The Federal Court has granted relief under section 1322(4)(a) of the Corporations Act 2001 (Cth) (Act) for a transfer of shares of a company to a controlled entity in circumstances where the parties made an innocent mistake in failing to comply with all of the conditions of their ASIC exemption from section 259C(1). The Court used its power even though section 259C(1) does not prohibit such transactions (but rather renders them void) so there is not a ‘contravention’ of the Act for the purposes of section 1322(4)(a).  This case demonstrates that while parties should take all care to ensure that all conditions of any ASIC exemptions are met, the Court may step in to ‘cure’ a breach where the parties have acted honestly and the other conditions of section 1322(4)(a) are met.

This case relates to shares in Macquarie Group Limited (MGL) which were purchased on-market by Macquarie Securities (Australia) Limited (MSAL) (as broker) and held by Belike Nominees Pty Limited (Belike) (as custodian), pending further transfer pursuant to a MGL dividend reinvestment plan for MGL’s Australian and New Zealand shareholders.  At the time of purchase, MSAL and Belike were wholly-owned subsidiaries and controlled entities of MGL.

ASIC had granted MGL and MSAL a conditional exemption from the operation of section 259C of theCorporations Act 2001 (Cth) (Act)) (which renders void the issue or transfer of shares of a company to an entity it controls except in certain circumstances).  An exemption was never obtained for Belike.  One of the conditions required MGL and MSAL to provide a deed enforceable by ASIC relating to the non-exercise of rights attaching to the shares and the disposal of the shares no longer required to implement the plan.  As the relief was not ultimately required for the original share issue, the deed was never provided.  MGL and MSAL subsequently relied on the relief in relation to a later share purchase.  The parties then sought relief under section 1322(4)(a) of the Act because without it, the share purchase would be void under section 259(C)(1).

In granting the relief, Yates J of the Federal Court of Australia:

  • accepted evidence that the internal legal adviser for the Macquarie Group made an ‘innocent mistake’ in inadvertently omitting to provide the deed to ASIC and had genuinely forgotten that the deed had not been provided;
  • noted that it was unclear why no application was made to make Belike a party to the original exemption but indicated that an exemption should be obtained if Belike is to act as custodian again in the future; and
  • was persuaded by the fact that without relief, MGL shareholders participating in the plan (and those in the market who may have subsequently purchased shares from them) would be disadvantaged and it would be difficult or impossible to identify the acquirers of the shares and potentially impossible to unwind the transactions as over 6.5 million shares were involved.

Yates J then considered the application of section 1322(4)(a) and found that:

  • while section 1322(4)(a) technically relates to contraventions of the Act and section 259C does not specifically prohibit the issue or transfer of the shares in question (but rather renders the transaction void), previous authorities hold that section 1322 of the Act should be construed liberally and apply in these circumstances;
  • the Macquarie parties acted honesty (as required under section 1322(6)(ii));
  • it was just and equitable that the relief sought be granted (as required under section 1322(6)(iii)); and
  • no substantial injustice has been or is likely to be caused to any person by granting the relief (as required under section 1322(6)(c)).

See the case.