Raising capital with disclosure

General

In order to raise capital, companies issue securities which may includes shares, debentures, and options to acquire shares and debentures. The Corporations Act 2001 (Cth) requires that disclosure to be made, subject to the certain exemptions, where an offer is made. If there is a failure to disclose in accordance with the provisions or where material misstatements or omissions have been made, issues surrounding civil and criminal liability may arise.

Disclosure requirements

Essentially where disclosure is required, the following is necessary:

1. a prospectus must be prepared for the offer, unless an offer information statement can be used;

2. the disclosure document must be lodged with the Australian Securities and Investments Commission (ASIC) and no offer must be made until the disclosure document is lodged;

3. the offer must include or accompany the prospectus unless it is permissible to use a profile statement. No offer can be made unless the prospectus is included or accompanies the offer; and

4. securities may only be issued or transferred in response to an application form. The person issuing the securities must have reasonable grounds to believe that the application form was accompanied by a disclosure document.

Note:    An offer information statement can only be used if the amount of money to be raised, including any amount already raised, does not exceed more than $10 million.

Contents of a disclosure document

Generally disclosure documents must contain:

(a)         the terms and conditions of the offer;

(b)         the rights and liabilities attaching to the securities offered;

(c)         the identify of the company;

(d)         the nature of the securities;

(e)         the company’s business;

(f)          the purpose of the offer;

(g)         the nature of the risks involved; and

(h)         details of all amounts payable.

In addition to these requirements a prospectus is required to contain all the information that an investor and their professional adviser would reasonably require to make an informed assessment of the following matters. There are several other specific content requirements listed in the Corporation Act 2001 (Cth) and they vary depending on the nature of the disclosure document.

Advertising

It should also be noted that where a disclosure document is required, it is an offence to advertise the offer or publish a statement that either refers to the offer or may induce a person to apply for the securities.

Further Links

• ASX Information Paper: Capital Raising in Australia

• ASIC - Fundraising

• Consolidation of fundraising instruments and guidance

• ASIC RG 72 - Foreign securities prospectus relief

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For more information, please contact Gavin McInnes on 07 3367 8681 or gmcinnes@grmlaw.com.au.

 The information contained in this article is general in nature and cannot be regarded as anything more than general comment. Readers of this article should not act on the basis of this comment without consulting one of GRM LAW 's legal practitioners who will consider their particular circumstances.

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