LIFM L3.pdf - Questions clarifications Week 3 Equity...

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Unformatted text preview: Questions / clarifications Week 3: Equity Fundraising Disclosure and Investor Protection LAW2457 Law of investments and Financial Markets . UNIVERSITY This week’s readings Today ' Chapter 3: Pages 4149 -This week’s topic discusses the legal requirements a company must comply with ~ASIC Website when it solicits money from the public. - - -The underlying principle is to protect resources/fundraising/raising-funds-in-australia/ investors by forcing companies wishing to raise money to issue a prospectus - - -and make the people who create the document/regulatOFY-QUides/r9-254-Ofierin9- document liable for certain breaches securities-under—a-disclosure-document Learning objectives: NOTE! TODAY WE ARE DISCUSSING -To identify the nature of and requirements for disclosure documents under Ch GB of the CA PUBLIC COMPANIES - Explain the areas of liability of company officers and advisers for the contents of these documents NOT - Understand the law relating to the raising of money - Interpret sections of the CA and apply them to PRIVATE PTY COMPANIES situations involving disclosure documents. - Know what rights investors have if they feel the disclosure documents are misleading —_ In fund raising activities there are 3 main parties The adviser* to the investor (weeks 9) The company* (wanting to raise funds) * The company and adviser have certain responsibilities When does a company need to issue a disclosure document? °When a company invites the public to take up shares or a debt in the company - Chapter SD of the CA deals with these requirements. -Applies to primary issue of securities- ie an offer for the issue of shares and debentures - Chapter 6D does not apply to private companies: 5 113(3) CA Types of disclosure documents a; Prospectus: Short form prospectus: Doesn't reproduce documents already lodged with ASIC (e.g annual report) - simply refers to it: s 112 CA Standard disclosure document when issuing shares. Very broad disclosure: 5 709 CA Profile statement: Offer information statement: Limited information about company . . . Lower disclosure reqUIrements than a Can only be used if approved by ASIC. prospectus Aim is to provide investors with concise BUT documents, can be used to compare with similar Singing be used for raising $10 million investment products: 5 714 CA 5715 CA -The type of funds raised can be either debt or equity capital ~(the distinction will be discussed more next week) What is the purpose of this? 0T0 ensure that investors are in a position to make fully informed investment decisions OPlaces investors in a position to make more confident assessments about securities without undertaking their own costly inquiries. ASIC’s Role with Prospectuses -All prospectuses must be lodged with the regulator ASIC before any securities are offered to the public -To check if the company has lodged a prospectus look on the ASIC Database Offerlist: - date recei ved.html NOTE © ASIC’s role cont. -lf ASIC considers the prospectus has ASIC misleading statements or information has WW . been left out a com an ma be asked to -ASIC doesn’t endorse, approve or verify p y y the content -make a correction or -ASIC might review a prospectus to check -issue a supplementary or statements about future outcomes have a - -re lacement ros ectus reasonable basrs p p p -And that major risks are disclosed ASIC Austullm swmuu 1: investments Commission «4 What must be in a disclosure document? When is a disclosure document not required? -Sections 710 to 716 CA contain disclosure The exc'us'ons are "Sted '” s 708 CA: requirements -Small scale : Personal offer to 20 people, 12 month period, $2 million or less. oSophisticated investors: Investment is $500k + or net assets of $2.5 mil, or income of $250k ~Professional investors: banks, insurance companies, super funds - Employee share scheme: Requires employee / employer relationship, no more than 5% of share in company Prospectus — General disclosure What are these matters? °Secti0n 710 CA: -Rights and liabilities attaching to the -A prospectus must contain all the information that securltles; investors and their professional advisers would . Assets and liabilities, reasonably require to make an informed assessment of certain matters. -F|nancral posrtlon and performance, -Profits and losses, -Prospects of the company Prospectus — Specific disclosure Section 711 CA states the following matters must be disclosed: 1. terms and conditions of offer 2. the interests of directors and experts and the fees of people involved in preparing the document 3. details of any application to be quoted on the stock exchange 4. the expiry date of the prospectus (not later than 13 months from the date of the prospectus) 5. that it has been lodged with ASIC 6. any additional information prescribed by regulations Offer information statements Section 715 CA sets out the information that needs to be disclosed. The statement must: 7. 8. 9. .‘7’9‘5‘9’Nr‘ Identify the company and the type of securities, The compaan business, What the funds are to be used for, Nature of the risks What fees, commissions and charges are payable, State that a copy has been lodged with ASIC but that ASIC has no responsibility for the content, State that the document is not a prospectus, State that investors should seek professional investment advice, Include audited financial accounts within the last 6 months, 10.Any other information as required by the regulations Prohibitions Section 727 CA: Prohibitions Cannot make offer without lodging the disclosure document Cannot accept applications within 7 day waiting period (14 days if ASIC extends) Profile statements (concise document) Section 714 CA sets out the information that needs to be disclosed. The document must contain: 1. Information about the company, . The nature of the securities, 2 3. The risks involved, 4 Details of the fees, commissions and charges 5 . Any other information as requested by ASIC. ASIC must approve the profile statement before it can be issued. Liability for disclosure documents 0 Breach of the prohibitions contained in Chapter 6D can give rise to criminal and civil liability. Prohibitions Section 728 CA: Defective disclosure documents - A company must not offer securities if there is: —a misleading or deceptive statement, —an omission from the document of material required by s 710-715, or —a new circumstance that has arisen since the document was lodged with ASIC. What can investors do ? What happens if there is a breach of s728? -If you are an investor and you think there’s -If there is a breach of s 728 this is a something incorrect or misleading in a criminal offence if the statement, omission prospectus or new circumstance is materially adverse -Make a complaint to ASIC from the Investors pornt of vrew. ~Section 729 CA sets out that the company, directors, persons named in the document (accountants, lawyers) may be liable - — us/how—to—complain/ RMlT University‘E‘ZDlS Are there any Defences? Remedies 0 Due diligence: s 731 CA -Rescission: 8 737(1) CA - Lack of knowledge: 3 732 CA . Damages - Reasonable reliance on outside expert: s 733(1) -Damages for negligent misstatement (tort - Public withdrawal of consent to be named in law action more on this in week 9) disclosure document: 3 733(3) - Unawareness of new matter since document issued: 5733(4) Topic Overview PROBLEM SOLVING: Is a Disclosure Document Required? What do I need to know when l revise this subject? -Understand the law relating to raising _ _ . _ money Consrder 8706 Is there an offer or InVItatIon ~That you can Identify the requirements for D m if _ i i d i m _t_ disclosure documents under ch SD of the dé’fifiedfnc’geéoef 'n‘" 8 '°” ea W' sew” '95 as CA Explain the areas of "ab”ity of company Does the offer relate to aprimary offering . . (Issue) or secondary trading sale? officers and advrsers for content Do any of the exemptions ss708, 708A or s708AA apply so that a disclosure document is not required? Problem Solving: Liabilities for defective disclosure Has there been misleading or deceptive statement, an omi55ion or a new circumstance 5728 V Will a shareholder be able to bring an action if loss IS suffered as a result of the breach S728 729’? V Are any defences available 5731-733? Next week -Funding Company Operations ~Debt v Equity financing -Readings are on Canvas ...
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