1. Disclosure documents

2. Corporate Law: Law principles and practice Overview A significant objective of the Corporations Act 2001 (Cth) is to encourage investment and to protect the investing public by requiring full and accurate disclosure of relevant information about the activities of public companies. Company law in Australia also seeks to enable an efficient and credible market without regulation and costs.

3. Corporate Law: Law principles and practice Disclosure requirements An offer of securities for issue requires disclosure to investors (Corporations Act 2001 (Cth) s 706), unless exempted in ss 708 or 708AA. Managed investment schemes are included in the definition of securities (funds are sought from investors and a conventional security is not issued (e.g. a unit trust).

4. Corporate Law: Law principles and practice The main components of the disclosing process Offerinvitation for applications for issue or for purchase (s 700(2)) Securitiesshares, debentures, or options (ss 92(4), 700(1)) Disclosure document prospectus profile statement an offer information statement (s 9)

5. Corporate Law: Law principles and practice Offers that do not require disclosure Corporations Act 2001 (Cth) ss 708 and 708AA Small-scale offerings: made to less than 20 investors and worth less than $2m in 12 months Special investors: sophisticated investors or wealthy investors Large offers Special offers: made for a takeover or as part of an on- market offer Special issues: to particular bodies or exempt offers

6. Corporate Law: Law principles and practice Types of disclosure documents Prospectus: A body corporate making an offer or invitation to the public to take securities must prepare a written notice or other instrument called a prospectus. A prospectus is designed to be a full disclosure document with the broadest information requirements. Short-form prospectus: This prospectus may be used for any offer, allowing reference to a standard prospectus lodged with ASIC.

7. Corporate Law: Law principles and practice Types of disclosure documents cont … Profile statement: This statement comprises a brief profile that, with ASIC’s approval, may be given to investors instead of a prospectus (though a prospectus must still be lodged with ASIC). Offer information statement (OIS): This statement may be used instead of a prospectus provided the issue of securities is for $10 million or less. It must include a copy of an audited financial report with a balance date less than six months old.

8. Corporate Law: Law principles and practice Types of disclosure documents cont … Information in these disclosure documents is worded and presented in a clear, concise and effective manner ( Corporations Act 2001 (Cth) 715A(1)). How these documents are used depends on the individual circumstances of the fundraising, although, to date, ASIC has not approved the use of profile statements.

9. Corporate Law: Law principles and practice Lodgement A disclosure document for an offer of securities must be lodged with ASIC (Corporations Act 2001 (Cth) s 718). There is a prohibition on a person offering securities or distributing application forms unless a disclosure document has been lodged with ASIC (s 727). Contravening this section is an offence (s 1311). Directors must give their consent to lodgment (s 720).

10. Corporate Law: Law principles and practice Lodgement cont … The ‘OFFERlist’ database contains all disclosure documents for fundraising offers lodged with ASIC It provides the following information about a disclosure document: the document number the date the document was received by ASIC the document type and name the name and ACN/ARBN/ARSN of the issuer the ASIC office where the document was lodged the first date upon which investments can be made

11. Corporate Law: Law principles and practice Lodgement cont … related documents such as stop orders, supplementary and replacement disclosure documents and notice of extension to exposure period how you can obtain a copy of the disclosure document (where this is supplied by the issuer).

12. Corporate Law: Law principles and practice Lodgement cont … An exposure period gives the market and ASIC an opportunity to consider the information in the disclosure document before the issuer can accept applications for subscription or purchase of the securities or the financial product. If disclosures in the offer document are considered to be deficient, the market, ASIC or investors may take action including making claims on company property in the event of a default by a company in repaying interest or monies.

13. Corporate Law: Law principles and practice Stop orders ASIC may order that no offers, issues, sales or transfers of the securities be made for a specified period, or that specified conduct in respect of the securities to which an advertisement or publication relates must not be engaged in (Corporations Act 2001 (Cth) s 739(1A)). Such circumstances include: information in a disclosure document lodged with ASIC is not worded and presented in a clear, concise and effective manner an offer of securities under a disclosure document lodged with ASIC would contravene s 728 an advertisement or publication of a kind referred to in ss 734(5) or 734(6) that relates to securities is defective (s 739(1)).

14. Corporate Law: Law principles and practice Contents of disclosure documents Sections of the Corporations Act 2001 (Cth) provide for the content of the different types of disclosure documents. prospectus standard prospectus (ss 710–711) short-form prospectus (s 712) profile statement (s 714) offer information statement (s 715)

15. Corporate Law: Law principles and practice Contents of the prospectus cont … The general disclosure test set out in s 710(1) of the Corporations Act 2001 (Cth) provides as follows: A prospectus for a body’s securities 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.

16. Corporate Law: Law principles and practice The general disclosure test cont … The prospectus must contain this information: (a)only to the extent to which it is reasonable for investors and their professional advisers to expect to find the information in the prospectus; and (b) only if a person whose knowledge is relevant (see subsection (3)): (i) actually knows the information; or (ii) in the circumstances ought reasonably to have obtained the information by making enquiries.

17. Corporate Law: Law principles and practice The general disclosure test cont … According to s 710(3) of the Corporations Act 2001 (Cth), the knowledge of the following persons is relevant in a disclosure document: (a)the person offering the securities; (b)if the person offering the securities is a body — a director of the body; (c) a proposed director of the body whose securities will be issued under the offer; (d) a person named in the prospectus as an underwriter of the issue or sale; (e) a person named in the prospectus as a financial services licensee involved in the issue or sale;

18. Corporate Law: Law principles and practice The general disclosure test cont … (f) a person named in the prospectus with their consent as having made a statement: (i)that is included in the prospectus; or (ii)on which a statement made in the prospectus is based; (g) a person named in the prospectus with their consent as having performed a particular professional or advisory function.

19. Corporate Law: Law principles and practice The general disclosure test cont … The table in s 710 of the Corporations Act 2001 (Cth) to which s 710(1) refers specifies information relating to offers for shares, debentures or interests in a managed investment scheme, including: the rights and liabilities attaching to the securities offered the assets and liabilities, financial position and performance, profits and losses and prospects of the entity that has issued or is to issue the shares, debentures or interests.

20. Corporate Law: Law principles and practice The general disclosure test cont … Section 710(2) of the Corporations Act 2001 (Cth) lists a number of factors that must be regarded, including: (a)the nature of the securities and of the body; and (b)if the securities are investments in a managed investment scheme — the nature of the scheme; and (c) the matters that likely investors may reasonably be expected to know; and (d) the fact that certain matters may reasonably be expected to be known to their professional advisers.

21. Corporate Law: Law principles and practice The specific disclosure test Section 711 of the Corporations Act 2001 (Cth) requires the following information to be provided: the terms and conditions of the offer (s 711(1)) the interests and fees of certain persons involved in the offer (ss 711(2)–(4)) the quotation (if any) of the securities on a financial market in Australia or overseas (s 711(5)) the expiry date (being no later than 13 months after the date of prospectus) (s 711(6)) lodgement with ASIC (s 711(7)) other information prescribed by regulations (s 711(8)).

22. Corporate Law: Law principles and practice Listed companies Listed companies are subject to continuous disclosure and periodic reporting requirements. A listed company must disclose, on an ongoing basis, relevant information to the Australian Securities Exchange (ASX) that would be likely to have a material effect on the price of their securities.

23. Corporate Law: Law principles and practice Misleading statements Any forecasts or predictions contained within a disclosure document should be based on reasonable grounds, otherwise they may considered to be misleading and defective. A person will be taken to have made a misleading statement about a future matter (including doing, or refusing to do, an act) if they do not have reasonable grounds for making the statement (Corporations Act 2001 (Cth) s 728(2)).

24. Corporate Law: Law principles and practice Misleading statements cont … Under s 729 of the Corporations Act 2001 (Cth), a person suffering loss or damage from misleading information can recover the amount of the loss or damage from the various parties listed in s 729, including the company, the directors and persons named in the disclosure document (s 729).

25. Corporate Law: Law principles and practice Contents of the short-form prospectus A short-form prospectus is suited to retail investors who lack experience or skill in comprehending a complex and compendious standard prospectus. A prospectus is lodged with ASIC and the short-form prospectus refers to that document. Investors have the right to obtain a copy of the document (Corporations Act 2001 (Cth) s 712(1)). Short-form prospectuses were designed to support offers from managed investment schemes.

26. Corporate Law: Law principles and practice Contents of the profile statement A profile statement approved by ASIC may be sent to investors instead of a full prospectus (Corporations Act 2001 (Cth) s 721(2)), although a prospectus must be available to an investor on request (s 721(3)). Under s 741, the contents of a profile statement must, among other things, identify: the issuing company and the nature of the securities the nature of any risks associated with the securities details about amounts payable in relation to the securities a statement about the availability of a prospectus free of charge.

27. Corporate Law: Law principles and practice Contents of the profile statement cont … Section 732 of the Corporations Act 2001 (Cth) provides for a lower standard of liability for profile statements: having a ‘lack of knowledge’ rather than being required to make positive inquiries. This is a ‘did not know’ defence compared with the ‘should have known’ responsibility imposed by prospectus provisions.

28. Corporate Law: Law principles and practice Contents of the offer information statement The cost of preparing an OIS is significantly lower than a prospectus because only minimal disclosure is required. The OIS only has to disclose minimal information if the amount to be raised by the issuer is $10 million or less.

29. Corporate Law: Law principles and practice Contents of the offer information statement cont … Section 715(1) of the Corporations Act 2001 (Cth) provides that the contents of an OIS must: identify the issuer and the nature of the securities describe the issuer’s business and what the funds raised by the offers are to be used for state the nature of any risks involved in investing in the securities detail all amounts payable in respect of the securities (including any amounts by way of fee, commission or charge).

30. Corporate Law: Law principles and practice Contents of the offer information statement cont … An OIS must include a copy of the issuer’s audited financial report that has been prepared in accordance with accounting standards, covering a 12-month period with a balance date that occurs within the last six months before the securities are first offered in the OIS (Corporations Act 2001 (Cth) s 715(2)). An OIS allows a ‘lack of knowledge’ defence when information turns out to be incorrect (s 732).

31. Corporate Law: Law principles and practice Restrictions on issue of securities Minimum subscription A disclosure document may state that the securities will not be issued unless applications for a minimum number of securities are received, or a minimum amount is raised. An issue of shares cannot be made until the minimum subscription is achieved (Corporations Act 2001 (Cth) s 723(2)), and monies received must be kept in trust till the minimum is reached. If the minimum subscription is not achieved within four months, a company must either repay monies received, issue a supplementary disclosure or issue the securities.

32. Corporate Law: Law principles and practice Expiry of a disclosure document A prospectus will have an expiry date (within 13 months of issuing the prospectus), after which no further securities can be issued (Corporations Act 2001 (Cth) s 711(6)). Pre-prospectus publicity There is a restriction pre prospectus publicity and advertising, an applicant must receive a disclosure document before applying for securities: s 734(2)

33. Corporate Law: Law principles and practice Pre-prospectus publicity There is a restriction on pre-prospectus publicity and advertising; an applicant must receive a disclosure document before applying for securities (Corporations Act 2001 (Cth) s 734(2)).

34. Misstatements and omissions Under s 728(1) of the Corporations Act 2001 (Cth), a person is prohibited from offering securities under a disclosure document if a misleading or deceptive statement appears in: the disclosure document any accompanying application form any document that contains the offer (if the offer is not in the disclosure document or the application form). Corporate Law: Law principles and practice

35. Misstatements and omissions cont … Securities cannot be offered if material that is required under law to be included in the disclosure document has been omitted or if new circumstances have arisen since the disclosure document was initially lodged. Civil and criminal liability may result from a breach of this provision.

36. Corporate Law: Law principles and practice Misstatements and omissions cont … Civil liability may result if the misstatement or omission causes loss to the investor (Corporations Act 2001 (Cth) s 728). An investor may recover compensation from persons associated with the offer (s 729(1)). Civil liability also applies under s 1041 for misleading and deceptive conduct in relation to a financial product.

37. Corporate Law: Law principles and practice Persons who are liable If a person suffers loss or damage because an offer of securities under a disclosure document contravenes s 728(1) of the Corporations Act 2001 (Cth), they can recover the amount of loss or damage from the person who is liable. Liable persons include: persons involved with the offer directors of the company persons named in the disclosure document an underwriter of the sale a person named in the disclosure document a person who contravenes or is involved in the contravention of s 728(1).

38. Corporate Law: Law principles and practice Defences There are a number of defences to a claim that a disclosure contains misstatements or omissions. The key defences are: due diligence (for a prospectus) (Corporations Act 2001 (Cth) s 731(1)) lack of knowledge (for an OIS and profile statement) (s 732) general defences (for all disclosures) the omission was due to reasonable reliance on an agent withdrawal of consent to the disclosure document unawareness of any new matters NRMA Holdings Ltd and NRMA Insurance Ltd v Fraser (1995) 15 ACSR 768