Australia: Multi-Jurisdictional Guide 2012/13: Capital Markets - Part 2

Last Updated: 26 May 2012
Article by David Morris and Catherine Merity

10. What are the main content or disclosure requirements for a prospectus (or other main offering document)? What main categories of information are included?


The general test for the content of a prospectus is that it must contain all information that investors and their professional advisers would reasonably require to make an informed assessment of both:

  • The assets, liabilities, financial position and performance, profits and losses, and prospects of the issuer.
  • The rights and liabilities attaching to the shares.

This information is only required to the extent it is reasonable for investors and their professional advisers to expect to find the information in the prospectus and if this information is actually known, or in the circumstances ought reasonably to have been obtained if inquiries were made, by specified persons including the company, its directors and any underwriter.

In addition, the Corporations Act prescribes certain specific disclosures that must be included in a prospectus, including:

  • The terms and conditions of the offer.
  • Interests of, and fees and payments or benefits to, directors, underwriters, promoters and professional advisers.
  • The expiry date of the prospectus.
  • A statement that the securities have been admitted to quotation on the ASX or that such application has been made or will be made within seven days after the date of the prospectus.
  • A statement that a copy of the prospectus has been lodged with ASIC and that ASIC takes no responsibility for the content of the prospectus.

A prospectus ordinarily contains the following categories of information:

  • Details of the offer.
  • Industry overview.
  • Business description.
  • Board, management and governance.
  • Financials including investigating accountant's report.
  • Risk factors.
  • Expert's report (where relevant).
  • Additional information including details of material contracts, summary of the constitution, directors' interests, share capital details, substantial shareholders and tax implications.

In 2011 ASIC issued updated guidance on its approach to deciding whether a prospectus or PDS satisfies the disclosure requirements under the Corporations Act in a "clear, concise and effective" manner.


A PDS must contain any information that might reasonably be expected to have a material influence on the decision of a reasonable person, as a retail client, as to whether to acquire the product, if it would be reasonable for such a person to expect to find the information in the PDS.

Some of the specific disclosure requirements for a PDS include:

  • The name and contact details of the issuer or seller.
  • Any significant benefits to which a holder of the product will or may become entitled.
  • Any significant risks.
  • The initial and ongoing costs of the product.
  • Information about any commission or other similar payments that will or may impact on the amount of a return to a holder.
  • Significant characteristics or features of the product or the rights, terms, conditions and obligations attaching to the product.
  • Information about the dispute resolution system that covers complaints by holders.
  • Significant tax implications.
  • The extent to which labour standards and environmental, social or ethical considerations are taken into account in the entity's investments.

In addition, the information included in a prospectus and a PDS must be "worded and presented in a clear, concise and effective manner".

11. How is the prospectus (or other main offering document) prepared? Who is responsible and/or may be liable for its contents?


The lead investment bank and lawyers are generally primarily responsible for the drafting of the prospectus or PDS, with input from the company and other advisers.

To ensure that the prospectus does not contain any misleading or deceptive statements or omit material required by the Corporations Act, a due diligence committee (DDC) is established, which runs a detailed due diligence process relating to the company and its business. The DDC usually consists of representatives from the company, the lawyers, the investment bank and the investigating accountant. The DDC delegates responsibility for undertaking due diligence investigations in particular areas to members of the committee and certain other advisers. At the end of this process, advisers provide sign-offs to the company and the other members of the DDC relating to their areas of responsibility, and the DDC as a whole provides a report to the company board about the content of the prospectus.

The DDC also co-ordinates verification of material statements in the prospectus by allocating responsibility to particular persons. The offer document is verified by cross-referencing all material statements and data to an independent source or, where future events are at issue, establishing that there are reasonable grounds for making the statement.

In addition to ensuring that the prospectus contains the information required by the Corporations Act, the DDC process is designed to maximise the availability of relevant defences under the Corporations Act relating to prospectus liability.


The persons potentially liable for the content of a prospectus or PDS include:

  • The offeror of the securities or financial products.
  • Each of the company's directors and proposed directors.
  • An underwriter.
  • A person who is named in the prospectus with their consent as having made a statement that either:
    • is included in the prospectus (for example, an expert or other adviser that provides a report that is in the prospectus);
    • is the basis on which a statement made in the prospectus is made (for example, an information source on which an expert relies).
  • A person who contravenes, or is involved in the contravention of, the fundraising provisions.
  • A person involved in the preparation of a PDS who directly or indirectly caused the PDS to be defective or contributed to it being defective.

Persons who contravene or are involved in the contravention of the fundraising provisions of the Corporations Act relating to prospectuses are potentially subject to criminal and civil liability. The main provision dealing with breaches of the fundraising provisions (section 728(1)) provides that a person must not offer any securities under a prospectus if one of the following applies:

  • The prospectus or application form contains a misleading or deceptive statement.
  • The prospectus omits material that is required under the Corporations Act.
  • Since the prospectus was lodged, the person becomes aware of a new circumstance that would have been required to be disclosed in the prospectus if it had arisen before the prospectus was lodged, and the deficiency in the prospectus has not been remedied by a supplementary or replacement prospectus.

A person who suffers loss or damage as a result of a contravention of section 728(1) can recover the amount of the loss or damage from the persons listed above.

There are, however, a range of defences available, including:

  • The "due diligence defence", that is, that the person had made all enquiries that were reasonable in the circumstances.
  • Reasonable reliance on information provided by someone outside the organisation.
  • In certain limited circumstances, lack of knowledge that a statement was misleading or deceptive or that there was a material omission.


12. How are offered equity securities marketed?

The Corporations Act imposes restrictions on advertising an equity offering before the lodgement of the prospectus or PDS with ASIC. This is particularly intended to protect retail investors by ensuring they only acquire securities or financial products on the basis of the full prospectus or PDS.

Before lodging a prospectus with ASIC, more stringent rules apply to marketing of offers of unlisted securities (such as on an IPO) than offers of securities in a class already listed on ASX.

Certain marketing activities are permitted on initial and secondary offerings to institutional investors, which can include:

  • Pre-marketing. The lead manager investment bank may contact a number of institutional investors to generate investor interest and identify concerns to be addressed by management on the road show.
  • Road shows. The lead manager investment bank may organise a series of meetings between the company and other investment bankers and institutional investors to generate interest for the equity offering.
  • Research reports. Affiliates of the lead manager or co-lead managers may publish research reports. These reports may be circulated to institutional investors on a strictly monitored basis before the offering. Other analysts unconnected with the offering may also prepare reports for their own clients.

A TV, radio and/or print advertising campaign may also be implemented, particularly on larger equity offerings, subject to the restrictions on advertising under the Corporations Act as modified by ASIC in particular cases.

13. Outline any potential liability for publishing research reports by participating brokers/dealers and ways used to avoid such liability.

A broker may have potential civil and criminal liability under the Corporations Act relating to the publication of research reports, including under the following provisions:

  • Misleading or deceptive conduct. Section 1041H of the Corporations Act provides that a person must not engage in conduct, in relation to securities, that is misleading or deceptive or is likely to mislead or deceive. A breach of this section can attract civil liability in relation to any person who suffers loss or damage as a result of the conduct.
  • Misleading or deceptive statements. Section 1041E of the Corporations Act prohibits a person from making a statement or disseminating information that is false in a material particular or materially misleading, and is likely to induce the disposal or acquisition of securities by other persons if, when the person makes the statement or disseminates the information, either the person:
    • does not care whether the statement or information is true or false;
    • knows or ought reasonably to have known that the statement or information is or was false in a material particular or materially misleading.

A breach of section 1041E of the Corporations Act is a criminal offence.

Brokers who are publishing research reports may seek to minimise their potential liability by a number of means, including limiting the distribution of their reports (for example only to professional or sophisticated investors) and by ensuring that their reports contain appropriate disclaimers.


14. Is the bookbuilding procedure used and in what circumstances? How is any related retail offer dealt with? How are orders confirmed?

Bookbuilds are commonly used, particularly on medium- to largesize floats, primarily to maximise the issue price in light of the proposed size of the offer. Bookbuilds can either be used:

  • At the beginning of the offer period (sometimes before lodging the prospectus with ASIC) to determine a fixed price, which is then specified in the prospectus.
  • At the end of the offer period. In this case, the company can issue a price range prospectus, with the final price determined through an institutional bookbuild at the end of the offer period.

The pricing for the retail offer can be fixed at the beginning of the process, or retail investors can apply on the basis of an indicative price range for the offer (which is usually subject to a fixed maximum price that retail investors are required to pay), with the final price determined by the institutional bookbuild.


15. How is the underwriting for an equity offering typically structured? What are the key terms of the underwriting agreement and what is a typical underwriting fee?

Under the underwriting agreement, the underwriting bank agrees to subscribe for all or part of any shortfall in applications under the offer, in return for an underwriting commission.

Typical terms of an underwriting agreement include:

  • Conditions precedent to the underwriting obligation such as lodging of the prospectus, provision of due diligence reports and sign-offs, and listing of the shares on ASX.
  • Obligations on the investment bank to lead manage the offer.
  • The obligation to underwrite (and related settlement obligations).
  • Obligations of the company to make the offer in compliance with law.
  • Payment of fees and expenses.
  • Representations and warranties by the company relating to matters including the accuracy of the prospectus.
  • An indemnity in favour of the underwriters.
  • Termination events.

Underwriting fees are ordinarily calculated as a percentage of the funds raised under the offer with the percentage varying according to the size and nature of the offering.


16. What is the timetable for a typical equity offering? Does it differ for an IPO?

The following is an indicative timetable for a typical IPO, "T" for this purpose is the date of listing on ASX:

  • T minus 5 months. Appoint IPO team, conduct initial pricing discussions. First DDC meeting. Management presentation to DDC, identification of key issues for due diligence, agreement on the scope of the due diligence work and commencement of investigations.
  • T minus 4 months. Commence prospectus or PDS drafting. Conduct pre-IPO reorganisation (if required).
  • T minus 3 months. Conduct due diligence. Continue prospectus or PDS drafting. Convert to public company (if required) and prepare an ASX compliant constitution and corporate governance policies.
  • T minus 2 months. Commence meeting with institutions. Verify prospectus or PDS and prepare due diligence reports. Prepare listing application. Negotiate underwriting arrangements.
  • T minus 5 weeks. Final pricing discussions, board approves prospectus and underwriting agreement, institutional road show commences, prospectus lodged with ASIC and listing application to ASX is made. ASIC "exposure period" of seven days during which applications cannot be accepted by the company.
  • T minus 4 weeks. Offer period and public marketing commences.
  • T minus 1 week. Offer closes.
  • T. Funds available to entity on the issue of securities. The company is listed and securities traded on ASX.

A bookbuild to determine pricing of the offer can be held at the beginning or end of the offer period.

The timetable for a secondary equity offering depends on the nature and size of the capital raising. For example, a private placement can be conducted very quickly with minimal formality whereas the ASX Listing Rules prescribe a timetable for a rights issue.


17. Are there rules on price stabilisation and market manipulation in connection with an equity offering?

The Corporations Act generally prohibits a person from effecting or taking part in one or more transactions that have or are intended or likely to have the effect of either:

  • Creating an artificial price for trading in financial products on a financial market.
  • Maintaining the price of trading in financial products at an artificial level.

However, market stabilisation arrangements are permitted by ASIC in certain limited circumstances. This "permission" is granted by ASIC in the form of no-action letters. Market stabilisation arrangements are designed to insulate the open market price of new listings. This is done in an effort to increase investor confidence in the market for the newly issued securities.

Market stabilisation arrangements must comply with certain ASIC conditions set out in the no-action letter and:

  • Are limited to certain securities.
  • Are subject to limitations on pricing.
  • Can only be conducted for a period of up to 30 days after quotation in the new shares commences.

There are also disclosure requirements to ASX relating to these arrangements.

Despite the above "permission" granted by ASIC, the market stabilisation must not either:

  • Have the purpose of raising the price of the securities, except for the limited objective of stabilising the market in the securities.
  • Be undertaken with the intention of creating a false or misleading market or impression of trading.


18. What are the main tax issues when issuing and listing equity securities?

A number of tax issues can arise when issuing and listing equity securities, requiring specialist tax advice. For completeness, this answer focuses on issues arising following an IPO. However, the tax issues mentioned are relevant to the issuing and listing of equity securities. The potential tax issues include the following:

  • Revenue or capital. If an IPO involves an offer for sale, the determination of whether the seller holds the shares on revenue or capital account is important in determining the tax consequences to the seller shareholders.
  • Income tax planning. It is important for the seller/purchaser to structure ownership arrangements appropriately before issuing/acquiring equities. Non-resident sellers may be able to obtain relief under relevant tax treaties. However, the Australian Taxation Office is likely to aggressively pursue arrangements for which the dominant purpose is to avoid Australian tax.
  • Capital gains planning. If shares are held on capital account, pre-IPO planning may be able to maximise the cost base. Non-resident sellers can use tax exemptions for non-resident shareholders where the shares are not considered to be taxable Australian property.
  • Consolidation exit adjustments. Taxing events can arise where a company leaves a consolidated tax group. This can result in a capital gain arising to the head company of the remaining group.
  • Goods and services tax (GST). The issue and listing of equity securities are not subject to GST (since they constitute financial supplies for GST purposes). However, consideration must be given to whether the listing entity is entitled to claim GST credits on its IPO expenses, such as management/placement fees and legal fees. There are a number of special rules that apply in this area, for example, even where the listing entity is not entitled to claim full GST credits, it may still be entitled to claim 75% reduced input tax credits on certain expenses. Particular GST issues arise for non-residents seeking to list on ASX.
  • Employment-related securities issues. If shares or options held by employees are altered to implement the IPO, this can generate a tax point, unless rollover relief is available.


19. What are the main areas of continuing obligations applicable to listed companies and the legislation that applies?

The ASX Listing Rules impose detailed continuing obligations for listed companies, including the following:

  • Financial reporting. ASX requires listed companies to publish prescribed financial reports on an annual, half-yearly and in some cases quarterly basis.
  • Continuous disclosure. Each listed entity must notify ASX immediately of any information concerning it that a reasonable person would expect to have a material effect on the price or value of its securities unless specified exceptions apply, such as for confidential negotiations concerning an incomplete proposal and information produced (for example, financial projections) for internal management purposes. The ASX Listing Rules also impose specific disclosure obligations such as on the issue of new securities and change of directors' interests.
  • Limitations on share issues. Listed companies are generally limited to issuing new shares equal to 15% of their issued share capital over a rolling 12-month period, unless hareholder approval is obtained or one of a number of specified exceptions applies.
  • Significant transactions. The ASX Listing Rules prescribe shareholder approval equirements for certain major acquisitions and disposals that would change the nature or scale of the company's activities.
  • Transactions with related parties. Shareholder approval requirements are prescribed for certain transactions between a company and its directors and other related parties including the issue of securities to related parties.
  • Corporate governance. ASX publishes best practice recommendations relating to the corporate governance of listed companies. While these guidelines are not mandatory, ASX applies an "if not, why not" approach, requiring companies to explain in their annual report why they have not complied with any of the best practice recommendations.
  • Shareholder voting restrictions. The ASX Listing Rules dictate voting exclusions that apply to interested parties for the approval of certain transactions. For example, if shareholder approval is sought for the issue of shares to a related party, the related party (and its associates) would be excluded from voting on the approval resolution.

© DLA Piper

This publication is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not used as, a substitute for taking legal advice in any specific situation. DLA Piper Australia will accept no responsibility for any actions taken or not taken on the basis of this publication.

DLA Piper Australia is part of DLA Piper, a global law firm, operating through various separate and distinct legal entities. For further information, please refer to

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