Earlier this year, True North Copper Limited (ASX:TNC) (TNC) announced that it had successfully completed a recapitalisation which included a $50.9 million conditional placement to sophisticated, professional and experienced investors and a $2.539 million share purchase plan offered to eligible shareholders of TNC.  The placement was partly underwritten by Canaccord Genuity (Australia) Limited and Morgans Corporate Limited up to $50.3 million, including a $300,000 drill-for-equity arrangement with Mitchell Services Limited.

The recapitalisation allowed TNC to:

• discharge all unsecured creditor claims (other than a deferred consideration obligation in relation to the acquisition of one of its copper projects, which was reduced and extended and is now subject to security over the relevant assets);

• discharge all secured creditor claims; and

• provide funding for a revised business strategy focussing on an extensive exploration and resource development drilling campaign.

The recapitalisation was completed under a Deed of Company Arrangement (DOCA), with KordaMentha acting as Deed Administrators, and the underwriters as proponents of the DOCA.

Following completion of the recapitalisation, TNC satisfied all conditions to reinstatement to trading on ASX, and resumed trading on ASX on 13 January 2025, after being suspended from trading on appointment of KordaMentha as voluntary administrators on 21 October 2024.

Steinepreis Paganin advised TNC on the recapitalisation transaction, including reinstatement to trading on ASX, working closely alongside KordaMentha and the underwriters, and their respective legal counsel.

The recapitalisation involved TNC issuing a prospectus undersection 713 of the Corporations Act 2001 (Cth) (Corporations Act), which included an audit reviewed proforma balance sheet to meet one of the ASX requirements for readmission.

In March 2025, TNC released its half-year financial report (Half Year Report), which included a note that that the Half Year Report was prepared based on limited financial information due to the company having been in administration for part of the relevant reporting period, meaning that the TNC directors were unable to make an unqualified assertion that the Half Year Report complied with the Corporations Act or the Accounting Standards.  As a result of this note, TNC’s auditor included a disclaimer of conclusion in its report which formed part of the Half Year Report.

This kind of incomplete information disclosure is not uncommon in accounts prepared for a company which has recently come out of administration and/or completed a restructuring or recapitalisation transaction. However, when the incomplete information disclosure and the auditor’s disclaimer of conclusion came to the attention of the ASX, TNC shares were immediately suspended from trading and ASX promptly issued a query letter to the company requiring it to explain (among other things):

• how the Half Year Report complied with the Accounting Standards and Listing Rule 19.11A; and

• whether TNC considered that its financial condition was sufficient to warrant continued quotation of its securities and its continued listing, as required under Listing Rule 12.2.

Fortunately, TNC was able to satisfy itself that it had by that stage received all information needed from the administrators, and was able to quickly re-issue the Half Year Report without the incomplete information disclosure and without a disclaimer of conclusion from its auditor.

It is critical for listed companies to understand that Listing Rule 19.11A (introduced in 2022) requires all financial statements released under ASX periodic disclosure requirements to comply with applicable Accounting Standards.  If a company’s directors and its auditor cannot provide the usual confirmations on an unqualified basis that a set of financial statements complies with the applicable Accounting Standards, then the financial statements will not comply with Listing Rule 19.11A, and trading in the company’s securities is likely to be suspended until the company can issue compliant financial statements.  This requirement applies regardless of any operational challenges or administrative circumstances the company may have faced during the reporting period.

In TNC’s case, as can be seen in the ASX query letter, ASX was keen to understand how the company had been able to issue a prospectus which included an audit reviewed pro forma balance sheet as part of the recapitalisation process undertaken during the relevant half year, but then say that it had incomplete financial information to confirm that the Half Year Report complied with the Accounting Standards for that half year.  TNC was able to demonstrate that there is a significant difference in the internal and external review required for an audit reviewed pro forma balance sheet, and an audit reviewed Half Year Report (which also includes a profit and loss and cashflow statement).  However, it does emphasise that companies which have recently completed a recapitalisation, and met ASX conditions to reinstatement to trading following a period of administration, are likely to be subject to particular scrutiny in terms of compliance with Listing Rule 19.11A and the financial condition requirement under Listing Rule 12.2.