Federal Court of Australia Wingara AG Limited, in the matter of Wingara AG Limited [2021] FCA 687 File number: VID 317 of 2021 Judgment of: MOSHINSKY J Date of judgment: 18 June 2021 Catchwords: CORPORATIONS – application for orders under s 1322 of the Corporations Act 2001 (Cth) to address certain irregularities – where a share placement occurred on the purported basis of a notice as referred to in s 708A(5)(e) – where the company was not entitled to rely on s 708A(5) because it did not satisfy the requirement in s 708A(5)(b) – where the irregularity was the result of an oversight – where no material to suggest prejudice to any third party if orders made Legislation: Corporations Act 2001 (Cth), ss 707, 708A, 713, 727, 1322 Cases cited: Re ICandy Interactive Limited [2018] FCA 533 Division: General Division Registry: Victoria National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 24 Date of hearing: 16 and 18 June 2021 Counsel for the Plaintiff: Ms P Thiagarajan Solicitor for the Plaintiff: DLA Piper Australia ORDERS VID 317 of 2021 IN THE MATTER OF WINGARA AG LIMITED (ACN 009 087 469) WINGARA AG LIMITED Plaintiff order made by: MOSHINSKY J DATE OF ORDER: 18 JUNE 2021 THE COURT ORDERS THAT: 1. Any offer for sale or sale of the shares referred to in Annexure B, during the period from their respective dates of issue to the date of these orders (inclusive), is not invalid by reason of: (a) the failure of a notice dated 6 September 2016 purportedly issued under s 708A(5)(e) of the Corporations Act 2001 (Cth), to exempt the plaintiff and sellers from the obligation of disclosure under the Corporations Act; and (b) any consequential failure by the plaintiff and sellers to comply with ss 707(3) and 727(1) of the Corporations Act. 2. The plaintiff and its current and former directors and officers are relieved of any civil liability arising out of any contravention of ss 707(3) and 727(1) of the Corporations Act in relation to the offer for sale or the sale of the shares referred to in Annexure B. 3. Any sellers of the shares referred to in Annexure B are relieved from any civil liability arising out of any contravention of ss 707(3) and 727(1) of the Corporations Act in relation to the offer for sale or the sale of such shares. 4. As soon as it is reasonably practicable, a sealed copy of these orders is to be served on the Australian Securities and Investments Commission (ASIC) and upon service of these orders, ASIC is to include these orders on its database. 5. As soon as it is reasonably practicable, a sealed copy of these orders is to be sent to the last known email address of each person to whom the shares referred to in Annexure B were issued. 6. As soon as it is reasonably practicable, the plaintiff is to publish an announcement to the Australian Securities Exchange (ASX) in which a copy of these orders is included. 7. For a period of 28 days from the date of these orders, any person who claims to have suffered substantial injustice or is likely to suffer substantial injustice by the making of any or all of these orders has liberty to apply to vary or to discharge them within that period. 8. There be no orders as to costs. ANNEXURE B No. Date of Issue Security Type Date of cleansing notice Number issued Basis for issue 1. 22 August 2016 FPOS 6 September 2016 9,996,662 Placement Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT MOSHINSKY J: Introduction 1 By originating process dated 16 June 2021, the plaintiff (Wingara) seeks orders pursuant to s 1322 of the Corporations Act 2001 (Cth) to address certain irregularities. 2 The matter first came before me as duty Judge on 16 June 2021 and on that occasion I made orders dealing with the part of the application concerning irregularities in the appointment of William Buck Audit (Vic) Pty Ltd as auditor for Wingara and consequent irregularities in 'cleansing notices' issued under s 708A(5)(e) of the Corporations Act. While I was content to make orders dealing with that part of the application, I considered that further affidavit evidence and submissions were required in support of another part of the application, which sought orders under s 1322 relating to a share placement in August 2016 (the August 2016 Share Placement). The matter was adjourned to enable Wingara to file supplementary affidavit material and supplementary submissions, which it has now done. These reasons deal with the orders sought by Wingara in relation to the August 2016 Share Placement. 3 The principal orders Wingara seeks in relation to the August 2016 Share Placement are as follows (as set out in Wingara's minute of proposed orders): … 8. Any offer for sale or sale of the shares referred to in Annexure B, during the period from their respective dates of issue to the date of these orders (inclusive), is not invalid by reason of: (a) the failure of a notice dated 6 September 2016 purportedly issued under s 708A(5)(e) of the Corporations Act 2001 (Cth), to exempt the plaintiff and sellers from the obligation of disclosure under the Corporations Act; and (b) any consequential failure by the plaintiff and sellers to comply with ss 707(3) and 727(1) of the Corporations Act. 9. The plaintiff and its current and former directors and officers are relieved of any civil liability arising out of any contravention of ss 707(3) and 727(1) of the Corporations Act in relation to the offer for sale or the sale of the shares referred to in Annexure B. 10. Any sellers of the shares referred to in Annexure B are relieved from any civil liability arising out of any contravention of ss 707(3) and 727(1) of the Corporations Act in relation to the offer for sale or the sale of such shares. 11. As soon as it is reasonably practicable, a sealed copy of these orders is to be served on the Australian Securities and Investments Commission (ASIC) and upon service of these orders, ASIC is to include these orders on its database. 12. As soon as it is reasonably practicable, a sealed copy of these orders is to be sent to the last known email address of each person to whom the shares referred to in Annexure B were issued. … 14. As soon as it is reasonably practicable, the plaintiff is to publish an announcement to the Australian Securities Exchange (ASX) in which a copy of these orders is included. 15. For a period of 28 days from the date of these orders, any person who claims to have suffered substantial injustice or is likely to suffer substantial injustice by the making of any or all of these orders has liberty to apply to vary or to discharge them within that period. 16. There be no orders as to costs. 4 Annexure B to Wingara's proposed orders contains details of the shares that were the subject of the August 2016 Share Placement. 5 The issue in relation to the August 2016 Share Placement can be summarised as follows. Wingara issued the relevant shares on 22 August 2016. On 6 September 2016, Wingara issued a cleansing notice (i.e. a notice of the kind referred to in s 708A(5)(e) of the Corporations Act) dated 6 September 2016. However, Wingara was not able to rely on s 708A(5) because it did not satisfy the requirement under s 708A(5)(b) that its securities had not been suspended from trading for more than five days in the 12 month period ending on the date of the share issue. This is because, on or about 9 February 2016, Wingara had been reinstated to official quotation on the Australian Securities Exchange (ASX) after having been suspended from trading on the ASX from on or about June 2006. 6 The supplementary affidavit material filed by Wingara is as follows: (a) a second affidavit of Mr Phillip Hains dated 18 June 2021 – Mr Hains was company secretary from 15 June 2016 to on or about 5 June 2019; and (b) a second affidavit of Mr Zane Banson dated 18 June 2021 – Mr Banson is the current Chief Financial Officer and Interim Chief Executive Officer of Wingara; prior to holding positions at Wingara, Mr Banson was employed as an Associate Director at The CFO Solution, an accounting firm established by Mr Hains. Background facts 7 Mr Hains's evidence is that he does not know how Wingara came to issue a cleansing notice in respect of the August 2016 Share Placement. His e-signature appears on the document headed "Appendix 3B" and the cleansing notice, but Mr Hains has no recollection of placing his signature on those documents. His evidence is that his practice at the time was to discuss matters with Mr Banson, but that he did not review every document upon which his e-signature was placed. Mr Hains does not recall whether he or any of the directors or officers turned their minds to whether it was available for Wingara to utilise a cleansing notice in relation to the August 2016 Share Placement. He admits that it was his role as company secretary to lodge these documents. It is Mr Hains's evidence that the fact that a cleansing notice was issued when Wingara was not qualified was the result of an oversight. 8 Mr Banson's evidence is that he had been in his role for less than 12 months and operated under the guidance and supervision of Mr Hains. His evidence shows that he was the last person to have amended the Appendix 3B form, but he has no recollection of preparing the form. His evidence is that he knew of the requirements of s 708A(5), but does not recall whether he turned his mind to whether it was applicable. Mr Banson admits that, as Mr Hains's employee, it was his responsibility to assist Mr Hains to perform his functions as company secretary, and that this responsibility extended to ensuring that the appropriate documents were prepared and filed. 9 Mr Banson's evidence also sets out the inquiries made to ascertain whether any other advisers or personnel were involved in the preparation of these documents in relation to the August 2016 Share Placement. The nature and results of those inquiries are set out at paragraphs 15 to 27 of Mr Banson's second affidavit. In summary, his evidence is that there were no legal advisers engaged to assist with the Appendix 3B form or cleansing notice, nor were other directors or officers involved. Mr Gavin Xing, the former CEO, has indicated that he had effectively delegated responsibility for preparing documents to Mr Hains as company secretary. Mr Diamante's evidence is that he does not recall anyone other than Mr Xing, Mr Hains and Mr Banson being involved in the preparation of the relevant documents. 10 Both Mr Hains and Mr Banson have further reviewed their files and cannot identify any other explanation for how the mistake occurred. Consideration 11 The prescriptive requirements of s 1322(4)(a) of the Corporations Act are satisfied as follows: (a) the proposed validation order is framed in a declaratory form; (b) the act, matter or thing is the offer and sale of securities; and (c) the contravention is the offering of securities for sale or sales without proper disclosure in contravention of s 707(3) and s 727(1) of the Corporations Act. 12 The evidence shows that Wingara effectively delegated company secretarial tasks to Mr Hains. Mr Hains's evidence is that he was assisted in his performance of that role by Mr Banson, but he did not review every document to which his e-signature was applied. Mr Banson's evidence is that he was aware of the requirements of s 708A(5), but does not know how the mistake occurred. The appropriate inference from the evidence is that there was an inadvertent oversight by Mr Banson and Mr Hains, together with an omission, in this instance, in the supervision by Mr Hains of the work being performed by Mr Banson. There is no evidence of dishonesty. Accordingly, the precondition in s 1322(6)(a)(ii) is satisfied. 13 Further, it is just and equitable for the orders to be made, having regard to the facts and matters discussed later in these reasons. 14 Wingara submits, and I accept, that no substantial injustice would follow from the granting of the orders sought to validate the share issue. That is because, as the evidence of Mr Banson sets out, investors to whom the shares were offered and issued in the August 2016 Share Placement had available to them all of the information which would have been included in a cleansing prospectus properly issued in accordance with s 713 of the Corporations Act at the relevant time. This included the detailed information contained in a prospectus issued in November 2015, up-to-date financial disclosures, and the matters contained in a purported cleansing notice lodged on 6 September 2016 (despite there not being proper grounds for issuing such a notice) and the ASX announcement of 15 August 2016, which contained a description of the key terms and conditions of the offer. That information included all the information that investors and their professional advisers would reasonably require to make an informed assessment of the: (a) effect of the offer on Wingara; (b) rights and liabilities attaching to the shares; and (c) the assets and liabilities, financial position and performance, profits and losses, and prospects of Wingara. 15 That information was also sufficient to inform investors and their advisors of the terms and conditions of the offer, information about how to obtain financial statements and continuing disclosure notices and other material required by s 713 of the Corporations Act. 16 That is not to say that no purpose would have been served by the lodgement of a 'cleansing prospectus' at the time. Not only would that have satisfied the legal requirements, it would have brought the relevant information together in one place for investors and their advisers. It is simply to point out that, as a matter of substance, the objects of the legislation were met and that it does not appear that any investor was prejudiced by reason of the failure of Wingara to issue a cleansing prospectus at the time. 17 Further, it is relevant to have regard to the prejudice that would be suffered if the orders sought are not made: see Re ICandy Interactive Limited [2018] FCA 533 (ICandy) at [117] per Banks-Smith J. Those who may be prejudiced if the orders sought are not made include: (a) people who were issued the relevant shares, who, if the orders are not made, may suffer the prejudice that the sale of the shares may be void or voidable; and (b) people who purchased the relevant shares from on-sellers and who may have on-sold the shares themselves by trading on the open market since they were issued, who may likewise, if the orders are not made, suffer prejudice if the transactions are void or voidable because they occurred without proper disclosure. 18 There is no evidence that any prejudice or substantial injustice has been or is likely to be caused to any person by making the proposed orders. 19 Further, any prejudice to shareholders or other parties in making the orders may be avoided by an order (sought by Wingara in these proceedings) that an opportunity be given to shareholders or other parties to raise a complaint about the proposed orders within 28 days. 20 In the course of the hearing there was discussion as to whether the orders sought should be made in circumstances where Wingara has not prepared a cleansing prospectus (the document that should have been prepared at the time). In the circumstances of this case, I do not consider this to be a reason not to make the proposed orders. Given the length of time since the share issue, such a prospectus would likely cause confusion and may, itself, be a cause of prejudice. 21 In addition to the publicly available information at the time of the August 2016 Share Placement, an ASX announcement of the outcome of this proceeding and the orders made will provide the market with the relevant information as to Wingara's present situation. It will also provide current and former shareholders of Wingara sufficient information to know whether to raise a complaint about the orders in the proposed 28 day window. 22 Wingara also seeks orders relieving the company and its current and former directors and officers from any civil liability arising out of any contraventions of ss 707(3) and 727(1) of the Corporations Act by reason of the invalidity of the cleansing notice lodged on 6 September 2016. For the reasons set out above, I am satisfied that the evidence shows an absence of dishonesty on the part of Wingara and its current and former directors and officers in relation to that notice and the issue itself. Accordingly, I consider it appropriate that these orders be made. 23 Wingara also seeks orders relieving any sellers of the relevant shares from any civil liability arising out of any contraventions of ss 707(3) and 727(1) of the Corporations Act. There is no evidence of dishonesty on the part of sellers, nor any evidence of their involvement in the irregularity causing the potential contraventions. As Banks-Smith J said in ICandy at [58], "[t]here is a body of authority that supports the view that it is open to the court to readily infer that the shareholders have acted honestly in on-selling the shares". I draw that inference in the present case. 24 Accordingly, I will make orders substantially in the terms sought by Wingara. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Moshinsky. Associate: Dated: 23 June 2021