Re Superior Resources Ltd (ACN 122 844 407) [2020] FCA 635 is a timely reminder of the significant consequences for listed entities undertaking placements who fail to comply with their disclosure obligations.
What happened?
In Re Superior Resources Ltd (ACN 122 844 407) [2020] FCA 635, the company announced a placement and then proceeded to lodge a cleansing notice on the same day. The shares were placed sometime after the announcement but without a further cleansing notice being lodged. The result was that the subsequent offer and sale of those shares by a placee was a breach of the Corporations Act 2001 (Cth).
As soon as it became aware of the issue, Superior Resources Ltd sought suspension of its shares on the ASX. It then sought declarations from the Court to validate any trading of those shares that had occurred, and to further relieve the placee shareholders of any civil liability in trading those shares in the absence of a cleansing notice.
The Law
Sections 707, 708A and 727 of the Corporations Act contain the ‘on-sale provisions’ which establish a framework to ensure that retail investors receive adequate disclosure where shares are first issued without disclosure (for example, to sophisticated investors) and then sold on market. The effect is that recipients of securities without disclosure are prohibited from selling those securities within 12 months of their issue until there has first been disclosure to the market. That disclosure usually takes the form of a cleansing notice from the company (if the company can satisfy s 708A(5) of the Corporations Act), or otherwise a cleansing prospectus under s 708A(11) of the Corporations Act.
A sale of securities issued without disclosure within 12 months of issue, in the absence of a cleansing notice or cleansing prospectus, is a breach by the seller of s 727(1) of the Corporations Act. It carries potential civil and criminal liability for the seller, including up to 15 years imprisonment. Further, such a breach may result in the company incurring liability to the ASX, having its securities suspended from trading by the ASX, or being the subject of civil claims brought against it by any current or former aggrieved shareholders.
