Supreme Court New South Wales Medium Neutral Citation: In the matter of Passportcard Australia Holdings Pty Ltd [2024] NSWSC 1479 Hearing dates: 7 November 2024 Date of orders: 7 November 2024 Decision date: 07 November 2024 Jurisdiction: Equity - Corporations List Before: Black J Decision: Orders for rectification of the register kept by the Australian Securities and Investments Commission in respect of the Plaintiff and for validation of the registration of the Plaintiff. Catchwords: CORPORATIONS – Shares – Rectification of share register – Application for rectification of register kept by Australian Securities and Investments Commission incorrectly value of ordinary shares issued on incorporation of Plaintiff – Where incorrect information given as to value of shares – Whether order for rectification of register should be made – Whether order validating registration of company should be made. Legislation Cited: Corporations Act 2001 (Cth), ss 117(2)(k), 1322(4) Cases Cited: - Re ABI Australia Holdings Pty Ltd [2017] NSWSC 1822 - Re Macquarie Americas Holdings Pty Ltd [2015] NSWSC 2073 Category: Principal judgment Parties: Passportcard Australia Holdings Pty Ltd (Plaintiff) Representation: Counsel: B Koch/S Powrie (Plaintiff) Solicitors: Lander and Rogers (Plaintiff) File Number(s): 2024/373239 Judgment – ex tempore (Revised 18 November 2024) Nature of the application 1. By Amended Originating Process filed on 5 November 2024, the Plaintiff, Passportcard Australia Holdings Pty Ltd ("Company"), seeks relief under s 1322(4) of the Corporations Act 2001 (Cth) ("Act") in respect of two matters which arose at the point of its incorporation. 2. The Company is a subsidiary of an English company, Passportcard Ltd ("Passportcard UK"). By inadvertence in the circumstances which emerge below, Passportcard UK was issued and allotted one thousand ordinary shares at $1 per share in the Company, giving rise to a total share capital of $1000, when it was intended that it be issued one thousand ordinary shares at $0.001 per share, giving rise to a total share capital of $1. The difference is commercially significant, for reasons that emerge below. A question has also arisen, of a somewhat technical character, as to whether an application for issue of the shares had been completed prior to the registration of the Company. That question appears to arise in circumstances that there is no doubt that that application was in fact completed, and may turn upon the question when the Australian Securities and Investments Commission ("ASIC") treats the Company as having been registered at a point of time during a day. Affidavit and other evidence 1. The Company reads three affidavits in support of the application, and has since tendered contemporaneous correspondence which makes the course of events clear. First, the Company reads the affidavit dated 8 October 2024 of Mr Ketzef, who is the present President and Founder of the Passportcard group, and refers to the circumstances in which the group was established and also the circumstances in which this matter arose, on information and belief, by reference to information which he was provided by the Company's Chief Legal, Risk and Compliance Officer. He characterises what occurred as a "typographical error". That characterisation is likely not apt, because what appears to have occurred is, not that one figure was stated, intending to write another, but rather that an error was committed as to the figure that was stated. The error is, of course, no less an error if it is an error of understanding rather than a mere "typographical error". 2. By a second affidavit dated 8 October 2024, Mr Taback, who is the Chief Financial Officer of the Company, refers to the circumstances in which the Company was incorporated, as part of a process by which it was intended that an entity in the group obtain an Australian Financial Services licence. Mr Taback refers to advice which had been sought from accounting advisers, addressing the manner in which that should occur, and the steps which could properly be taken to preserve tax losses which were then available to the group. That advice and subsequent correspondence in respect of the incorporation of the Company has since been tendered. Mr Taback there refers to, and the subsequent correspondence confirms, the fact that the Company's advisers had focused upon, inter alia, the question of how to preserve those tax losses, which involved an analysis by reference to a concept known as the "available fraction", which would in turn be effected by the value of the shares in the Company and the extent to which it was funded by equity rather than debt. The contemporaneous correspondence demonstrates that, as a result of that analysis, it was concluded that the Company should be incorporated with a capital of $1, made up of one thousand shares at $0.001 per share. Mr Taback takes responsibility for the error which incurred at the point of incorporation, where the Company was incorporated with one thousand shares at a value of $1 per share rather than of a value of $0.001 per share, although the contemporaneous correspondence now suggests that another person within the group may have in fact made the relevant error. Nothing turns upon that, where it is plain enough that Mr Taback's intent was to accept responsibility for the error that had occurred and explain how it had occurred, and the contemporaneous evidence corroborates that explanation. 3. A third affidavit dated 25 October 2024 of Ms Timms addresses the service of the application upon ASIC and ASIC has now filed a submitting appearance in respect of the application. I proceed on the basis that ASIC is content to leave the question whether the relief should be granted to the Court, on the basis that it raises no issue of public policy that is adverse to the relief that is sought. 4. As I noted above, the Company also tenders a substantial bundle of contemporaneous correspondence. That contemporaneous correspondence includes initial advice that was obtained from an external accountant on 19 March 2020, which addressed the question of the maintenance of available tax losses within the group. That advice was obtained some three years or so before the transaction was ultimately implemented, and the evidence indicates that the delay in implementation resulted, unsurprisingly, from the impact of Covid-19 upon the relevant business. By February 2023, further steps were taken to implement the transaction and the question of retention of tax losses to be utilised in the future was again recognised. 5. On 10 July 2023, the external accounting advisors provided an updated tax advice which again addressed the steps which should be taken to carry forward existing tax loses, and on this occasion provided specific advice as to the steps to be implemented to incorporate the Company, which importantly, recorded that the Company would be incorporated with an initial capital of $1 contributed as cash on hand, although it then anticipated that one share of $1 would be issued, rather than one thousand shares of $0.001. It is plain enough that the intention to capitalise the Company to equity of $1 reflected the approach which has been adopted to the "available fraction" and the maintenance of the tax advice. A document was subsequently completed, headed "Company Incorporation Form", which appears to have been the source of the error which has here occurred. It required specification of the number of shares to be issued, which was recorded correctly as one thousand, but then required specification of the "value (per share)". The total value of the Company's capital of $1 was recorded in that form, rather than the value per share, which would be $1 divided by one thousand. In other words, the language "per share" was neglected at the point this form was completed. 6. An application for shares dated 27 August 2023 was completed, which recorded a request by Passportcard UK to be issued one thousand ordinary shares of $0.001 in the Company, consistent with the advice which had been received from the accountants. The subsequent issue of one thousand shares at a value of $1, did not give effect to the application of shares made by Passport UK. 7. There is also contemporaneous evidence that, on 30 August 2023, Mr Taback recognised the error that had occurred and advised another person within the Company that: "I just looked at these [incorporation] documents and see that the company has been set up with a share capital of $1,000 as opposed to the $1 as specified in the tax step plan. I will confirm whether this has any adverse tax implications and revert." 1. A contemporaneous email, sent later on that day, by that other person, responded: "I'm really sorry Dan, this is my fault. I misunderstood and when I filled out the form I put $1 per share instead of $1 in total". 1. That contemporaneous correspondence makes clear the circumstances in which the error to which I referred above had taken place. 2. I am satisfied that, in these circumstances, it is clear that the issue of shares in the Company did not give effect to either the Company's intent, in issuing those shares, or indeed the form of application that had been made for those shares by Passportcard UK, which acquired those shares, which had correctly recorded the number and value of the shares which it sought to acquire. Applicable legal principles 1. The applicable legal principles are straightforward, and I reviewed them in my decision in Re ABI Australia Holdings Pty Ltd [2017] NSWSC 1822 ("ABI Australia") at [7]ff, to which Mr Koch who appears for the Company drew attention. Section 1322(4)(b) of the Act relevantly provides that the Court may, on the application of an interested person, make an order directing the rectification of any register kept by ASIC under the Act, and I referred to the case law considering that power in ABI Australia at [7]. I there noted that recent case law indicated that the Court had power to order rectification of such a register so as to correct information that was incorrectly included in a notification required to be given by ASIC, and I there made such an order in a case involving very similar features to this case. I also there noted that Brereton J had also made a similar order in Re Macquarie Americas Holdings Pty Ltd [2015] NSWSC 2073 ("Macquarie Americas Holdings"), to which I referred in ABI Australia, where his Honour had ordered rectification of a register when the number of shares recorded in an application for registration of a company was incorrectly inserted. The principle is no different where, as here, the number of shares was correctly recorded, but the value of those shares was incorrectly recorded. I am satisfied that, for these reasons, the information held on ASIC's record is here incorrect, because the contemporaneous evidence indicates that it reflects neither the application for shares lodged by Passportcard UK, nor the Company's contemporaneous intention recorded in the documents to which I have referred above. For that reason, I will order the relief sought under s 1322(4) of the Act in that respect. A further issue 1. As I noted above, the Company seeks further relief relating to the consent of Passportcard UK to take up the shares in the Company required by s 117(2)(k) of the Act. It is plain enough that that consent was given, so far as it is recorded in the application for the relevant shares, although a question has arisen at least as to whether the Company can establish that it was given prior to the registration of the Company, having regard to the time of the Company's registration. It may be that here relief is not required, because there is no reason to doubt that the application was, as a matter of fact, completed before the Company was registered; however, against the contingency that any uncertainty will cause difficulty, I am satisfied that relief should be granted here. I here take the same approach as Brereton J in Macquarie America's Holdings, where his Honour was satisfied that the applicant for shares in fact consented to become a member and to take up the relevant number of shares, and I similarly granted such relief in ABI Australia. I am here satisfied that Passportcard UK consented to taking up the relevant shares, in the number and to the value that will now be reflected in the corrected register and, on that basis, I should also grant that relief. Orders 1. For these reasons, I make orders in accordance with paragraphs 1 and 2 of the Amended Originating Process filed on 6 November 2024. I make a further order that the exhibits be returned. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 20 November 2024