Chapter Summary

Chapter 12

Fundraising

Chapter Summary

1  Operation of CHapter 6D

Chapter 6D applies to invitations for securities in a company: s 700. “Securities” is defined in s 761D and includes interests in managed investment schemes. Any attempt to contract out of the Chapter is void: s 703A.

Proprietary companies must not engage in any activity that would require disclosure to investors under Chapter 6D, except for an offer of its shares to existing shareholders of the company or a shareholder who was an employee of the company or a subsidiary of the company: s 113.

2  TYPES OF DISCLOSURE DOCUMENTS

2.1  Prospectus

The prospectus is the standard full-disclosure document. Section 709 provides that if an offer of securities needs

disclosure under Part 6D.2, a prospectus must be used unless the use of an offer information statement is permitted under subs (4).

A prospectus must contain all the information that investors and their professional advisers would reasonably

require to make an informed assessment of the matters set out in the table in s 710: s 710(1).

In deciding what information should be included in a prospectus, regard must be had (under s 710(2)) to:

·  the nature of the securities and of the company or body; and

·  if the securities are investments in a managed investment scheme – the nature of the scheme; and

·  the matters that likely investors may reasonably be expected to know; and

·  the fact that certain matters may reasonably be expected to be known to their professional advisers.

Information need only be included in a prospectus only to the extent that it is reasonable for investors and their professional advisers to expect to find the information in the prospectus, and only if a person whose knowledge is relevant actually knows the information or in the circumstances ought reasonably to know the information by making inquiries: s 710(1).

A person’s knowledge is relevant (for the purposes of s 710(1)) only if they are one of the following (s 710(3)):

·  the person offering the securities; a director of the company or body offering the securities;

·  a proposed director of the company or body whose securities will be issued under the offer;

·  an underwriter of the issue or offer who is named in the prospectus;

·  a financial services licensee involved in the sale or issue who is named in the prospectus;

·  a person who is named in the prospectus with their consent as having made a statement that is included in the prospectus or on which a statement made in the prospectus is made;

·  and a person who is named in the prospectus with their consent as having performed a particular professional or advisory function.

The prospectus must:

·  set out the terms and conditions of the offer: s 711(1)

·  disclose the interests and fees of certain people involved in the offer (s 711(2)), and any benefits or benefits that have been paid or agreed to pay to them (s 711(3)). The relevant persons are: any directors and proposed directors, any professional or adviser named in the prospectus, a promoter and any underwriter or financial services licensee named in the prospectus: s 711(4).

·  If the prospectus states or implies that the securities will be traded on a financial market, it must state that the securities have been admitted to quotation on the financial market, or that an application for admission of the securities to quotation on that financial market has been made or will be made within seven days of the date of the prospectus: s 711(5).

·  state that no securities will be issued on the basis of the prospectus after its expiry date: s 711(6).

·  The prospectus must state that a copy of the prospectus has been lodged with ASIC and that ASIC takes no responsibility for the content of the prospectus: s 711(7).

2.2  Short-form prospectus

A short-form prospectus may simply refer to a document lodged at ASIC: s 712(1). The short-form prospectus must contain sufficient information about the contents of the document to allow a person to whom the offer is made to decide whether to obtain a copy of the document. If the document contains information that is primarily of interest to professional analysts or advisers, or investors with similar specialist information needs, the short-form prospectus must contain a description of the contents of the document and a statement that the information is primarily of interest to those people: s 712(2).

2.3  Continuously quoted securities

A prospectus for an offer of continuously quoted securities or options for such securities may be allowed where it contains information to enable investors and their professional advisers to make an informed assessment of the investment. The information required (s 713) is not as extensive as that required for prospectuses (s 710). The document must contain all the information that investors and professional advisors would reasonably require to make an informed assessment: s 713(2).

2.4  Profile statement

A profile statement for an offer may be prepared in addition to the prospectus if ASIC has approved the making of offers of a particular kind. The approval by ASIC may specify what information is to be included in the profile statement: s 709(3). Under s 714(1), the profile statement must:

·  identify the body or company and the nature of the securities;

·  state the nature of the investment risks;

·  give details of all amounts payable in respect of the securities;

·  state that a person given the profile statement is entitled to a free copy of the prospectus;

·  state that a copy of the statement has been lodged with ASIC which takes no responsibility for the statement; and

·  give any other information that is required by the regulations.

2.5  Offer Information Statement

An offer information statement may be used if the amount of money to be raised by the body or company by issuing the securities when added to all amounts previously raised by it or a related company does not exceed $5 million: s 709(4). Under s 715(1), the offer information statement must:

·  identify the body or company and the nature of the securities;

·  describe the body’s business;

·  describe what the funds raised will be used for;

·  state the nature of the investment risks;

·  give details of all amounts payable in respect of the securities;

·  state that a copy of the statement has been lodged with ASIC, which takes no responsibility for the statement; and

·  give other information.

In addition, it must also:

·  state it is not a prospectus and that it has a lower level of disclosure requirements than a prospectus: s 715(1)

·  include a copy of a financial report for the body or company: s 715(1). It must a report for a 12-month period and must include statements that are less than six months old: s 715(2).

·  state that no securities will be issued after the expiry date (which must be not later than 13 months after the statement: s 715(3)).

3  DISCLOSURE to investors about securities

3.1  When is disclosure to investors required?

Offer of securities for issue

An offer for issue needs disclosure under the Part unless exempted by s 708: s 706. Offers of existing securities for sale may need disclosure if required by s 707: s 707(1).

Offer of securities for sale

Disclosure is required where the person making the offer controls the company or body and where the securities are not quoted or, although the securities are quoted, they are not offered for sale in the ordinary course of trading on a relevant financial market, and s 708 does not say otherwise: s 707(2). Section 50AA provides when a person has control of a body.

Disclosure may also be required in the case of an indirect issue of shares, which is the offer for sale shares within

12 months after their issue. This is required where the securities were issued to investors without disclosure under the Part, and the company issued the securities with the purpose of the person selling or transferring them or granting an option over the securities, or the person to whom the securities were issued acquired them with the purpose of selling or transferring them or granting options over the securities, and s 708 does not say otherwise:

s 707(3).

3.2  OFFERS THAT DO NOT NEED DISCLOSURE

The following specific exclusions are provided for in section 708:

Small-scale offerings exclusion

This is where there is a personal offer of securities and where none of the offers results in a breach of the 20-investors ceiling and none of the offers results in a breach of the $2-million ceiling: s 708(1).

An offer by a person to issue securities results in a breach of the 20-investors ceiling if it results in the number of persons to whom securities of the body have been issued exceeding 20 in any 12-month period. An offer by a person to issue securities results in a breach of the $2-million ceiling if it results in the amount raised by the body by issuing securities exceeding $2 million in any 12-month period: s 708(3).

A personal offer may only be accepted by the person to whom it is made and be made to a person who is likely to be interested in that offer, having regard to (under s 708(2)):

·  previous contact between the person making that offer and that person; or

·  some professional or other connection between the person making the offer and that person; or

·  statements or actions by that person that indicate that they are interested in offers of that kind.

An offer by a person to transfer securities results in a breach of the 20-investors ceiling if it results in the number of persons to whom the person sells securities exceeding 20 in any 12-month period. Such an offer results in a breach of the $2-million ceiling if it results in the amount raised by the person from selling the body’s securities exceeding $2 million in any 12-month period: s 708(4).

Sophisticated large investors exclusion

An offer of securities does not need disclosure if the minimum amount payable for the securities on acceptance of the offer is at least $500 000: s 708(8)(a). An exemption is also available where the amount payable by the investor for the securities on acceptance of the offer and the amounts previously paid by the investor for securities

of the company of the same class add up to at least $500 000: s 708(8)(b).

Under s 708(8) the offer does not need disclosure if it appears from a certificate given by a qualified accountant, no more than six months previously, that the person to whom the offer is made has net assets of at least the amount prescribed by regulations or has a gross income for each of the last two financial years of at least the amount specified in regulations. The regulations specify that the prescribed net assets are $2.5 million and the gross income prescribed is $250 000: reg 6D.2.03.

4  PROCEDURE FOR OFFERING SECURITIES

The various steps are summarised in the table in s 717.

4.1  Preparation of disclosure document

The first step is the preparation of the disclosure document, making sure that it:

·  sets out all the information required

·  does not contain any misleading or deceptive statements

·  is dated and that the directors consent to the disclosure document (, ss 710 to 716).

The offering of securities under a disclosure document that is materially deficient is prohibited: s 728. The making of such an offer renders the person liable to prosecution: s 729.

4.2  Lodge the disclosure document with ASIC

The second step requires that a disclosure document to be used for an offer of securities must be lodged with ASIC: s 718. Applications for non-quoted securities cannot be processed for seven days after the disclosure document is lodged: s 719 (the “exposure period”).

4.3  Offer of the securities

Offers of securities for which a prospectus is being used must be accompanied by the prospectus: s 721(1). (Breach is an offence: s 721(5)).

If ASIC has given the necessary approval and a profile statement complies with the requirements in the ASIC approval: ss 721(1A) & (2), the securities may be offered in, or accompanied by, a profile statement. The person making the offer must give the person a copy of the prospectus free of charge if the person asks for it:, s 721(3).

Offers for which an offer information statement is being used must be made in, or accompany, the offer information statement: s 721(4).

A person must not make an offer of securities, or distribute an offer of securities, that needs disclosure to investors unless a disclosure document for the offer has been lodged with ASIC: s 727(1).

4.4  Application money must be held in trust until issue of securities

Any application money that is received from a person applying for securities must be held on trust until the securities are issued or transferred, or the money is returned to the applicants: s 722. (The applicants may have a right to a refund and have their money returned under ss 724, 737 and 738).