Federal Court of Australia

Australian Securities and Investments Commission v Ryzon Materials Limited (Interim Injunction) [2026] FCA 1428

ORDERS

THE COURT ORDERS THAT:

1.    The time for service of the Plaintiff’s interlocutory application dated 22 September 2026 be abridged to 7.30pm on 22 September 2026.

2.    Pursuant to s 1324(4) of the Corporations Act 2001 (Cth), the First Defendant (Ryzon), by itself and its servants, agents and employees or any other person on its behalf, be restrained until 16 October 2026 from proceeding with any business in relation to Resolution 1, at the general meeting of members scheduled at 11am on 24 September 2026 (as identified in the Notice of General Meeting published on 28 August 2026), other than by the taking of such steps as are necessary or appropriate to adjourn the meeting.

3.    Pursuant to s 1324(4) of the Corporations Act, Ryzon, whether by itself, its directors, officers, servants or agents, or otherwise, be restrained until 4.00pm on 16 October 2026 from:

(a)    fixing a Record Date for, or effecting, the Distribution; and

(b)    selling, transferring, encumbering, distributing or otherwise dealing with any SOWG Securities,

(c)    (as each of those terms is defined in the Explanatory Statement accompanying the Notice of General Meeting dated 28 August 2026).

4.    Ryzon is to give the Plaintiff written notice, through its solicitors, within one business day after Completion occurs, stating the number of SOWG Securities received by Ryzon.

Timetabling orders

5.    ASIC is granted leave to file in Court an Amended Interlocutory Application.

6.    ASIC is to file and serve Points of Claim by 30 September 2026.

7.    The Defendants are to file and serve a Defence to the Points of Claim by 7 October 2026.

8.    By 4pm on 9 October 2026, ASIC is to file and serve:

(a)    any Reply to the Defence to the Points of Claim; and

(b)    any further evidence upon which it proposes to rely.

9.    By 4pm on 14 October 2026, the Defendants are to file and serve any evidence in answer upon which they propose to rely.

10.    The matter be listed before Justice Owens on 16 October 2026, at a time to be determined.

11.    Liberty to apply on 48 hours’ notice.

12.    Costs reserved.

the court notes that:

1.    Order 3 does not restrain:

(a)    any step which Ryzon is required to take to achieve Completion under the Share Purchase Agreement (as each of those terms is defined under the Explanatory Statement accompanying the Notice of General Meeting dated 28 August 2026); or

(b)    any dealing to which the Plaintiff consents in writing.

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

REASONS FOR JUDGMENT

YOUNAN J:

Introduction

1    By interlocutory application filed on 23 September 2026, the Australian Securities and Investments Commission (ASIC) seeks urgent interim injunctive relief against the first defendant, Ryzon Materials Limited, pursuant to s 1324(4) of the Corporations Act 2001 (Cth). In essence, ASIC seeks to restain Ryzon from approving and giving effect to a proposed capital reduction under s 256B of the Corporations Act.

2    The proceeding was commenced by ASIC against Ryzon and its Executive Chairman, Frank Poullas, the second defendant, on 29 April 2024. Relevantly, ASIC seeks declarations that Ryzon contravened the Corporations Act and the Australian Securities and Investments Commission Act 2001 (Cth), and orders for pecuniary penalties and payment of ASIC’s costs. The liability hearing before Justice Owens concluded on 27 February 2026. As at the date of these reasons, his Honour’s judgment remains reserved. The Court has deferred any consideration of penalties in the proceeding until after judgment is delivered on the liability issues.

3    I heard the interlocutory application as the Commercial and Corporations Duty Judge, and made orders granting the relief sought, on 23 September 2026. These are my reasons for making those orders.

Background

4    On 22 April 2026, Ryzon issued a media release stating that the company had entered into a “definitive Share Purchase Agreement with Nasdaq listed Sow Good Inc to acquire 100% of the Nachu Graphite Project”.

5    On 28 August 2026, Ryzon lodged with ASIC a short form prospectus for a proposed capital reduction and offer to distribute securities in Sow Good to shareholders of Ryzon by way of an in-specie distribution following the completion of the transaction contemplated by the Share Purchase Agreement.

6    Also on 28 August 2026, Ryzon issued a notice of meeting of its shareholders to convene a vote in relation to the proposed capital reduction and distribution, to be held on 24 September 2026. That notice annexed an explanatory statement which was “prepared to provide information which the Directors [of Ryzon] believe to be material to Shareholders in deciding whether or not to pass the Resolutions” the subject of the proposed meeting (Explanatory Statement). That notice contained two resolutions to be considered by the Ryzon shareholders:

(1)    Resolution 1: Approval of Equal Capital Reduction and In-Specie Distribution; and

(2)    Resolution 2: Replacement of Constitution.

7    Resolution 2 is described in the Explanatory Statement as replacing Ryzon’s constitution to, inter alia, remove provisions specific to a listed entity, following the de-listing from the ASX of Ryzon by ASIC before trading commenced on 21 January 2026: Explanatory Statement, Section 3. At the hearing of the interlocutory application, ASIC indicated that any disclosure deficiencies in the prospectus did not affect Resolution 2, such that the injunction sought could not be supported in relation to that resolution.

8    The Explanatory Statement includes, inter alia, a statement of the company’s directors that “the proposed capital reduction is fair and reasonable to Shareholders and that the reduction of capital will not prejudice the Company’s ability to pay its creditors”: Explanatory Statement, Section 2.5. Further, schedule 2 to the Explanatory Statement includes a consolidated statement of financial position of Ryzon, which reflects that following the proposed in-specie distribution, total cash and cash equivalents total $30,000; total current assets amount to $399,000; and there is nil amount included by way of “Provisions”.

9    On 22 September 2026, Ryzon lodged a supplementary short form prospectus with ASIC. Inter alia, this amended the existing Explanatory Statement by inserting a new section on material legal proceedings, including this proceeding, in which Ryzon was involved. The supplementary prospectus also replaced Section 2.18 of the Explanatory Statement on risk factors with a section on litigation risks (including this proceeding).

10    ASIC submits that the proposed capital reduction:

(a)    will deprive Ryzon of its only assets – in circumstances where the directors have indicated that, upon completion of the proposed capital reduction, Ryzon will “no longer hold any material assets” and will continue as an “unlisted public shell company for the foreseeable future”: Explanatory Statement, Section 1.5;

(b)    fails to account for the interests of contingent creditors, including specifically ASIC and the Commonwealth as a prospective judgment creditor; and

(c)    raises issues of public policy – as any dissipation of assets by Ryzon prior to the finalisation of this proceeding has the potential to undermine the general and specific deterrent effect of any pecuniary penalty which may be imposed by this Court.

11    ASIC also submitted that the information provided in the materials lodged by Ryzon for the general meeting of shareholders to be held on 24 September 2026 was deficient, such that the meeting should not be allowed to proceed.

12    Ryzon submitted that an undertaking proffered to ASIC and the Court (not to deal with the shares until 6 October 2026) would be sufficient to assuage ASIC’s concerns regarding the proposed capital reduction. ASIC argued that the undertaking was insufficient. As regards the planned general meeting of shareholders, Ryzon submitted that a previous proposal from ASIC to proceed on a reservation of rights basis was preferable. For the reasons that follow, I do not consider either measure or approach to assuage the justifiable concerns raised by ASIC.

Applicable Principles

Capital reductions

13    Pursuant to s 256B(1) of the Corporations Act, a company may reduce its share capital in a way that is not otherwise authorised by law if the reduction:

(a)    is fair and reasonable to the company’s shareholders as a whole;

(b)    does not materially prejudice the company’s ability to pay its creditors; and

(c)    is approved by shareholders under s 256C of the Corporations Act.

14    The effect of the paragraphs of s 256B(1) is cumulative, such that they are all conditions going to the validity of a proposed capital reduction pursuant to that sub-section.

15    Regarding s 256B(1)(a), a lack of fairness and reasonableness might be found if a matter that was material to the decision on how to vote was omitted from the information provided by the company to the shareholders for their consideration: Quatro Ltd v Argo Investments Ltd (1999) 32 ACSR 239 at [74] per Hansen J.

16    In relation to s 256B(1)(b), whether the prejudice is “material” will be a question of judgment to be determined in light of all relevant circumstances. The Full Court stated in Re CSR Limited (2010) 183 FCR 358 at [45] per Keane CJ and Jacobson J:

One is, we think, on safe ground, however, in treating “material prejudice” to a company’s ability to pay its creditors as relating to the creation of a material as opposed to theoretical increase, in the likelihood that the reduction in capital will result in a reduced ability to pay creditors.

17    The application of s 256B(1)(b) was considered in similar circumstances by White J in Re Molopo Energy Ltd (2014) 294 FLR 13. The company in that matter was in litigation in Canada and there was a possibility that if that litigation was determined adversely to the company, it would incur a larger liability than that for which it had made provision: Molopo at [33]. A shareholder sought to requisition a general meeting for shareholders to pass a resolution reducing the share capital of the company: Molopo at [26].

18    Justice White considered that s 256D(1) prohibits a company from making a reduction of capital unless it complies with s 256B(1), and that under s 256B(1) a company may only reduce its capital if, inter alia, the reduction does not materially prejudice the company’s ability to pay its debts. Thus, if the company were in a position where it appeared that a reduction might materially prejudice its ability to pay its creditors – i.e., if it could not affirmatively say that the reduction did not have that effect – then the reduction was prohibited: Molopo at [86]–[88].

19    As there was no material before the Court that the claims of the Canadian plaintiffs lacked arguable prospects of success for the higher amounts than those for which provision had been made, his Honour concluded that “any capital reduction might prejudice the company’s ability to pay its creditors”. As such, the company could not show, on the evidence adduced at the hearing, that the capital reduction does not materially prejudice that ability: Molopo at [92]– [93].

20    Regarding s 256B(1)(c), there is an implicit requirement in s 256C(4) for the fulsome provision of (material) information to shareholders. In Molopo, White J stated at [76] that:

… where the company has creditors making claims against it, as in the present case, the directors would be required to provide to shareholders under s 256C(4) all material information to the decision on how to vote. That information would have to include information relevant to a determination as to whether or not the reduction, if implemented, would materially prejudice the company’s ability to pay its creditors. Prima facie, that could include not only the directors’ own assessment of the particular claims made against it, but the company’s legal advice.

Onus

21    While a capital reduction effected pursuant to s 256B of the Corporations Act does not require the approval of the Court, a person who may be affected by a proposed capital reduction may vindicate its interest in opposing the reduction of capital under s 256B(1)(b) by proceedings to restrain it or to have it declared unlawful pursuant to s 1324 of the Corporations Act: see, Re CSR Ltd at [55] per Keane CJ and Jacobson J; Molopo at [55].

22    Under s 1324(1B), in a case involving a proposed capital reduction, if the ground relied on in an application for an injunction is proposed conduct that “it is alleged…would constitute” a contravention of, inter alia, s 256B(1)(a) or (b), then the Court “must assume that the conduct constitutes, or would constitute, a contravention of that paragraph, section or provision unless the company or person proves otherwise”. The onus is thereby placed on the company: Molopo at [55].

23    In oral submissions, counsel for ASIC accepted that the company need not demonstrate the matters in paragraphs (a) to (c) if the company could demonstrate that the proposed capital reduction was “otherwise authorised by law”. ASIC submitted, and I accept, that it can be inferred from the reasons set out by the directors in the Explanatory Statement that the company considered itself bound to comply with s 256B. Ryzon did not challenge this inference at the hearing.

Section 1324 injunctions

24    The principles applicable to the grant of interim injunctive relief under s 1324 of the Corporations Act are otherwise well established. I rely on the summary of relevant principles by Palmer J in ASIC v Mauer-Swisse Securities Ltd (2002) 42 ACSR 605 at [36], as follows:

At the risk of some repetition, I summarise the principles which I draw from the presently applicable authorities:

•    the jurisdiction which the court exercises under CA s 1324 is a statutory jurisdiction, not the court’s traditional equity jurisdiction;

•    Parliament has made it increasingly clear by successive statutory enactments that the court, in exercising its statutory jurisdiction under s 1324, is not to be confined by the considerations which would be applicable if it were exercising its traditional equity jurisdiction;

•    among the considerations which the court must take into account in an application for an injunction under CA s 1324 are the wider issues referred to by Austin J in Sweeney and Parkes, and by Davies AJ in Pegasus; they may be gathered under the broad question whether the injunction would have some utility or would serve some purpose within the contemplation of the Corporations Act;

•    these considerations are to be taken into account regardless of whether the application is for a permanent injunction under s 1324(1) or for an interim injunction under s 1324(4);

•    where an application under s 1324(4) is made by ASIC rather than a private litigant the court is more likely to give greater weight to the broad question whether the injunction would serve a purpose within the contemplation of the Corporations Act;

•    where there is an appreciable—that is, not fanciful—risk of particular future contraventions of the Corporations Act by a defendant, it would serve a purpose within the contemplation of the Corporations Act that the court grant not only a permanent injunction but, in an appropriate case, an interim injunction restraining such conduct. Section 1324 evinces an intention that the possibly severe consequences and the relative promptness of proceedings for contempt of court be added to criminal prosecutions as a deterrent to contraventions of the Corporations Act;

•    although the questions whether there is a serious question to be tried and where the balance of convenience lies will not circumscribe the court’s consideration in an application for an interim injunction under s 1324(4), the interests of justice will always require that those questions be examined carefully when restrictions are sought to be imposed before the case has been properly examined by the court, even where the protection of the public is said to be involved: see per Young J (as his Honour then was), in Corporate Affairs Commission (NSW) v Lombard Nash International Pty Ltd (1986) 11 ACLR 566 at 570–1;

•    the balance of convenience will be viewed differently according to whether the applicant under s 1324(4) is ASIC or a private litigant. Where ASIC is acting to protect the public interest, the absence of an undertaking as to damages, exempted by s 1324(8), will usually be of little consequence. However, where the proceedings are brought to advance a plaintiff’s private interests, then if such an undertaking is not proffered even though it is likewise exempted by subs (8), the court may take that circumstance into account as a matter of practicality, common sense and fairness in determining where the interests of justice lie and whether “it is desirable” to grant the injunction: see per Young J in Lombard Nash at 571.

25    Section 1324(6) and (7) confer a broad discretion on the Court, and relieve “the shackles which would otherwise be imposed by the well understood principles of equity”. Nevertheless, the Court should not grant an injunction “unless the order is directed to and appropriate to achieve an end such as enforcing and giving effect to the statute”: ASIC v Pegasus Leveraged Options Group Pty Ltd (2002) 41 ACSR 561 at [109] per Davies AJ.

Consideration

26    The proposal described in the prospectus lodged by Ryzon constitutes a “reduction of share capital” within the meaning of s 256B(1) of the Corporations Act, despite the fact that “the number of Shares held by Shareholders in the Company will not change”. This is because the “share capital of the Company will be reduced by the value of the SOWG Consideration Securities”. The “contributed equity” in the company will fall after the distribution from A$241.876m to A$187.563m, with the difference described as: “In specie capital return to Shareholders of SOWG Consideration Shares and CVRs”. As such, the proposal is required to comply with s 256B.

Desirability of an interim injunction

27    It is worth noting that the information relied upon for this application was that prepared and lodged by Ryzon itself, including in particular the short form prospectus, and the Explanatory Statement. There was no suggestion, nor do I make any finding, that any material information was intentionally withheld from shareholders. However, the supplementary short form prospectus, which amended the Explanatory Statement (Supplementary Explanatory Statement), served to underscore the claimed deficiencies in the information disclosed to shareholders.

28    As stated above, pursuant to s 1324(1B) of the Corporations Act, I must assume that the relevant conduct constitutes or would constitute a contravention of s 256B(1)(a) or (b), unless Ryzon proves otherwise.

29    The ultimate question is whether it is desirable to grant an interim injunction. In my opinion, it is desirable for the following reasons.

Ryzon would be unable to meet any judgment

30    First, upon completion of the proposed capital reduction and distribution, Ryzon will be unable to meet any liability to pay any pecuniary penalties imposed against it by the Court, nor ASIC’s legal and investigation costs. This is confirmed by the Explanatory Statement, which shows that following the distribution, Ryzon will have cash of approximately $30,000 and net assets of approximately $382,000, with no provision made for any liability in this proceeding.

31    In those circumstances, any Sow Good shares retained by Ryzon will, practically, be the only asset available to meet any judgment in ASIC’s favour. That being so, and given the onus pursuant to s 1324(1B) of the Corporations Act, Ryzon has not shown, on the evidence before me, that the capital reduction does not materially prejudice its ability to pay its creditors for the purposes of s 256B(1)(b) of the Corporations Act: see Molopo at [92]–[93].

Non-disclosure to members

32    Second, until the provision of the Supplementary Explanatory Statement, the information lodged by Ryzon did not disclose the existence of this proceeding. Having regard to White J’s statement in Molopo at [76] (above at [20]), this would appear to be contrary to s 256C(4) of the Corporations Act. Despite the addition of Section 1.10 to the Explanatory Statement, which now discloses the existence of this proceeding, and the amendment to Section 2.18 regarding risk factors, there has been no amendment to the statement at Section 2.5 that the capital reduction meets the requirements of s 256B(1) (see above at [8]). The preparation of the Supplementary Explanatory Statement supports an inference that there was a material omission in the information provided to the shareholders in the Explanatory Statement.

33    Additionally, the Supplementary Explanatory Statement was lodged on 22 September 2026, two days before the time for the meeting. This calls into question the sufficiency of time for shareholders to consider the additional material, and therefore whether shareholders have been provided with adequate disclosure in order to meet the requirements of s 256B(1)(c).

No commercial justification for distributing before judgment

34    Third, Ryzon has not provided any commercial justification for the proposed distribution occurring prior to delivery of judgment in this proceeding. In the Explanatory Statement, Ryzon indicated that, if the distribution is not approved at a general meeting of shareholders, the company intends to hold the Sow Good consideration shares “for an indeterminate amount of time”: Explanatory Statement, Section 1.6. I infer from this statement that nothing in the transaction requires the distribution to occur before judgment. Ryzon did not displace this inference at the hearing.

No prejudice to Ryzon or its shareholders

35    Fourth, there is no apparent prejudice to the shareholders of Ryzon in delaying the meeting, nor in delaying the distribution itself. The Explanatory Statement does not indicate that approval of Resolution 1 is a condition precedent to Completion: Explanatory Statement, Section 1.2.5. The Sow Good shares received at completion are subject to voluntary lock-up periods of between 6 and 12 months, so shareholders could not in any event realise much of the value of the distribution in the near term: Explanatory Statement, Sections 1.2.3 and 1.2.4.

Public Policy

36    Fifth, it is contrary to public policy for a defendant to a civil penalty proceeding to be permitted, after trial but before judgment, to distribute its only assets to its members so as effectively to relieve itself of any potential obligation to pay ASIC and the Commonwealth.

37    This Court (albeit in the context of approval proceedings for a scheme of arrangement) has previously held that ASIC’s capacity to recover a pecuniary penalty is a relevant matter in considering the “commercial morality” and “public policy” of a proposed transaction: Re GetSwift Limited (No 2) [2020] FCA 1733 at [118] per Farrell J. The removal of, practically, all of the value presently held in the company before any possible pecuniary penalty is determined is both materially prejudicial to ASIC and the Commonwealth as contingent creditors, and undermines the protective purpose of a civil penalty in promoting the public interest in compliance: Commonwealth v Director, Fair Work Building Industry Inspectorate (2015) 258 CLR 482 at [55], [59] per French CJ, Kiefel, Bell, Nettle and Gordon JJ.

38    In those circumstances, the size of the penalty is not material to the public interest considerations, although it may be material to the efficacy of any undertaking proffered by Ryzon to retain unencumbered shares in escrow (as provision for any potential liability to ASIC and the Commonwealth in connection with this proceeding). The difficulty with such an undertaking is that, irrespective of its scope, it does not address the issue of material disclosure to shareholders for the purpose of compliance with s 256B(1) of the Corporations Act. The same may be said of any proposal to temporarily preserve the status quo in lieu of injunctive relief. The fact that this concern may not have assumed its current significance in negotiations between the parties, is of no moment. In any event, I view the issue of material disclosure to shareholders as inextricably linked to the question of prejudice to the company’s ability to pay its creditors.

Conclusion

39    It is desirable to make the orders sought by ASIC (with a modification to acknowledge counsel’s concession regarding the pertinence of Resolution 2 of the meeting notice to the proposed capital reduction), restraining Ryzon from approving and giving effect to the proposed capital reduction.

Associate:

Dated:    29 September 2026