is undoubtedly required information even though its relevance is not entirely clear save that it prevents the accounts providing a misleading impression of the group’s financial position in circumstances where the inclusion of a company which is not within the closed group or a party to the deed might unduly inflate or improve the group’s overall position. As appears from the amendments which the plaintiffs seek to be made to the accounts, it is apparent that the consolidated information which should have been provided would have shown a different financial picture from that which appeared in the accounts which were filed. However, by comparing the information now sought to be added to the accounts with the figures in the original accounts, the difference does not appear to be great. Given the size of the group and the total amounts in question, those differences are most unlikely to have caused any prejudice to any person. I accept the evidence of Mr Stark that he is unaware of any circumstances arising from these omissions which might cause prejudice to any party.

46    In his affidavit, Mr Hyslop explained the circumstances as to how the non-compliance was first detected. In 2019, and in the context of the preparation and filing of the 2018 statutory accounts, Deloitte, which were the accountants and auditors of the Eagers Group, notified that there was a “Non-disclosure of the financial information of entities within the Deed of Cross Guarantee”. That notification occurred just prior to the date on which the accounts were due to be lodged. Mr Hyslop deposed that he believed that the auditors’ comment concerned an immaterial deficiency in the accounts and he did not appreciate the implications of the omissions in question. He was of the opinion that if the statutory accounts required amendment in order to comply with the requirements of the Class Orders he would have expected that the auditors would have made that clear. Unfortunately, they did not. The issue was subsequently raised by the lawyers acting for the Eagers Group in the context of the preparation of the 2019 statutory accounts and the previous omissions were then noted.

Late lodging of an amending deed

47    By cl 6(1)(m) of the Instrument it is a requirement that an original of a deed of cross guarantee be lodged with ASIC before the end of the relevant year of reliance on it. By cl 4 of the Instrument the definition of a deed of cross guarantee includes a deed which has been varied by a deed of assumption that is entered into to reflect the terms of the ASIC requirements. The effect is that it is a requirement that an amending deed be lodged with ASIC before the end of the relevant financial year in which it is sought to be relied upon.

48    Here, the Eagers Group entered into an amending deed in January 2017, although it was not lodged with ASIC until March 2022.

49    In his affidavit Mr Stark deposed that at the time the amending deed was entered into he recalls receiving advice from the then lawyers for the Eagers Group to the effect that it did not need to be lodged with ASIC. However, in the course of preparing for this application he became aware that its lodgement was required and that steps were promptly taken to do so. It was lodged on 15 March 2022.

Should relief be granted under s 1322?

50    Although not required for relief under all subparagraphs of s 1322(4) it is apparent that in this case the acts or omissions of the plaintiffs were essentially procedural in nature. The giving of the Opt-in and Opt-out notices fall clearly into that category. The companies in question were either entitled to opt-in or opt-out as the case may have been, and the only issue was the lodging of the formal notices with ASIC. Similarly, the omission to lodge the deed of amendment was procedural in nature. It is plain on the evidence that the document amending the deed had been executed and was effective. A third party could have relied upon the amended deed had the occasion arose. The omission to undertake the procedural step to lodge it would not alter its efficacy.

51    Otherwise, the errors and omissions related to the content of the statutory accounts. There is no suggestion that the accounts as lodged did not give a true picture of the performance of the group and nor is there anything to suggest that the omissions had the consequence that the accounts were misleading in any way. In relation to some omissions, a party with knowledge of the requirements would have been capable of ascertaining the true position. The omissions concerning the presentation of financial information in relation to the companies in the closed group and in relation to the extended closed group were also of a technical nature. Although compliance with the Instrument would have provided additional information as to the financial standing of the group, given that it is apparently sufficiently sound, it is not likely that any party could be prejudiced by the absence of the alternatively calculated figures. Further, it does not appear that the errors and omissions had the consequence that any relevant financial information had not been disclosed in one form or another.

52    To the extent to which the relief sought is pursuant to s 1322(4)(d) for the extension of time to do any act, it is not necessary that the matter be of a procedural nature even though that may be relevant to the exercise of the discretion. For that subparagraph all that is required is that it be demonstrated that no substantial injustice has been or is likely to be caused to any person. In the present case Mr Hyslop deposed that he was not aware that any injustice or damage will be caused to any person by the making of the orders sought, or from the omissions which have occurred. Mr Stark has given similar evidence. That evidence can be accepted given the somewhat technical nature of the omissions which have occurred.

53    By comparison, the refusal to make the orders would impose substantial hardship upon the plaintiffs. The companies in the group would be required to undertake separate audits of each company’s individually prepared accounts which would cost between $4.7m to $9.4m and that auditing of just the additional notes to the statutory accounts for the years from 2016 to 2018 would cost approximately $130,000 to $160,000. No identifiable advantage would accrue to any person by requiring the plaintiffs to do this.

54    In these circumstances, and heeding the observations of Bowen CJ in Eq in Re Compaction Systems Pty Ltd and the Companies Act, whilst there may be some remote possibility of prejudice to a third party, on a consideration of the whole matter the overwhelming weight of justice is in favour of making the orders sought.

55    It follows that orders should be made extending the time for:

(a)    the lodgement of the Opt-in and Opt-out notices for each of the affected companies in each of the financial years;

(b)    the lodgement of correcting documents so as to regularise the notes to the statutory accounts;

(c)    the lodgement of the amended deed of cross guarantee.

56    Further, orders should be made for the deeming of the lodgement of the amended notes to the statutory accounts with ASIC to have taken place on 22 February 2017 for the accounts for 2016, 21 February 2018 for the accounts of 2017, and 20 February 2019 for the accounts of 2018, being the dates that the financial statements for those years were in fact lodged.

Relief from civil liability

57    Orders are also sought pursuant to s 1322(4)(c) relieving the plaintiffs and their directors from civil liability in respect of the omissions or non-compliances. For such an order to be made a court must be satisfied that the persons seeking such relief acted honestly.

58    Here the acts and omissions in respect of which relief has been claimed have been sufficiently explained as arising from oversight or mistake. There is nothing to suggest that the plaintiffs acted intentionally or recklessly or with any intent to mislead. Nor was any recklessness involved in any of the omissions.

59    Whilst it is obvious that the statutory requirements should be complied with, in the context of a large corporate group, the composition of which may well change during each financial year, it is not improbable that errors in meeting the statutory requirements of the Class Orders might occur from time-to-time. It would appear that the errors in this case arose as a result of a breakdown in communication between the legal department and the finance department of the group, and it is quite possible that this occurred as a result of Mr Hyslop commencing his employment in the business during 2016 and, perhaps, not being entirely familiar with the manner in which the communications between the several departments habitually occurred.

60    In relation to the Opt-in and Opt-out notices it should be accepted that Mr Stark had a process in place of sending out emails to the relevant departments seeking to establish whether such notices were required in respect of any company. Whilst the emails for 2017 and 2018 cannot be located, there is no reason not to accept his evidence to the effect that the usual process occurred in those years. In relation to the Opt-in notice for AP Townsville, MB Vic, Motor Tas and Crampton Automotive for 2016, and WS Motors for 2017 and Falconet for 2019 and AHG for 2020, it can be accepted that failure to lodge them was caused by an oversight in identifying that notices were required in relation to those companies. This would appear to have resulted from a breakdown in communication between the corporate finance team and Mr Stark’s own team. Mr Stark frankly admitted the breakdown as well as his inability to explain how the oversight occurred. Mr Hyslop similarly acknowledged the breakdown in communication and admits that he did not turn his mind to the need to communicate the changes required to the status of the companies.

61    A further indicia of the honesty with which the group has acted is the existence of steps which have been instituted in the business to prevent further breakdowns in communications occurring in the future. It should be accepted that the plaintiffs are endeavouring to ensure that non-compliance with the relevant Class Orders does not occur in the future.

62    In this context it is also relevant whether the plaintiffs acted with promptitude when the errors came to their attention. Although there was some delay in the bringing of the application to the Court it is apparent that as soon as the possibility of errors was detected, attempts were made to ascertain their nature and scope. That was no small task and it required an extensive examination of the group’s accounts and documents in relation to a number of financial years. The difficulties with that task were compounded by the consequences of the global COVID-19 pandemic as well as the groups’ business offices suffering damage from floods in 2022. It is also relevant that the Christmas holiday break occurred not long after the discovery of the existence of errors and this delayed the undertaking of rectifying action.

63    Similarly, in relation to the omission to lodge the amended deed, the evidence shows that shortly after Mr Stark received advice in February 2022 of the failure to lodge the 2017 amending deed, he instructed the plaintiffs’ solicitors to attend to the same and it was lodged with ASIC on 15 March 2022.

64    Further, Mr Stark has sworn on oath that, until the possibility of the several non-compliances was raised, it was his honest belief that all requirements of the Class Orders had been met.

65    From the foregoing it is possible to conclude that the plaintiffs acted sufficiently promptly in their attempt to identify and rectify the errors and omissions which supports the conclusion that the occurrence of those matters were not occasioned by any want of honesty.

66    In this context it is appropriate to recognise that the evidence showing the absence of any real possibility that any third party might have suffered detriment as a result of the plaintiffs’ omission, weighs heavily in favour of the exercise of the discretion in the plaintiffs’ favour. There seems to be little reason to refuse these orders in circumstances where the likelihood of any civil liability arising in law is minimal.

67    In the circumstances, orders should be made relieving the persons and entities involved from civil liability which might arise from the non-compliance with the Class Orders. The orders sought are confined to the relief from liability arising from the acts and omissions specified and not further.

Conclusion

68    It is relevant to the exercise of the Courts power that ASIC has indicated that it neither supports nor opposes the making of the orders sought. It had been served with the totality of the evidence on which the plaintiffs rely as well as a draft of the submissions and proposed order and its failure to object to the orders is relevant.

69    From the foregoing, the orders set out at the commencement of these reasons should be made.

Associate:    

Dated:    27 July 2022

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