FEDERAL COURT OF AUSTRALIA Helios Energy Ltd, in the matter of Helios Energy Ltd [2017] FCA 840 File number: WAD 278 of 2017 Judge: GILMOUR J Date of judgment: 24 July 2017 Catchwords: CORPORATIONS – securities – whether the time period for admitting securities to quotation on the Australian Securities Exchange may be extended and securities already issued be validated and confirmed – consideration of the legislative scheme for fundraising and curative orders in the Corporations Act 2001 (Cth) ('Act') – consideration of the statutory requirements for extension of time pursuant to ss 1322(4)(d) and 1322(6) of the Act and for validation of shares already issued pursuant to ss 254E and 1322(4)(a) of the Act. Legislation: Acts Interpretation Act 1901 (Cth) ss 2B, 15AB(1), 15AB(2)(e), 46(1) Corporations Act 2001 (Cth) ss 254E, 254E(1), 254E(1)(a), 711(6), 723(3), 723(3)(b), 723(3)(c)-(d), 724(1)(b)(ii), 724(1)(c)-(d), 724(2), 724(3G)(a), 724(3H), 741, 1322, 1322(4), 1322(4)(a), 1322(4)(d), 1322(5), 1322(6), 1322(6)(a), 1322(6)(a)(i), 1322(6)(a)(ii), 1322(6)(a)(iii), 1322(6)(c), Chapter 6D Legislation Act 2003 (Cth) s 8 ASIC Corporations (Minimum Subscription and Quotation Conditions) Instrument 2016/70 (Cth) Explanatory Statement, ASIC Corporations (Minimum Subscription and Quotation Conditions) Instrument 2016/70 (Cth) Cases cited: Re Azure Minerals Limited [2013] FCA 63 Re Elemental Minerals Ltd (2010) 79 ACSR 277 Re G8 Communications Ltd (2016) 112 ACSR 22 Re Golden Gate Petroleum Ltd (2004) 50 ACSR 659 Re Wave Capital Ltd (2003) 47 ACSR 418 Solco Ltd, in the matter of Solco Ltd [2015] FCA 635 Taruga Gold Limited, in the matter of Taruga Gold Limited [2015] FCA 892 Weinstock v Beck (2013) 251 CLR 396 Date of hearing: 28 June 2017 Registry: Western Australia Division: General Division National Practice Area: Commercial and Corporations Sub-area: International Commercial Arbitration Category: Catchwords Number of paragraphs: 48 Counsel for the Plaintiff: JC Vaughan SC and AJ Papamatheos Solicitor for the Plaintiff: Steinepreis Paganin ORDERS WAD 278 of 2017 IN THE MATTER OF HELIOS ENERGY LTD ACN 143 932 110 HELIOS ENERGY LTD Plaintiff JUDGE: GILMOUR J DATE OF ORDER: 11 JULY 2017 THE COURT ORDERS THAT: 1. Pursuant to s 1322(4)(d) of the Corporations Act 2001 (Cth) (Corporations Act), the period set out in sub-sections 723(3)(b) and 724(1)(b)(ii) of the Corporations Act for the admission to quotation by the Australian Securities Exchange (ASX) of securities of the Plaintiff issued pursuant to the Prospectus lodged on 16 February 2017, and supplementary prospectus of 17 March 2017, be extended to 19 July 2017. 2. Subject to the Plaintiff's securities being admitted to quotation by the ASX by 19 July 2017, pursuant to ss 254E and 1322(4)(a) of the Corporations Act, the issue of securities by the Plaintiff pursuant to the Prospectus (including all previously issued securities) is validated and confirmed. 3. The Plaintiff forthwith: (a) lodge a copy of these orders with the Australian Securities and Investments Commission (ASIC); and (b) make an announcement to the ASX disclosing the terms of these orders. 4. The Plaintiff and all other interested parties, including ASIC, have liberty to apply to revoke or vary those orders upon first giving 72 hours' prior written notice. 5. The operation of Orders 1 and 2 be stayed and those orders are not to come into effect until 10:00AM on Wednesday 5 July 2017. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT GILMOUR J: 1 I made orders in this matter on 28 June 2017. Additionally, I made further orders on 18 July 2017 on an application which was also not opposed. Those orders extended the dates in Orders 1 and 2 to 11 August 2017. 2 The following are my reasons for making the orders of 28 June 2017. 3 This was an application for orders under ss 254E(1), 1322(4)(a) and 1322(4)(d) of the Corporations Act 2001 (Cth) (Corporations Act) to: (a) extend the period of three months ending 16 May 2017 (under ss 723(3)(b) and 724(1)(b)(ii) of the Corporations Act) in which securities issued pursuant to the prospectus lodged on 16 February 2017 and supplementary prospectus of 17 March 2017 (Prospectus) were to be admitted to quotation on the Australian Securities Exchange (ASX), until 15 days after the determination of this application; and (b) validate and confirm the issue of the securities issued by the plaintiff pursuant to the Prospectus. 4 The application was not opposed. Background 5 The following background is adopted from the applicants written submissions. 6 The Prospectus of 16 February 2017, as supplemented on 17 March 2017, contained various offers of securities seeking to raise a minimum of $12,000,000 and a maximum of $18,880,000. The funds were for use in connection with the plaintiff's acquisition of interests in two oil and gas projects in Texas, USA. 7 The Prospectus contained a minimum subscription condition and stated that the securities would be admitted for quotation on a financial market. Accordingly, the time limits for satisfaction of those conditions in ss 723(3)(b) and 724(1)(b)(ii) were applicable. 8 Relevantly, on 7 April 2017, the plaintiff issued 650,000,000 shares and 216,666,675 new options pursuant to some (but not all) of the offers contained in the Prospectus. 9 In the week prior to the last day for admission to quotation under the Prospectus (being 16 May 2017), the plaintiff had completed the essential steps necessary for the Prospectus, other than to satisfy ASX requirements for a suitable spread of securities holders. Accordingly, at that time the plaintiff could not satisfy the requirement of admitting the securities for quotation by 16 May 2017, as required under the Prospectus and ss 723(3)(b) and 724(1)(b)(ii). 10 After consultation with the ASX, the plaintiff identified a need to extend the period for admission to quotation to satisfy the ASX conditions for admission of the securities to quotation. 11 The plaintiff's director and its corporate legal advisors considered that a "refresh document" could be issued, under a relatively new legislative instrument, the ASIC Corporations (Minimum Subscription and Quotation Conditions) Instrument 2016/70 (Cth) (LI2016/70). Steps were taken to do so with the intended effect that the period for admission to quotation under ss 723(3)(b) and 724(1)(b)(ii) would be extended. The plaintiff prepared and lodged the second supplementary prospectus or "refresh document" on 15 May 2017. 12 On 29 May 2017, ASIC raised with the plaintiff that the relief in LI2016/70 was not available to the plaintiff to extend the period for admission to quotation. This was because the plaintiff had issued securities pursuant to some of the offers in the Prospectus and LI2016/70 only applies to a prospectus where no securities have been issued. 13 The effect of there being no valid extension of the period for admission to quotation on 15 May 2017 under a "refresh document" under LI2016/70 was that the last date for admission to quotation has passed. 14 Accordingly, absent a curative order, all securities issued under the Prospectus are invalid and the applicants' funds must be returned. 15 This, I accept, could cause substantial injustice if not remedied: the plaintiff would need to refund money and re-start a capital raising process with considerable expense, delay and inconvenience. 16 By these proceedings relief is sought in order to allow the plaintiff to validate securities already issued under the Prospectus, and to extend the time for admission to quotation, so as to allow the completion of a capital raising by issue of remaining securities under the Prospectus. The evidence 17 The plaintiff relies on the following evidence: (a) the affidavits of Mr Garry Christian Steinepreis sworn on 16 June 2017 (First Steinepreis affidavit) and 23 June 2017 (Second Steinepreis affidavit); (b) the affidavits of Mr Jonathan Heath Stuart Murray sworn on 22 June 2017 (First Murray affidavit) and 27 June 2017 (Second Murray affidavit); and (c) the affidavit of Ms Suzanne Thelma Zollo sworn on 23 June 2017 (Zollo affidavit). The legislative scheme for fundraising and curative orders 18 The legislative scheme for fundraising for companies and curative orders has been recently summarised by McKerracher J in Solco Ltd, in the matter of Solco Ltd [2015] FCA 635, [15]–[19]. 19 As the plaintiff has correctly identified, orders to extend the time for admission to quotation and validate and confirm issued shares were made in Solco, and have also been made by this Court in at least Re Wave Capital Ltd (2003) 47 ACSR 418, Re Golden Gate Petroleum Ltd (2004) 50 ACSR 659, Taruga Gold Limited, in the matter of Taruga Gold Limited [2015] FCA 892 and Re G8 Communications Ltd (2016) 112 ACSR 22. 20 The principles generally applicable on such an application under s 1322 are: (a) The prescriptive requirements of the wording in ss 1322(4)(a), 1322(4)(d) and the pre-conditions in 1322(6) need to be satisfied: Weinstock v Beck (2013) 251 CLR 396 at 416 [43], 419 [53] and 422-3 [64]. (b) Satisfaction of any one of the conditions set out in s 1322(6)(a)(i) or s 1322(6)(a)(ii) or s 1322(6)(a)(iii) will meet the requirements of s 1322(6)(a): Weinstock, 403 [10]. (c) The Court retains a discretion under ss 1322(4)(a) and 1322(4)(d) as to whether it makes the orders sought, as the statute uses the permissive "may". (d) These broad powers reflect a "broad legislative policy that the law should not inflict unnecessary liability or inconvenience or invalidate transactions because of non-compliance with its requirements where such non-compliance is the product of honest error or inadvertence and where the court can avoid its effects without prejudice to third parties or to the public interest in compliance with the law": Re Wave Capital at 426 [29] affirmed in Solco at [23]. (e) Limitations to the broadly expressed powers in s 1322 will not be readily implied: Weinstock at 416 [43], 419-420 [55]-[56] and 422-3 [64]. (f) The Court can make orders under ss 1322(4)(a) and 1322(4)(d) on conditions and also make such consequential and ancillary orders as it thinks fit: s 1322(4). (g) An order can be made under s 1322(4)(a) notwithstanding that the contravention or failure concerned resulted in the commission of an offence: s 1322(5). 21 Similarly, s 254E provides the Court with a broad discretion to be exercised in all the circumstances of the case. 22 Since both Solco and Re G8 Communications were decided, the LI2016/70 has been issued under s 741 of the Act to provide a means for issuers to extend the minimum subscription and quotation time period for all applicants without seeking individual relief. It contemplates the lodgement of a "refresh document" before the end of the relevant period. Extension of time relief pursuant to s 1322(4)(d) 23 The first proposed order in the plaintiff's originating process is: Pursuant to section 1322(4)(d) of the Act, the period set out in sub-sections 723(3)(b) and 724(1)(b)(ii) of the Act for the admission to quotation by ASX of securities of the Plaintiff issued pursuant to the Prospectus, be extended to the date which is 15 business days after the making of this order. 24 The plaintiff submits, and I accept, that the statutory requirements of ss 1322(4)(d) and 1322(6) are met, as follows. (a) The plaintiff is an interested person who may seek relief, as required by s 1322(4), and as is consistent with earlier authorities. (b) The order sought is an order extending the period for the doing of any act, matter or thing or taking any proceeding under the Corporations Act or in relation to a corporation for the purpose of s 1322(4)(d) in that the time for admission to quotation under each of sub-sections 723(3)(b) and 724(1)(b)(ii) of the Corporations Act is being extended. (c) The period to be extended can be extended even if expired, as provided for by s 1322(4)(d), as is the case here where the period expired on 16 May 2017. (d) In that regard the purported refresh document of 15 May 2017, as was issued in an attempt to utilise the provisions of the LI2016/70, did not have the effect of extending the period for admission to quotation for the Prospectus as, on its proper construction, an extension under LI2016/70 was not available to the plaintiff. Relevantly: (1) As a matter of language, the need to lodge a "refresh document" in LI2016/70, s 724(3G)(a), which meets the requirement in s 724(3H) of allowing an applicant to withdraw their application and be repaid monies, cannot be met if shares have been issued. The shares cannot be unissued; the applicant has received reciprocal value of shares in exchange for their money. (2) Contextually, the focus in Chapter 6D on updated disclosure for any discovered misleading information or new information circumstances (s 724(1)(c)-(d)), the time limit on expiry of prospectus and replacement prospectus (s 711(6)) and express rights to withdraw or avoid offers (ss 723(3), 724(2)) suggest that an investor ought not be bound irrevocably and indefinitely prior to admission of shares for quotation. For example, the initial investors who are issued shares first could be subject to considerable uncertainty and market changes, and be unable to trade their shares. (3) The Explanatory Statement to LI2016/70 (at [2] on p 3) confirms this reading, which is permissible to be taken into account: Acts Interpretation Act 1901 (Cth), ss 2B ("legislative instrument"), 15AA, 15AB(1), 15AB(2)(e), 46(1) and Legislation Act 2003 (Cth), s 8). 25 The plaintiff also submits, and I accept, that the pre-condition and requirement in s 1322(6)(c) that no substantial injustice has been or is likely to be caused to any person is also satisfied: (a) As to the plaintiff, the evidence of Mr Steinepreis confirms that if no extension were granted, then it would have to refund the capital it has raised and incur significant corporate and legal expense (estimated at $450,000), as well as delay in a replacement capital raising, which would be substantial injustice if no curative orders were made: Taruga at [13] applied in Re G8 Communications at [24(1)]. (b) As to the existing shareholders of the plaintiff (those prior to the capital raising under the Prospectus), it may be inferred that they would be affected as their shares in the plaintiff would not be reinstated for trading and their shares in the plaintiff would be affected by the absence of the immediate capital raised in order to purchase and pursue the new oil and gas projects of the plaintiff, which would be substantial injustice if no curative orders were made: Re G8 Communications at [24(2)]. (c) As to the applicants for securities in the plaintiff (under the Prospectus): (i) they presently have the option of requiring repayment of their money under s 723(3)(c)-(d) of the Corporations Act - and they have had that right since 16 May 2017 and have been informed of their rights since 22 June 2017 by letter from the plaintiff (it must be noted, however, that those applicants who reside interstate or overseas may not yet have received this letter); (ii) the plaintiff intends to repay money to any applicant who requests return in accordance with the written communication from the plaintiff to each applicant informing them of their rights and dispatched on 23 June 2017; and (iii) some have made contact asking when the shares will be admitted for quotation. Thus, it may be assumed that such applicants generally desire the admission of their issued shares or shares to be issued for quotation. Without the orders, these applicants will not get the shares applied for immediately or at all, which could cause them substantial injustice. (d) As to all of the above, in the event that the curative orders that are sought are made, then substantial injustice will not be caused. Securities will be issued as applied for, although quotation will have to be slightly delayed. But that delay has not caused the applicants to seek repayment notwithstanding that they have been informed of their right to do so. 26 As to the discretion to extend the time the plaintiff further submits and I accept that the following circumstances favour such an extension: (a) the extension order is for a relatively short period of time. It is a period of about 61 days from 16 May 2017 to approximately 16 July 2017. Longer extensions have been sought and granted (see Golden Gate at 667 orders 5-7 (10-11 months) and Solco at [35] (8 months)); (b) there is a genuine and good reason for an extension. That is, as explained above, the plaintiff and its advisors have mistakenly relied upon a new legislative instrument, LI2016/70, when that instrument does not allow an extension of time for admission to quotation in the plaintiff's circumstances, where securities had been issued under the Prospectus. Regrettably, those involved made a genuine error as to the interpretation of LI2016/70, which is an otherwise new and complex document; (c) the conduct of the plaintiff is not disentitling. The plaintiff had done all that it was required to do to obtain admission to quotation other than complete the spread requirements for the ASX. It had raised substantial capital and met the minimum subscription condition for the Prospectus. (d) the additional proposed orders 3, 4 and 5, provide an extension on terms such that there is notice to all persons potentially affected and the capacity for them to return before the Court under liberty to apply to raise any matters they see fit; (e) as said in Solco, at [33], "[t]he making of the extension order is consistent with facilitating the conduct of commerce generally, including by maintaining market confidence that technical difficulties will not necessarily prevent or unduly hinder the raising of capital by the issue of securities to be admitted to quotation"; and (f) the ASX does not oppose the extension order, nor does ASIC oppose the extension order. 27 I will for the above reasons make an order for an extension of the period for admission to quotation. Validation of shares already issued pursuant to s 254E and s 1322(4)(a) 28 The second proposed order in the originating process is: Subject to the Plaintiff's securities being admitted to quotation by the ASX within 15 business days after the making of this order, pursuant to sections 254E and 1322(4)(a) of the Act, the issue of shares by the Plaintiff pursuant to the Prospectus (including all previously issued securities) is validated and confirmed. 29 This order refers to both statutory powers made pursuant to s 254E(1), this order would validate and confirm the shares. Section 1322(4)(a) also confirms that the shares are not invalidated by reason of a contravention. 30 I accept, as the plaintiff submits, that the statutory requirements of ss 254E and 1322(4)(a) are each met, as follows: (a) The plaintiff is an interested person who may seek relief, as required by s 1322(4), and as is consistent with earlier authorities, and the company for the purposes of s 254E(1). (b) For s 254E(1)(a), the requirement that it be shown the shares may be invalid for any reason is demonstrated by s 723(3)(c), which provides that result. (c) For s 1322(4)(a), the proposed order is an order declaring that any act, matter or thing purporting to have been done under the Corporations Act or in relation to a corporation is not invalid by reason of any contravention of a provision of the Corporations Act, as: (i) the proposed validation order is framed in a declaratory form; (ii) the act, matter or thing, is the admission for quotation for the purposes of sub-sections 723(3)(b) and 724(1)(b)(ii) of the Corporations Act; and (iii) the contravention is of those provisions of the Corporations Act, for non-compliance with those prescriptive requirements, including to not have to return money under s 723(3)(c)-(d). 31 Further, again I accept, as the plaintiff submits, that the pre-condition of s 1322(6)(a)(i) is satisfied in that the act, matter or thing is essentially of a procedural nature, being as to admission to quotation when the plaintiff has complied with the ASX's requirements: Re G8 Communications at 30 [34]. 32 The plaintiff further submits that for s 1322(6)(a)(i), the "thing to be done" is the admission to quotation and the irregularity (late admission) does not change the substance of the thing to be done, so that the irregularity merely departs from the prescribed manner in which the thing is to be done without changing the substance of the thing: Re Elemental Minerals Ltd (2010) 79 ACSR 277 at 282 [36]-[38]. I accept this submission. 33 The plaintiff then submits that the pre-condition in s 1322(6)(a)(ii) is also satisfied in that there is no failure of the persons concerned or the plaintiff to act honestly. There is no evidence that the plaintiff or its directors and officers have not acted honestly. Rather, and to the contrary, I accept that a genuine error has been honestly made by the plaintiff and its advisors. 34 The plaintiff submits that the pre-condition in s 1322(6)(a)(iii), that is "just and equitable" for the order to be made, is also satisfied - essentially for the discretionary reasons set out above in respect of the s 1322(4)(d) extension order. I accept this submission. 35 Further, as to the requirement in s 1322(6)(c) that no substantial injustice has been or is likely to be caused to any person, I accept that the validation orders proposed (on terms) for the shares recently issued under the Prospectus will cause no substantial injustice if made but may do if not made, for the same reasons outlined above. 36 As to the discretions under each of ss 254E and 1322(4)(a), again, by reason of the circumstances already addressed in respect of the extension of time, I accept that the Court may make the curative validation orders sought, as was the case in Solco, Taruga and Re G8 Communications. No other discretionary reasons to withhold relief 37 As the plaintiff contends there is no evidence of any substantial misconduct, serious wrongdoing or flagrant disregard of the corporate law or constitution so as to warrant refusal of the relief sought: Re Wave Capital at 426 [29]. 38 The evidence discloses that approximately $4,100,000 of the funds raised have been used by the plaintiff to meet its obligations in relation to purchase of, and use in, its interests in the oil and gas assets. The funds used were from capital raised from shares that had been issued under the Prospectus. 39 In Re G8 Communications, Barker J identified, at 32-34 [50]-[56], that the statutory trust over applicants' funds imposed by s 722 of the Act ceases on issue of the shares: at [54]. As to the remaining question as to whether a trust could arise afresh, his Honour identified a preliminary view that it likely does not, for reasons there set out at [54]-[56]. I would respectfully agree with this view. 40 Accordingly there is no question here as to whether the plaintiff company may have breached any statutory trust, as no trust continues after the issue of shares. 41 The papers do not suggest that any minority shareholder interest might be oppressed. 42 Further, and in any event as the plaintiff points out: (a) the reservation of liberty to apply in the orders sought is sufficient to protect the interests of any aggrieved person that can raise a legitimate and sufficient concern; and (b) further, the plaintiff has not sought relief from civil liability for itself or its officers under s 1322(4)(c), such that there is no bar against those with rights affected who suffer loss or damage to commence appropriate proceedings. 43 Finally, the plaintiff submits that a relevant factor for the Court to take into account in exercising the discretion to grant relief under s 1322(4) is the promptness with which the plaintiff has sought to remedy the irregularity: Re Azure Minerals Limited [2013] FCA 63 at [12]. 44 In the present case, the plaintiff was notified by ASIC about the inability to extend the period for quotation by use of the refresh prospectus on 29 May 2017. I find that the plaintiff has acted promptly and properly. It sought advice from counsel on 30 May 2017, which was provided on 1 June 2017, and then further advice was provided between Friday 2 June and Tuesday 6 June 2017. By 6 June 2017, the plaintiff's board had resolved to seek relief in these proceedings. The plaintiff commenced the proceedings by 19 June 2017 and obtained a listing within 10 days of filing. As I previously mentioned, the delay, by comparison, in Golden Gate was 10 months and, in Solco 8 months. Conclusion and orders sought 45 I am satisfied for the above reasons that curative orders as sought ought to be made. I accept the submissions of the plaintiff that it has mistakenly sought to obtain an extension of the period for admission to quotation under a new legislative instrument. I also accept that the plaintiff has otherwise acted diligently and the interests of numerous stakeholders are fairly dealt with. Stay of Orders 1 and 2 46 It is likely that a number of shareholders in the Eastern States of Australia and overseas are unlikely to have received the written communication despatched on 23 June 2017 referred to at [24] above in these reasons. 47 Those shareholders had, of course, received earlier notice from the plaintiff. This notice came in the form of: (1) the second supplementary prospectus lodged on 15 May 2017, which included notice of shareholders' withdrawal rights for 1 month within the date of lodgement' (2) an announcement to the ASX; and (3) a letter sent to all applicants who had subscribed for securities under the Entitlement Offer and Shortfall by post on 22 June 2017. 48 Nonetheless, I consider it appropriate to stay the operation of orders 1 and 2 until 10.00am on Wednesday 5 July 2017. This will give those shareholders time to approach the Court under the liberty to do so, granted by order 4, to vary or revoke any of the orders made. I certify that the preceding forty-eight (48) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gilmour. Associate: Dated: 24 July 2017