Corporate Advisory Update – 17 August 2015

August, 2015

In the media

ASIC releases enforcement report for the first half of 2015

ASIC has released its enforcement report for the first half of 2015. In the last six months, ASIC achieved 323 enforcement outcomes to protect financial consumers and enhance the fairness and efficiency of Australia’s financial markets. This included criminal as well as civil and administrative (e.g. banning or disqualification) actions, and negotiated outcomes, including enforceable undertakings.

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Dixon Advisory Group pays an infringement notice for potentially misleading advertising

Dixon Advisory Group Limited has complied with two ASIC infringement notices, paying two $10,200 penalties after including potentially misleading claims on its website which compared the costs and performance of SMSFs to industry and retail superannuation funds.

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Appointment of part-time members to the Takeovers Panel

Treasurer Joe Hockey has announced the appointment of five new members to the Takeovers Panel. The purpose of the Panel is to provide a mechanism for peer review of takeovers activity, with the aim of being more efficient, less formal and more expeditious than the courts.

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In practice and courts

New compliance standard: AS/ISO 19600:2015

As happened with risk management, where the international standard replaced the Australian one, a new international standard for compliance, AS/ISO 19600, has replaced the former Australian Standard for Compliance AS 3806:2006 (AS 3806).

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Consultation paper: extending crowd-sourced equity funding (CSEF) to proprietary companies

In the 2015-16 Budget, the Government announced the Growing Jobs and Small Business package to help reduce regulatory impediments to small businesses’ growth. As part of the package, the Government confirmed its commitment to introducing a legislative framework to facilitate crowd-sourced equity funding (CSEF).

The consultation paper which the Government released on 4 August 2015 outlines key elements of the Government’s CSEF framework for public companies and seeks feedback on whether the CSEF framework should be extended to proprietary companies.

The paper asks if there are unnecessary compliance costs and fundraising constraints under the Corporations Act for proprietary companies. The paper also considers areas of the Corporations Act which may be unnecessarily restricting the ability of small proprietary companies to raise capital to invest and grow. The consultation paper is now available for comment at here. Submissions close on 31 August 2015.

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Addenbrooke Pty Limited v Duncan (No 6) [2015] FCA 793

This case concerned whether a potential investor in a placement of shares made by a private company was misled as to the true purpose of the capital raising.

The Plaintiff, Addenbrooke Pty Ltd (Addenbrooke) was the family company of Sydney businessman and entrepreneur, Denis O’Neil (Denis). Denis, together with his son Ned O’Neil (Ned), were the only directors of Addenbrooke. Gregory Smith (Smith) has been the Company Secretary and Financial Controller of Addenbrooke since 2006.

In September or October 2010, Gregory Jones (Jones) mentioned to Denis that he was involved in a coal deal and that the company involved (Cascade Coal Pty Ltd) (Cascade Coal) was about to undertake a capital raising with the assistance of Southern Cross Equities Pty Ltd (SCE). He told Denis that the operative at SCE who would have the carriage of the raising was Peter Gray (Gray). Gray was well known to Denis as he had been Addenbrooke’s stockbroker for some years.

On 17 November 2010, Gray sent an Information Memorandum to Denis, Ned and Smith. Gray called that memorandum a “deal sheet” and described it as “… a summary of what we will be discussing on Friday”. The essence of the transaction was that Cascade Coal was going to place up to 601,307 new fully paid ordinary shares at $46.57 per share in order to raise a total of $28 million of new capital (the Project). In the deal sheet, the following appeared:

Application of Funds: Placement proceeds will be applied to reduce third party debt and creditors.

On 19 November 2010, Denis, Ned and Smith met with Duncan and Gray and other interested parties to discuss the Project. It was at this meeting that Addenbrooke contends it was misled by Duncan and Gray.

Addenbrooke argues that it was induced to invest in Cascade Coal by representations made at the meeting and by representations made in the deal sheet. Addenbrooke also complained that it was not told of certain matters relating to the involvement of the Obeid family in the Project.

In his evidence, Denis claimed that all decisions relating to Addenbrooke investments were made collectively by Ned, Smith and himself. Denis asserted that had he known about the involvement of the Obeids in Cascade Coal and the foreshadowed mining venture, he would have consulted with his son and Smith to see what they would do next and may not have invested approximately $8 million in the Project which subsequently failed.

Justice Foster did not accept much of Denis’ evidence specifically, that he agreed to subjugate his decision-making power to the views of his 22 year old son or his employed accountant. Justice Foster was satisfied that Denis was the sole decision-maker of the Plaintiff.

Moreover, Foster J was of the view that Denis generally made his investment decisions by looking at the people involved in the proposal and forming a view about the business acumen and trustworthiness of those people; while he would be interested in the essence of the proposal he would not devote much attention to the detail.

On this basis, Foster J concluded that Denis did not pay close attention nor did he rely upon what was said at the November meeting, when deciding to invest in the Project. Rather, Foster J was of the view that Denis had decided to go ahead with Addenbrooke’s investment in the Project by no later than late October or early November 2010. This conclusion was supported by the fact that Denis had organised loan funds to be available then, and was not at that time, aware that there was to be a meeting on 19 November 2010.

Given Denis’ enthusiasm for the proposal, Foster J concluded that even if Denis had he been told the truth about the involvement of the Obeids at that time, it would have made no difference to the decision which he made to invest. On this basis the proceeding was dismissed.

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Australian Competition and Consumer Commission v Australia and New Zealand Banking Group Limited [2015] FCAFC 103

The ACCC alleged that, in 2004, ANZ had required Mortgage Refunds Pty Ltd to agree to limit the amount of refund it could provide in respect of arranging ANZ home loans, and that as a result, ‘ANZ made and gave effect to an agreement where it would only allow Mortgage Refunds to continue to be accredited to offer ANZ mortgage products if it agreed to limit any refund it paid to its customers to $600, which would allow ANZ branches to match the deal if they chose to waive the ANZ loan establishment fee.’

The ACCC alleged that this behaviour amounted to price fixing under s 45 of the Trade Practices Act 1974 (now Competition and Consumer Act 2010), because ‘ANZ and Mortgage Refunds were competitors in the market for the provision of loan arrangement services.’

The Federal Court dismissed the ACCC’s claim on the basis that ANZ and Mortgage Refunds were not competitors and, as a result, the conduct did not constitute price fixing. ANZ’s cross-appeal was allowed.

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Australian Securities and Investments Commission v Astra Resources PLC [2015] FCA 759

In 2011 Astra Mining Limited (Astra Mining), considered listing on the secondary board of the Frankfurt Stock Exchange (FSE). Astra Resources PLC, a UK company was incorporated on 3 May 2011 for that purpose. Astra Consolidated Nominees Pty Ltd (Astra Nominees) was later incorporated on 25 August 2011.

On 15 June 2011, an EGM of the members of Astra Mining voted in favour of a share swap arrangement that had the effect of shareholders in Astra Mining being issued with an equivalent number of shares in Astra Resources; the existing shares in Astra Mining being cancelled; Astra Mining becoming a wholly owned subsidiary of Astra Resources; and Astra Mining Limited becoming Astra Mining Pty Ltd. The resolutions were given effect on 8 September 2011, when Astra Resources issued 40 million shares to Astra Nominees and issued a further 30 million shares to Astra Nominees around 7 March 2012.

A number of share subscription agreements and bare trust deeds were executed between Astra Mining and Astra Nominees, and Astra Resources and Astra Nominees. The purpose of these was to confirm that the shares issued to Astra Nominees were to be held on a bare trust so that they could be transferred to applicants for shares in Astra Resources for fundraising purposes for the proposed listing on the FSE.

Between 3 May 2011 and 9 February 2012, Astra Resources and other related parties appointed brokers to assist in raising investment funds, specifically, by selling shares in Astra Resources. Approximately 45 million shares were sold between 1 September 2011 and 30 June 2012. The majority of investors made their application for shares using application forms provided to them by the brokers.

There were numerous versions of the application for shares form. Some of these were drafted to take advantage of the ‘sophisticated investor’ exemption under section 708(8) of the Corporations Act 2001 (Cth) (the Act), while others were for use by foreign investors only.

Legal Argument and Findings
The ASIC alleged that Astra Resources had contravened section 727(1) of the Act by issuing application forms for offers of shares in itself and that Astra Nominees breached the section by making offers for the sale of shares it held in Astra Resources.

Justice White found that when issuing the shares, Astra Resources did so for the purpose of Astra Nominees transferring them to investors who applied to Astra Resources for shares and that Astra Nominees acquired the shares for that purpose. These findings enlivened section 707(3).

His Honour accepted the ASIC’s contention that Astra Nominees was the only person with the capacity to which section 707(3) referred because it was the only entity that could transfer the shares, but made the point that for there to have been a contravention of section 727(1), there also needed to be conduct amounting to the making of an offer of securities.

His Honour concluded that the evidence showed the relevant conduct of Astra Nominees made it clear that Astra Nominees was offering to sell shares, that they could transfer the shares and that they may receive the money for doing so. His Honour was also satisfied that the conduct of Astra Nominees amounted to inviting offers to purchase securities within the meaning of section 700(2).

Having been satisfied that Astra Nominees had made offers to sell securities in contravention of section 727(1) of the Act, White J then considered if any of the exemptions in section 708 of the Act applied. His Honour found that none of the exemptions relied on by the defendants applied and on this basis indicated he would make the declarations sought by the ASIC, subject to hearing submissions regarding the terms of the declarations.

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Contact Mills Oakley

To find out more about any of the information in this update, please contact:


Warren Scott | Partner
T: +61 3 9605 0984


Daniel Livingston | Partner 
T: +61 3 9605 0965


Stuart Gibson | Partner
T: +61 3 9605 0092


Warwick Painter | Partner
T: +61 2 8289 5808


Gavin Douglas | Partner
T: +61 2 8289 5855


Simon Champion | Partner
T: +61 2 8289 7926


Tim Cox | Partner
T: +61 2 3228 0442

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