New South Wales Supreme Court CITATION : Austpac Resources N.L. [2010] NSWSC 1438 HEARING DATE(S) : 08/12/10, 09/12/10 JUDGMENT DATE : 10 December 2010 JURISDICTION : Equity Division Corporations List JUDGMENT OF : Barrett J DECISION : Validating orders made. CATCHWORDS : CORPORATIONS - offers of securities requiring disclosure - securities issued without disclosure - disclosure obligation in respect of subsequent offers for sale - securities quoted on ASX - issuer fails to lodge notice with ASX within five business days - notice later lodged - persons offering for sale exposed to liability for non-disclosure - evidence shows that lateness of notice did not cause any material matter to be withheld from the market - validating orders warranted LEGISLATION CITED : Companies Act 1936, s 141 Corporations Act 2001 (Cth), Part 6D.2, ss 674, 706, 707(1), 707(2), 707 (3), 707(4)(b), 707(5), 708(11), 708A, 1322 CATEGORY : Principal judgment Re A J Lucas Group Ltd [2008] FCA 999, Re Chalice Gold Mines Ltd [2009] FCA 1236 CASES CITED : Re Chameleon Mining NL [2009] NSWSC 660 Re Charter Hall Ltd [2007] FCA 1316 Re Diversified United Investment Ltd [2008] FCA 720 ` PARTIES : Austpac Resources N.L. - Plaintiff FILE NUMBER(S) : SC 2010/408312 COUNSEL : Mr J S Tobin - Plaintiff SOLICITORS : Gadens Lawyers - Plaintiff IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BARRETT J FRIDAY, 10 DECEMBER 2010 2010/408312 AUSTPAC RESOURCES NL JUDGMENT 1 On 8 December 2010, I made orders as follows and indicated that I would give reasons later, as I now do: "1. In respect of the 14,876,429 fully paid shares in Austpac Resources N.L. which were issued on 30 September 2010 ( Relevant Securities ), the period of five business days referred to in s 708A(6)(a) of the Corporations Act 2001 (Cth) be extended to the second business day after the day on which these orders are entered. 2. A notice under s 708A(5)(e) of the Corporations Act 2001 (Cth) given to the Australian Securities Exchange Ltd in respect of the Relevant Securities within the period provided for in Order 1 above be deemed to take effect as if it had been given to the Australian Securities Exchange Ltd on 1 October 2010. 3. A sealed copy of these orders be served as soon as practicable on the Australian Securities Exchange Ltd and the Australian Securities and Investments Commission. 4. A copy of these orders is to be placed on the website of the plaintiff as soon as practicable and remain there for at least 28 days. 5. Any interested party have liberty to apply within 28 days of the entry of these orders to revoke or vary the orders." 2 Orders 1 and 2 were made under s 1322 of the Corporations Act 2001 (Cth). 3 The orders were made on an ex parte application made by Austpac Resources NL ("Austpac"). The need from them arose from delay by Austpac in lodging a notice concerning a placement of 14,876,429 shares made by it. The placement was by way of allotment and issue in circumstances not calling for compliance by Austpac with the disclosure requirement imposed by Part 6D.2 of the Corporations Act 2001 (Cth). The s 706 disclosure requirement applicable to offers of securities for issue was, it appears, displaced by s 708(11). 4 Austpac has been admitted to the official list of Australian Securities Exchange ("ASX"). Its shares are traded on the stock market operated by ASX. 5 The 14,876,429 new shares were allotted on 30 September 2010. By oversight on the part of Austpac's company secretary, however, Austpac did not give ASX an Appendix 3B notification (and application for official quotation) in relation to the new shares until 29 October 2010. On the same day, Austpac gave to ASX a notice expressed to be under s 708A. The company secretary had been unaware of the need for this until the matter was raised with him by ASX in conjunction with the failure to lodge Appendix 3B notification. 6 The notice expressed to be under s 708A referred to the share placement and said: "At the date of this Notice the Company has complied with the provisions of Chapter 2M of the Corporations Act as they apply to the Company and with section 674 of the Corporations Act. The Company is not aware of any excluded information for the purposes of section 708A(6)(e) at the date of this Notice." 7 Austpac had no legal obligation to give the notice. Nor was the notice required by the ASX listing rules. Its purpose was not related to the protection of Austpac. Rather, the notice – and the orders made on 8 December 2010 – are relevant to the welfare of persons to whom the 14,876,429 shares had been issued (and other persons) who might offer any of those shares for sale before 30 September 2011. 8 The notice of 29 October 2010 was given by reference to a statutory regime which may be traced to a 1926 recommendation of the Greene Committee (Report of the Company Law Amendment Committee, HMSO Cmd 2657). The committee recommended legislation to deal with a practice under which companies allotted shares by way of private placement (and therefore without prospectus disclosure) in contemplation of a subsequent offer of the shares for sale by the allottee. The recommendation led, in New South Wales, to the enactment of s 141 of the Companies Act 1936 the effect of which, broadly stated, was that the prospectus disclosure rules applicable to a company's offer of its shares for subscription were extended to any offering for sale of shares allotted "with a view to" their being offered for sale to the public. 9 The modern counterpart is found in certain provisions of Part 6D.2 of the Corporations Act. 10 Under s 707(1), an offer of securities for sale (as distinct from an offer of securities for issue) "needs disclosure to investors" under Part 6D.2 if "disclosure is required" under s 707(2), s 707(3) or s 707(5). The provision relevant to this case is s 707(3). That section imposes a disclosure requirement in connection with an offer of securities for sale if, first, the offer is made within 12 months after the issue of the securities, second, the issue of the securities did not take place in the context of Part 6D.2 disclosure by the issuer and, third, one of two purposes existed: either a purpose of the issuer that the issuee should sell or transfer them (or grant, issue or transfer interests in them or options over them), or a purpose of the issuee, in acquiring the securities, to sell or transfer them (or grant, issue or transfer such interests or options). 11 Under s 707(4)(b), securities are deemed to be issued with such a purpose on the part of the issuer or taken with such a purpose on the part of the issuee if: "any of the securities are subsequently sold, or offered for sale, within 12 months after issue, unless it is proved that the circumstances of the issue and the subsequent sale or offer are not such as to give rise to reasonable grounds for concluding that the securities were issued or acquired with that purpose". 12 Section 708A(5) creates an exception to the requirement for disclosure under a combination of s 707(1) and s 707(3) in connection with an offer of issued securities for sale. Under s 708A(5), such an offer does not require disclosure if the securities concerned are of a class that were "quoted securities" (which, in the present case, means quoted on ASX) throughout the period of three months before issue and the issuer of the securities gave to the relevant market operator (here, ASX), before the making of the offer for sale, a notice complying with s 708A(6) (there are other conditions which can be ignored for present purposes). Central to the availability of the exception, therefore, is action by the issuer (here, Austpac) before any offer for sale is made. 13 The substance of the content requirement applying to a s 708(6) notice (which must be given to the market operator within five business days after the issue of the relevant securities) is that the notice state that, as at the date of the notice, the issuer of the securities has complied with, first, the Chapter 2M requirements with respect to accounts and audit applicable to it and, second, s 674 concerning continuous disclosure to the market; and that the notice: "sets out any information that is excluded information as at the date of the notice (see subsections (7) and (8))". 14 The concept of "excluded information" is elucidated by s 708A(7) and s 708A(8): "(7) For the purposes of subsection (6), excluded information is information: (a) that has been excluded from a continuous disclosure notice in accordance with the listing rules of the relevant market operator to whom that notice is required to be given; and (b) that investors and their professional advisers would reasonably require for the purpose of making an informed assessment of: (i) the assets and liabilities, financial position and performance, profits and losses and prospects of the body; or (ii) the rights and liabilities attaching to the relevant securities. (8) The notice given under subsection (5) must contain any excluded information only to the extent to which it is reasonable for investors and their professional advisers to expect to find the information in a disclosure document." 15 Auspac is bound by the listing rules of ASX. The content of its continuous disclosure obligations (underwritten by s 674) is prescribed by the ASX listing rules. The central provision is rule 3.1: "Once an entity is or becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entity's securities, the entity must immediately tell ASX that information". 16 Exceptions are created by rule 3.1A. That rule displaces the obligation to notify ASX if "a reasonable person would not expect the information to be disclosed", the information is confidential (and ASX has not formed the view that the information has ceased to be confidential) and (a) it would be a breach of a law to disclose the information; or (b) the information concerns an incomplete proposal or negotiation; or (c) t he information comprises matters of supposition or is insufficiently definite to warrant disclosure; (d) the information is generated for the internal management purposes of the entity; or (e) t he information is a trade secret. 17 In a context such as the present, ss 708A(7) and (8), when referring to "excluded information", are concerned with information of the description in listing rule 3.1 that is excluded by rule 3.1A from the rule 3.1 disclosure obligation. 18 The relevant provisions of s 708A thus work in relation to ASX quoted securities on the basis that: (a) because the company that issued (without Part 6D.2 disclosure) the securities subsequently offered for sale is listed on ASX and therefore subject to listing rule 3.1, it should be assumed, as a general proposition, that the market is fully informed about all matters relevant to decision making by persons who may buy those securities in the secondary market conducted by ASX (or, for that matter elsewhere); (b) but that assumption will not (or, at least, may not) be valid if, in reliance on listing rule 3.1A and therefore consistently with rule 3.1, the company has withheld from the market so-called "excluded information", that is, material information that would have been disclosable but for rule 3.1A; (c) for a subsequent offer of the securities for sale to be exempted from the independent operation of the Part 6D.2 disclosure rules, therefore, the issuing company must make good any such deficiency in the information it has provided to the market or, if there is no such deficiency, state that that is the case; as well as stating that it is in compliance with the financial reporting obligations imposed by Chapter 2M. 19 Where an offer of securities for issue has not been attended by Part 6D.2 disclosure, the problem for a person offering those securities for sale within twelve months after that issue is twofold: first, the person will, in ordinary circumstances, face great difficulty in negotiating the s 707(4)(b) hurdle by proving the issuer's purpose or purposes (or absence of particular purposes of the issuer) as of the time the securities were issued; and, second, the person will, in ordinary circumstances, be unable, in any practical sense, to perform the s 707(1) disclosure obligation. 20 Against this background, I return to the present case. The 14,876,429 shares issued by Auspac on 29 September 2010 became the subject of official quotation on ASX. They, along with pre-existing securities of the same description, are in the hands of persons with full access to the stock market maintained by ASX and may be traded at any time. 21 Under Part 6D.2, persons offering any of the 14,876,429 shares for sale in the period of 12 months immediately after issue enjoy immunity from the disclosure requirement under a combination of s 707(1) (and hence from the possibility of sanction for non-compliance with that requirement) only if, among other things, Austpac gave a notice complying with s 708A(6). An element of that compliance was that the notice be given to ASX within five business days after the day on which the shares were issued. Auspac did not meet that deadline. It did not give notice to ASX until 29 October 2010. 22 It is to protect persons offering such shares for sale from the consequences of non-compliance with the disclosure requirement arising from s 707(1) and s 707(3) that Austpac made the application determined on 8 December 2010. 23 In this respect, the circumstances of this case are relevantly the same as (or similar to) those considered in a number of earlier cases including, in particular, Re Charter Hall Ltd [2007] FCA 1316, Re Diversified United Investment Ltd [2008] FCA 720, Re A J Lucas Group Ltd [2008] FCA 999, Re Chameleon Mining NL [2009] NSWSC 660 and Re Chalice Gold Mines Ltd [2009] FCA 1236. 24 On the facts, this case strongly resembles Chalice Gold Mines (above). McKerracher J said in that case at [21] - [22]. " The failure on the part of Chalice to issue the Notice was due to inadvertence and not through any act of dishonesty or wilful intention not to issue the Notice. . . . On the basis of the evidence and applying some common sense, it is plain that the oversight in failing to give the requisite Notice was caused by inadvertence. In addition, at all material times Chalice has complied with the provisions of Ch 2M (financial reporting requirements) and s 674 of the Act (continuous disclosure requirements) as they applied to Chalice; there was and is no excluded information as defined in s 708A(7) of the Act which would have been required to be disclosed or now requires disclosure and, accordingly, no injustice will have been caused to any person by reason of the Notice not having been lodged within five business days of the shares being issued." 25 The same observations may be made in this case; and for the same reasons. Those observations deal with the matters as to which the court must be satisfied in order to grant relief under s 1322. 26 I would add that Austpac put both ASX and ASIC on notice of its intention to make the application and that each was apparently content not to appear or to seek to be heard. 27 The only other group whose position needs to be addressed is persons who may have bought some of the 14,876,429 shares between the point at which it became possible to deal in them (whether on the stock market or otherwise) and the giving and dissemination of the notice in fact given by Austpac on 29 October 2010. Persons buying shares were, because of Austpac's inadvertence, denied, during that period, the information that a s 708(6) notice would have made available. However, since, as the notice ultimately given established, that information was not adverse – ie, consisted merely of confirmation of compliance with Chapter 2M and s 674 and the non-existence of any "excluded information" – there is no basis on which it can be seen that absence of the information during the period in question operated to the detriment of any buyer. 28 It was also relevant to the exercise of the court's discretion that Austpac applied promptly in making its application for relief under s 1322. 29 Austpac made out a case for the grant of relief by way of the curative orders made on 8 December 2010. Those orders are modelled closely on the orders made by Gyles J in Re Charter Hall Ltd (above). Order 5 recognises that there may be some unforeseen prejudice to some interested period and ensures that it can be ventilated if the need arises. ********** 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.