Last updated: OCtober 2018

Introduction

Australia is generally seen as having an issuer-friendly legal regime for fundraising. Over the years, this has helped primary and secondary equity capital raisings when market conditions have permitted. The Corporations Act 2001 (Cth) regulates fundraising activity, including all financial products that are offered in the country, whether or not the issuer is Australian or foreign. The definition of ‘financial products’ is broad, but includes shares, units in a trust, partnership interests and debentures. The rules apply to offers of, or invitations to subscribe for, financial products received in Australia, regardless of where the issue, sale or transfer originates.

Contravening the Corporations Act can lead to civil or criminal liability. The issuing company’s directors, advisers and underwriters may also be exposed.

Disclosing to investors

Generally, a person must not offer a financial product unless they have prepared a disclosure document and, in certain circumstances, lodged it with ASIC (there are exemptions from this rule). The disclosure document must contain the information which the Corporations Act requires, and a number of procedural steps must be followed.

Unless an exception applies, disclosure to investors is required for off-market offers of new or existing financial products.

Generally, disclosure is not required for offers to sell an existing financial product, unless the sale is taking place within 12 months of the issue of securities (that is, shares or debentures). Disclosure may also be required for off-market sales of securities by controllers. One of two types of disclosure documents is needed when selling securities in Australia: an offer information statement (OIS) or a prospectus. 

If a disclosure document is required, the general rule is that a prospectus must be prepared unless an OIS can be used. There are full, short-form and transaction-specific prospectuses. 

Full prospectus

A full prospectus is typically used for an initial public offering of securities on the Australian Securities Exchange (ASX). The Corporations Act provides general disclosure requirements for a full prospectus, which include all the information investors and their professional advisers would reasonably need to make an informed assessment of:

  • the rights and liabilities attaching to the securities offered
  • the assets and liabilities, financial position and performance, profits and losses, and prospects of the body that will issue the securities.

Short-form prospectus

A short-form prospectus is the same as a full prospectus except that it incorporates, by reference, certain documents already lodged with ASIC. Therefore, rather than setting out all the details of a document in the prospectus, it may simply refer to a document that has been lodged with ASIC.

Transaction-specific prospectus

Transaction-specific prospectuses have fewer disclosure requirements than a normal prospectus and may only be issued by bodies that are already listed on a stock exchange.

An OIS can be used to raise up to A$10 million and has fewer information content requirements. A disclosure document for financial products other than securities is called a Product Disclosure Statement (PDS). 

The Corporations Act also restricts unsolicited offers of financial products and advertisements regarding offers of financial products. 

Exceptions

It isn’t necessary to disclose an offer of a financial product if the offer is excluded under the Corporations Act or ASIC grants general or specific relief (for example, relating to certain employee incentive schemes).

Exceptions include:

  • where the amount payable on accepting the offer for the financial product exceeds A$500,000, or when a person has previously paid for, and holds, the same class of financial product and the new amount to be paid takes the total amount paid to at least A$500,000
  • an offer to an investor whose gross income for each of the previous two financial years was at least A$250,000 or who has net assets of at least A$2.5 million, certified by a qualified accountant
  • offers to other specified sophisticated or institutional investors (including stockbrokers, certain pension and life insurance funds, and people who control at least A$10 million for investing in securities)
  • small-scale offerings, where over a 12-month period, less than $2 million is raised from no more than 20 investors.

There are also potential exceptions for foreign issuers and for issues under takeovers or schemes of arrangement. In eligible cases, rights issues and entitlement offers can be conducted without formal disclosure documents. Similarly, security purchase plan offers can be conducted without formal disclosure documents in eligible cases. 

These exceptions make the legal regime in Australia more favourable to capital raising activity compared to many overseas jurisdictions. Offers can be conducted relatively quickly and, in the case of secondary offerings (that is, placements, rights issues and entitlement offers), often without a formal prospectus or PDS. 

Liability

The two main ways in which an issuer can be held liable for offering securities under the Corporations Act are:

  • by offering securities without a disclosure document when one is required
  • by incorporating misstatements in, or omitting required information from, a disclosure document.

Contravening the Corporations Act can lead to civil or criminal liability. In certain circumstances, the issuing company’s directors, advisers and underwriters may also be exposed to liability.

Crowdsourced funding regime

In September 2017, a crowdsourced funding (CSF) regime was launched, allowing eligible unlisted public companies to raise small amounts from retail investors using a specific CSF offer document.

Companies making CSF offers that also meet certain eligibility criteria can be relieved of some of the usual obligations for a public company, such as those relating to reporting, audits and the need to hold an annual general meeting, for up to five years.

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