Disclosure
documents
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.
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).
Corporate Law: Law principles and practice
The main components of the disclosing process
Offer
invitation for applications for issue or for
purchase (s 700(2))
Securities
shares, debentures, or options (ss 92(4), 700(1))
Disclosure document
•
•
•
prospectus
profile statement
an offer information statement (s 9)
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 onmarket offer
Special issues: to particular bodies or exempt offers
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.
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.
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.
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).
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
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).
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.
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)).
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)
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.
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.
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;
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.
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.
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.
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)).
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.
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)).
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).
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.
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.
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.
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.
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).
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).
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.
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)
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)).
Corporate Law: Law principles and practice
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
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.
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.
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).
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