Economic interest via a nominee and US broker falls short of standing under Corporations Act
The Federal Court stopped investors with an indirect claim to Citigold shares from suing its executive director on the company’s behalf.
In Grayson Family Ltd Partnership LLLP v Lynch [2026] FCA 1667, handed down 6 November 2026, the court refused the investors permission to bring a derivative action against Citigold Corporation Limited’s executive director and PAL Group Pty Ltd, a company that the director’s brother heads.
The investors alleged insider trading and breaches of directors’ duties over a 2 June 2020 placement of 150 million shares to PAL at $0.005 each. They claimed that the director knew of positive funding and mining technology news before Citigold disclosed it on 29 July 2020, and that he passed it to his brother before the placement. The share price quadrupled to $0.02 by 30 July 2020, and the investors put Citigold’s loss at $2.25 million.
Under ss. 236 and 237 of the Corporations Act 2001 (Cth), only members, former members, and people entitled to be registered as members of the company or a related body corporate, or current or former officers of the company, can seek permission to sue on its behalf. The investors initially accepted that they were not on Citigold’s register. Citicorp Nominees Pty Ltd held the shares, with US broker Charles Schwab in between.
The court rejected the investors’ argument that they could end the trust arrangement and demand the shares. On their own case, Charles Schwab, not the investors, was the nominee’s beneficiary. The court also held that the provision required a present entitlement to registration, and the investors had not taken the steps needed. An economic interest in the shares, the court said, was not sufficient.
During the hearing’s lunch break, the investors produced an affidavit claiming that Grayson Family Ltd Partnership LLLP had become a registered member after buying 8.5 million shares off-market in June 2026. Citigold had earlier accused Alan Grayson, trustee for the other investor, of misusing its member register. The court accepted that the late evidence prejudiced the respondents, who would have investigated the purchase. It offered to admit the evidence if the investors accepted an assumption, not a finding, that the purchase involved improper use of the register. The investors declined, and the court excluded the evidence.
The application would have failed anyway, the court added. It found no direct evidence, and no sufficient basis to infer, that the alleged inside information existed by 2 June 2020, or that the director shared it. Citigold had given the ASX a “cogent explanation” for the placement, including its $9,700 cash balance in May 2020. The court said that PAL’s insistence on equity rather than debt was “unremarkable” given Citigold’s cashflow difficulties.
The court will decide costs later.
