ASIC has started civil penalty proceedings against Padbury Mining Limited (Padbury) and two of its directors regarding Padbury’s announcement last year of a multi-billion dollar funding deal for the Oakajee port and rail project, in Western Australia.

ASIC’s civil action in the Federal Court of Australia is against Padbury, its managing director Gary Stokes and executive director and chairman Terence Quinn.

The proceedings relate to the company’s announcement on 11 April 2014 to the Australian Securities Exchange (ASX) that $6 billion in funding had been secured for the development of the Oakajee port and rail project.

The announcement was made after Padbury entered into an agreement with Superkite Pty Ltd and Alliance Super Holdings Pty Ltd regarding funding days earlier.

Following enquiries from ASIC and the ASX, Padbury announced in late April 2014 that the funding agreement had been terminated by the parties.

ASIC alleges: 

• The announcement was misleading because the funding agreement was subject to conditions precedent that had not yet been met. The conditions precedent required Padbury to procure some $1.3 billion in demand guarantees in three tranches.
• The company breached its continuous disclosure obligations by failing to disclose the conditions precedent, and by failing to disclose the identity of the funding providers. ASIC further alleges that the company was in breach by failing to disclose the identity of the funding providers together with the fact that it had not independently verified the capacity of those providers to provide the funds.
• The directors were involved in the breach by the company of its continuous disclosure obligations and thereby breached their own continuous disclosure obligations in the Corporations Act.
• The directors breached their duties of care and diligence by causing or otherwise permitting the company to make a misleading announcement and also by failing to ensure the company met its continuous disclosure obligations.

ASIC is seeking financial penalties against Messrs Stokes and Quinn as well as orders banning them from managing companies, in such amounts and for such periods as the Court deems appropriate. ASIC is also seeking declarations that Padbury breached its continuous disclosure obligations and engaged in misleading or deceptive conduct, and that Messrs Stokes and Quinn breached continuous disclosure laws and their directors’ duties.

The proceedings are listed for a directions hearing in the Federal Court in Perth on 15 July 2015.

Background

On 15 August 2014, ASIC determined that until 1 May 2015 Padbury could not rely on the reduced disclosure rules if they wished to raise funds from investors using a prospectus (refer: 14-203MR).

Padbury’s shares remain suspended from trading after the company requested a voluntary suspension in December 2014.

Editor's note 1:

On 15 July 2015 a further directions hearing was set for 21 August 2015.

Editor's note 2:

The directions hearing for 21 August 2015 was postponed to 28 August 2015.

Editor's note 3:

On 28 August 2015, the next directions hearing was scheduled for 4 December 2015. 

Editor's note 4:

The matter was rescheduled and is now set down for directions on 5 February 2015. 

Editor's note 5:

On 11 December 2015 the court appearance was rescheduled  for 26 February 2016 by agreement of the parties.

Editor's note 6:

On 26 February 2016, a mediation was scheduled for a date to be fixed. A hearing on liability was set down for 25 July 2016.

Editor's note 7:

The matter is listed for a hearing on penalty in the Western Australian Division of the Federal Court at 10.15 am on 28 July 2016.

Editor's note 8:

A hearing took place in the Federal Court on 28 July 2016, at which submissions were made to the Court as to appropriate orders (including as to appropriate disqualification periods and monetary penalties against the Director Defendants), based on an agreed Statement of Facts.  The Court has reserved its decision.