Re Sprintex Limited (No 2) [2025] WASC 15: Sting in the tail – company's officers liable for costs of section 1322(4) application

There are numerous section 1322 applications heard by Australian courts each week. Usually, the cases follow a particular formula: a regulatory oversight is identified (for example, failure to lodge a cleansing notice in time), once identified an application is made to the court pursuant to section 1322 of the Corporations Act 2001 (Cwlth) (Act) to allow the company to comply with the relevant law regardless of technical non-compliance and no orders are made as to costs. There are also usually orders sought and granted in relation to relieving the liability of the relevant directors and officers involved in the non-compliance.

However, a recent case demonstrates that there are circumstances where the directors and officers may be liable to bear the costs of the application – this can occur where the non-compliance was not due to mere oversight or inadvertence. It is noteworthy that this is the first case in 20 years where this has occurred in the context of section 1322 of the Act.  

Facts

ASX-listed Sprintex Limited (Sprintex) filed an urgent application for curative orders under section 1322(4) of the Act in connection with contraventions of the financial records and fundraising disclosure provisions of the Act.  Sprintex had issued shares on 13 occasions between 1 February 2024 and 10 July 2024, and on each occasion it also issued cleansing notices. The notices stated that Sprintex had complied with the provisions of Chapter 2M of the Act but the statements in the notices to this effect were not correct. In addition, Sprintex identified that it had failed to issue cleansing notices in relation to 11 other issues of Sprintex shares. Having identified these matters, the plaintiff made the urgent application for curative orders.

Decision

The Court made the orders sought by the plaintiff other then in relation to costs, where the Court ordered that the costs could not be paid out of company funds. The reason for this turned on the facts

(a) In 2022, Sprintex sought and obtained curative orders pursuant to s 1322 of the Act relating to failures to comply with the fundraising disclosure requirements of the Act (see Re Sprintex Limited [2022] WASC 188). Affidavit evidence presented to the court in the 2022 matter explained that Sprintex understood the need for corporate governance education and proposed the development of a protocol to accompany the issue of securities in the future. This was supposed to ensure that breaches of the fundraising disclosure requirements would not re-occur. However, no such protocol was ever prepared, and the court doubted that proper corporate governance education was undertaken. This was particularly the case given that similar issues had arisen again.

(b) The company secretary and chief financial officer of Sprintex were responsible for fundraising disclosure compliance within Sprintex. In 2022, the chief financial officer deposed that a protocol would be prepared and that the company would seek external legal advice in relation to future security issues. This did not happen.

(c) This same individual had also been involved with similar contraventions in similar roles he held in another listed entity, Nanoveu Limited, as its company secretary and chief financial officer.

(d) Whilst the individual had been chief financial officer of Nanoveu Limited, Nanoveu had applied for and obtained from the court curative orders under section 1322(4) of the Act in respect of non compliance with the cleansing notice regime (see Re Nanonveu Ltd [2024] WASC 329). At least ten of the contraventions which were the subject of Sprintex's 2024 application occurred after the Nanoveu matter was heard, and were similar in nature to the contraventions which occurred at Nanoveu. 

(e) At least one of the directors of Spintex was aware that the company secretary and chief financial officer of Sprintex had been responsible for the contraventions of fundraising disclosure obligations at Nanoveu. Despite this, the chief financial officer was not subjected to any additional oversight.  

(f) The company secretary and chief financial officer of Sprintex refused to provide an affidavit explaining to the court the full circumstances of the contraventions the subject of the 2024 application, except on the condition that his outstanding fees (or part of them) be paid by Sprintex. The court observed that that condition should not have been imposed and that the relevant individual should have provided the affidavit unconditionally.

The distinctive features of the case were enough to persuade the court to depart from the usual approach in such applications of making no order as to costs. The court ordered that the costs of the application not be met out of company funds, with liberty to apply granted to the persons who held office at the time of the contraventions. Further, no order was sought as to the relief from liability for directors and officers – and the court indicated that it was unlikely it would have granted such orders given the facts.