As part of its continuing focus on maintaining fair and efficient financial markets in Australia, ASIC has taken action against an offshore investor in Northwest Resources Limited (Northwest ) under section 1325A of the Corporations Act 2001 (Cth) for failing to disclose information about the ownership of shares in Northwest. Significantly, the Federal Court of Australia diverted from the traditional remedy of share divestment and instead ordered that, given the deteriorating financial and operating situation of Northwest and in circumstances where it would not push any other shareholders over the 20% threshold, cancellation of the relevant Northwest shares was the appropriate remedy.

Craigside Company Limited (Craigside) (a company incorporated in the British Virgin Islands and operating from Hong Kong) owned 15 million (more than 5%) of the shares in ASX-listed Northwest Resources Limited (Northwest) (Shares).

In 2011, ASIC had served a beneficial ownership tracing notice on Craigside in relation to the Shares pursuant to section 672A(1)(a) of the Corporations Act 2001 (Act). Craigside responded that it was merely a nominee shareholder but that it was aware of two individuals who had relevant interests in the Shares or who had given instructions about voting or other rights attached to the Shares. When beneficial ownership tracing notices were served on those individuals, each responded that they did not have a relevant interest in the Shares and did not know who did.

ASIC sought remedial orders from the Federal Court in relation to the Shares pursuant to section 1325A of the Act which enables the Court to make any orders it considers appropriate if a person states in response to a notice issued by ASIC that they do not have particular information about shares or persons who have a relevant interest.

Originally ASIC had intended to seek an order for divestment of the Shares (where the Shares would be sold by ASIC on-market and the proceeds paid to Craigside). However, due to the substantially deteriorating financial and operational position of Northwest, ASIC and Northwest agreed to jointly request an order that the Shares be cancelled rather than divested. The parties submitted, and Jagot J agreed, that:

  • there was a real question as to whether the Shares could be sold for a reasonable price and within a reasonable timeframe given Northwest’s financial position;
  • there was a real question as to whether Northwest would be able to issue further shares to fund its ongoing activities while the Shares were being disposed of; and 
  • while the effect of cancellation would increase the proportionality of the ownership interest of and thus benefit other Northwest shareholders, this was not inappropriate including because it would not have the effect of moving any shareholder beyond the 20% threshold.  

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