A recent Supreme Court of New South Wales decision (In the matter of American Patriot Oil & Gas Limited  NSWSC 777) highlights the importance of public companies lodging their reports on time and the consequences of failing to do so.
American Patriot Oil and Gas Limited (the Company) failed to lodge its financial reports’, directors reports’, auditors reports’ and half-yearly financial reports for the years ending 30 June 2019 to 31 December 2021.The Company sought relief under s 1322(4)(d) of the Corporations Act 2001 (Cth), which allows the Court to make orders extending the time for lodgement of the Company’s reports. The Company sought the relief after the Australian Securities and Investment Commission (ASIC) had commenced prosecution of the Company.
In March 2019, the Company requested a voluntary suspension of trading on the Australian Stock Exchange (ASX) as it was unable to produce audited financial reports by the statutory deadline. In 2020, the Company was delisted from the ASX due to a failure to lodge its outstanding quarterly cash flow report and quarterly activity report. If the reports had been lodged when required, it would have disclosed to shareholders a loss of around $28.6 million and that at the time, total equity was in excess of negative $5.15 million.
The key issue in this case concerned whether relief under s 1322(4)(d) should be granted where the failure to prepare and file the financial reports was due to an inability to fund the costs of their preparation and audit rather than substantive concerns relating to the transactions in the reports.
Justice Black held stated that s 1322 is a “remedial provision and should be given a broad construction”. His Honour referred to their earlier judgment in Re Flight Centre Technology Pty Ltd  NSWSC 367 at  and listed the relevant factors to consider when granting relief under s 1322(4)(d).
- “whether any non-compliance arose as a result of imprudence, carelessness, or wilful ignorance of the law”;
- whether by making the orders public policy would be undermined;
- whether the company “acted reasonably promptly when it became aware of the error”; and
- “whether ASIC opposed the relief sought”.
The judge noted that none of the cases relating to s 1322(4)(d) involve an “advertent failure to file financial reports continuing over a substantial period” because a Company was in a financial difficultly or gave priority to other matters.
Black J held that relief should not be granted and dismissed the application. The Company’s failure to lodge the reports was advertent and continuing. Additionally, while the reasoning behind the failure was an inability to fund their preparation, the Company did not take steps to appoint a liquidator.
Black J also stated that granting the order in this case would significantly undermine the public policy as the shareholders and public needed to be informed of the dire state of the Company. In cases where a company requires an extension of time because of its poor financial situation, they have other options available to them such as appointing a liquidator.
The decision in this case demonstrates that the Court will not grant an order under s 1322(4)(d) where the failure to comply was deliberate and continued over a substantial period, and where other avenues, such as appointing a liquidator, are available to the company to resolve the issue.
Emerson Lewis Lawyers act for a number of Australian public companies. If you require our assistance in relation to corporate governance and regulatory issues please do not hesitate to reach out to us on (02) 9300 9406 or email@example.com.