Ann: Trading Halt, page-50

Where a company discovers that it has breached the on-sale provisions, it should take immediate action. The action to be taken will depend on the circumstances of the company, but may include one or more of the following:

• contacting the ASX to suspend trading;
• contacting the relevant shareholders in receipt of those placement securities to notify them of the issue, and potentially to place those securities into escrow; and
• lodging a cleansing prospectus (if one has not already been lodged).

It is also common to apply to the Court to seek declarations under s 1322(4) of the Corporations Act to remedy the breaches. Such declarations can be to the effect that:

• any offer for sale, or sale, of the relevant securities during the period in which there was no disclosure for those securities, is not invalid by reason of the sellers’ failure to comply with ss 707(3) and 727(1) of the Corporations Act;
• any seller of the relevant securities be relieved from any civil liability arising out of a contravention of ss 707(3) and 727(1) of the Corporations Act; or
• the period in which the cleansing notice can be given is extended (such that the company is able to issue a cleansing notice after the order is made), and that the effective date of such cleansing notice is the day after the day on which the subject securities were issued.

Depending on the declaration(s) sought, the Court must satisfy itself of one or more of the following:

• that the act done is essentially of a procedural nature (noting that there have been instances of the Court finding that a failure to lodge a cleansing notice was not an act procedural in nature);
• the person concerned in the contravention acted honestly;
• that it is just and equitable that the orders be made;
• that the sellers acted honestly; and
• that no substantial injustice has been or is likely to be caused to any person.

The Court may also look to surrounding circumstances, including the compliance culture of the company and how its officers acted after becoming aware of the breach. This further highlights the importance for listed companies to have a robust continuous disclosure policy in place that is faithfully implemented, and regularly reviewed.

Once the sought Court declarations are made (and where applicable, cleansing notices are lodged with the ASX) ordinary trading in the company’s securities may resume.