FYI... This example of another case might help all to...

FYI...

This example of another case might help all to understand...

https://www.lexology.com/library/detail.aspx?g=6f8c063a-0aed-481c-b5da-c69512c261ba

Federal court validates the sale of shares within 12 months of issue where the disclosure exceptions in section 708a of the Corporations Act 2001 (Cth) were not met in Sprint Energy Limited, in the matter of Sprint Energy Limited

Gilbert + Tobin



Australia January 21 2013

This case provides some useful guidance on the circumstances in which a Court will exercise its discretion under section 1322 of the Corporations Act 2001 (Cth) (Act) to validate on-sales of shares within 12 months of their issue where there has been no disclosure and the conditions of the exceptions in section 708A of the Act have not been met.

Importantly, McKerracher J noted that ‘acting honestly’ under section 1322(6)(a)(ii) can embrace active but incorrect consideration of a legal issue, as well as failure to consider it at all. Nonetheless, companies and shareholders should take care to ensure that if it is intended that shareholders be free to sell their shares within 12 months of their issue, the conditions for the relevant exception in section 708A are fully met.

Sprint Energy Limited (Sprint) is an ASX listed company, the shares in which have been quoted since 21 November 2007. Between 30 December 2011 and 19 September 2012, Sprint, made multiple issues of fully paid ordinary shares (Shares) without disclosure to investors under Part 6D.2 of the Corporations Act 2001 (Cth) (Act).
Sprint lodged with the ASX;

• in respect of each Share issue, an Appendix 3B which included a warranty that an offer of the Shares for sale within 12 months after issue will not require disclosure under section 707(3) or 1012C(6) of the Act; and
• in respect of 4 of the 8 Share issues, a notice pursuant to section 708A(5)(e) of the Act (Cleansing Notice) containing a representation to the effect that subsequent offers for sale of the relevant Shares would not require disclosure under section 707(3) as they would fall within the exemption in section 708A(5).

In fact, Sprint was not eligible to rely on the Cleansing Notice exception. Its shares had been suspended between 3 October 2011 to 27 January 2012 so the requirement under section 708A(5)(b) that trading had not been suspended for more than 5 days in the 12 months before the Shares were issued was not met.
Some of the Shares were subsequently sold within 12 months after their issue without disclosure to the buyers. Sprint sought an order validating the sales under section 1322(4)(a) of the Act.
In determining that Sprint, through its company secretary, had acted honestly for the purposes of section 1322(6)(a)(ii), McKerracher J noted that ‘acting honestly’ can embrace active but incorrect consideration of a legal issue as well as failure to consider the issue at all, and that the Sprint company secretary:

• did not appreciate the significance of the effect of a defective Cleansing Notice nor that a Cleaning Notice was required for all Share issues (including where the purpose of the issue was to convert debt or settle claims);
• did not turn her mind to s 707(3) or appreciate its significance in relation to future sale of the Shares;
• was mistaken as to the significance of Sprint’s period of suspension; and
• was not legally qualified (and had a heavy workload which was likely to have contributed to her inadvertence) and as soon as practicable after the issue was brought to attention, legal advice was sought and Sprint had a ‘full and frank liaison’ with ASIC, ASX and shareholders.

McKerracher J was also satisfied that validating the relevant sales was just and equitable for the purposes of section 1322(6)(a)(iii) because the sellers likely sold the Shares in good faith and in reliance on the representations in the relevant Appendix 3B and Cleansing Notice and it would be virtually impossible to identify the buyers, who in any case had access to information about Sprint and the Shares via Sprint’s continuous disclosure compliance.
Orders were also made that the sellers of the Shares had acted honestly and should be relieved from any civil liability pursuant to section 1322(6)(b).