Australian Securities and Investments Commission (ASIC) v Holista Colltech Ltd [2024] FCA 244—Case note

9th April, 2024

On 19 March 2024, Justice Derrington of the Federal Court ordered Holista to pay a penalty of $1.8m for breaching its continuous disclosure obligations.  Her Honour ordered its director Dr Marnickavasagar to pay a penalty of $150,000 and disqualified him from managing a corporation for four years.  Greg O’Shannessy and Matilda Franklin discuss the decision and its relevance to listed companies.

On 9 April 2020, Holista Colltech Ltd (Holista) made an ASX announcement claiming that the US company Health Therapies LLC (Health Therapies) had placed orders for 415,000 bottles of a sanitiser product called NatShield, totalling $3.8million (ASX Announcement).  Those orders had not been placed.

Three months later, on 9 July 2020, Holista made a correcting ASX announcement stating that the total revenue from the sale of NatShield was expected to be just $500,000.

ASIC brought proceedings against Holista and its Managing Director and CEO, Dr Rajendran Marnickavasagar (Dr Marnickavasagar), for alleged misleading statements regarding the sale orders for NatShield.

ASIC alleged that in making the ASX Announcement:

  • Holista contravened its continuous disclosure obligations in ss 674(2) and 1041H of the Corporations Act 2001 (Cth) (Act); and
  • Dr Marnickavasagar contravened his duties pursuant to ss 180(1) and s 1309(2) of the Act.

It was common ground that liability attaches to a contravention of s 647(2)(d) if the contravention is committed knowingly, recklessly, or negligently.

Holista admitted that by failing to disclose that Health Therapies had not, nor was likely to, place orders for 415,000 bottles of NatShield, it had contravened ss 674(2) and 104H of the Act.  However, Holista and ASIC did not agree as to what Holista’s state of mind was at the time of the contravention, for the purposes of s 647(2)(d) of the Act.

Holista argued that its breach rose no higher than negligence.

The Court accepted ASIC’s contention that Holista decided to make the ASX Announcement with the knowledge that the market would respond well to such an announcement.

The court found that Holista’s breach of the Act was reckless.

ASIC contended the appropriate penalty for Holista was a fine of $1.8million. Derrington J held that in circumstances of reckless conduct, the objects of general deterrence dictate that a significant penalty is warranted to deter others from such conduct and ordered that Holista pay $1.8m.

Dr Marnickavasagar admitted that he contravened ss 180(1) and 1309(2) of the Act.  He  argued his liability ought to be mitigated by the fact that he was based in Malaysia and  relied on his Australian-based board members who, he argued, were specifically appointed for their ‘capital market and corporate governance skills’. Derrington J noted long standing authority that overseas residence does not relieve a director of an Australian listed entity from ensuring the company complies with its continuous disclosure obligations and pointed specifically to the fact of Dr Marnickavasagar holding office as CEO and being an executive board member intimately involved in the activities of Holista.

The Court ordered that Dr Marnickavasagar be disqualified from managing a corporation for 4 years and pay $150,000 as a pecuniary penalty.

These penalties were made notwithstanding the Court acknowledging the following circumstances:

  • there was no evidence of Dr Marnickavasagar acting deliberately or dishonestly;
  • the contraventions did not result in any profit or benefit to Holista;
  • there was no evidence of any loss or damage suffered by investors;
  • Holista and Dr Marnickavasagar had cooperated with the Court (insofar as admitting serious breaches of the Act); and
  • neither had previously contravened the Act.

The Court noted that Holista and Dr Marnickavasagar had, optimistically, taken a substantial and ultimately reckless risk in making the ASX Announcement.

This decision will remind companies and their directors of the seriousness of ongoing disclosure obligations and of the substantial penalties for contraventions.

MPH regularly advises clients on their disclosure obligations under the Corporations Act and the ASX Listing Rules and is available to assist at short notice.  Please contact Mark Burchnall or Paul Cavanagh if you require advice on your disclosure obligations.

A copy of the decision is available here:

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