Transcript CHAPTER 21 FUNDRAISING At the end of this topic you should know: • the different types of disclosure documents and when each is required; •

CHAPTER 21
FUNDRAISING
At the end of this topic you should know:
• the different types of disclosure documents and when each
is required;
• the general categories of exemption from providing a
disclosure document;
• the requirements for a complying disclosure document; and
• the civil and criminal liabilities of the company, its
documents, experts and others for false or misleading
statements or non-disclosures in disclosure documents.
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Introduction
This topic deals with raising money from the public.
Companies wishing to raise funds by offering their
shares or other securities must prepare a disclosure
document unless exempt: Ch 6D.
The provisions relating to disclosure documents are
not relevant for proprietary companies: s 113(3).
The main aim of the provisions dealing with
fundraising by public companies is to ensure that
investors are in a position to make fully informed
investment decisions.
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Different Types of Disclosure Documents
Ch 6D provides for different types of disclosure
documents depending on the circumstances.
The types of disclosure documents in Ch 6D are:
• a prospectus;
• an offer information statement; or
• a profile statement.
Section 705 provides a table showing the types of
disclosure documents and the relevant sections: see
[21.80].
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When is a Disclosure Document Required?
Section 706 provides that an offer of securities for
issue requires disclosure unless the offer is exempt
under ss 708 or 708AA.
It is therefore necessary to consider the terms “offer”,
securities” and “issue” and then to consider the
exemptions.
The fundraising provisions are primarily concerned
with initial or primary offers of securities (that is, the
issue of securities), not with secondary trading of
securities (that is, the sale of existing securities).
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When is a Disclosure Document Required?
Excluded Offers
An offer of securities for sale (rather than issue) only
requires a disclosure document in limited
circumstances: see [21.90].
Under s 708, there are a number of offers of
securities that do not require a disclosure document,
including:
• Small Scale Exemption;
• Sophisticated/Profession Investor Exemption;
• Executive Officer Exemption;
• Existing Holder Exemption;
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Excluded Offers
• No Consideration;
• Takeovers and Schemes Exemption;
• Rights Issue;
• Secondary Sales;
• Employee Share Schemes; and
• Debentures.
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Form and Content
The content requirements differ depending on the type of
disclosure document being used – prospectus, offer
information statement or profile statement.
A prospectus must contain all information that investors and
their professional advisers would reasonably require to make
an informed assessment of certain matters set out in the
legislation (s 710), having regard to:
• the nature of the securities and of the body;
• matters reasonable to expect to know by investors; and
• matters reasonable to expect to know by advisers
(s 710(2)).
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Form and Content
In addition to the information that must be disclosed
under the general disclosure obligations, there are a
number of specific matters that must be disclosed under
s 711. They include:
• the nature of the securities and of the body;
• the rights and liabilities attaching to the securities; and
• the assets and liabilities, financial position, profit and
loss statement, and future prospects.
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Form and Content
An offer information statement must:
• identify the body and the nature of the securities;
• describe the body’s business;
• describe what the funds raised by the offer are to be
used for;
• state the nature of risks involved in investing in the
securities;
• state that the document is not a prospectus and contains
a lower level of disclosure;
• include an audited financial report prepared within the
last 6 months; and
• include any other information required by the regulations.
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Form and Content
Section 714 provides that a profile statement must
contain:
• information about the body;
• nature of the securities;
• nature of the risks involved;
• details of amounts payable; and
• any other information required by ASIC.
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Lodgement of Disclosure Documents –
Supplementary and Replacement
A disclosure document must be lodged with ASIC
prior to distribution: s 718.
ASIC reviews the disclosure document, but takes no
responsibility for the content of the disclosure
document: ss 711, 714 and 715.
A supplementary prospectus merely cures a
deficiency or updates information: s 719.
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Security Hawking
ASIC’s Power
An offer of securities needs a disclosure document, and a
person must not advertise it, or publish a statement that
directly or indirectly refers to the offer or is reasonably
likely to induce people to apply for the securities, unless
one of the exceptions applies: ss 734(2), (2A).
A person must not offer securities for issue or sale in an
unsolicited meeting with, or telephone call to, another
person: s 736. Under s 736 (2), the prohibition does not
apply to an offer of certain securities.
Another important feature of Ch 6D is that it gives ASIC a
number of powers, for example see s 741(1).
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Liability for Disclosure Documents
Chapter 6D contains a number of prohibitions. Breach of
these prohibitions may lead to criminal and civil liability:
ss 727-729.
There are defences available for potential civil liability and
for potential criminal liability arising from a contravention of
s 728, namely the:
• due diligence defence: s 731;
• lack of knowledge defence: s 733;
• reasonable reliance defence: s 733(1) and (2);
• withdrawal of consent defence: s 733(3); and
• unawareness defence: s 733(4).
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Liability for Disclosure Documents
Under the general law there are several remedies for
misrepresentation, such as:
• rescission;
• damages for fraudulent misrepresentation; and
• damages for negligent misrepresentation.
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