Capital raisings and dealings in securities must be conducted in
accordance with the Corporations Act. Listed entities are
also subject to the ASX Listing Rules, which impose further
requirements on their management and conduct.
Disclosure to Investors
Generally, offers of securities, whether by way of a new issue
of securities or a sale of existing securities, require regulated
disclosure to investors unless an exemption applies. Securities can
include shares, options, debentures, bonds, derivatives and
interests in managed investment schemes.
Disclosure to investors when capital is raised is commonly in
the form of a disclosure document such as a prospectus or, in the
case of a managed investment scheme, a product disclosure
statement. While the requirements vary (depending on the nature of
the investment offered), in broad terms, a disclosure document must
contain all material information required to make an informed
assessment of the investment offered. A disclosure document must
not contain any information that is likely to mislead or deceive
investors or omit any material information. Serious civil and
criminal penalties apply for failing to adhere to the disclosure
requirements under the Corporations Act.
Given the time and cost involved in preparing disclosure
documents, where an exception to the disclosure requirements is
available, entities will often avail themselves of that exception.
A common exception is where an entity offers securities to
"sophisticated investors". For these purposes, a
"sophisticated investor" is a person who has net assets
of at least the prescribed amount (currently A$2.5 million) or a
gross income for each of the last two financial years of at least
the prescribed amount (currently A$250,000) – in each case,
as certified by a qualified accountant - or a person who is making
an investment of at least A$500,000.
Continuous Disclosure and Prohibition against Insider
Listed entities – and certain large unlisted public
companies – are required to comply with continuous disclosure
obligations. This requires the immediate
disclosure of any information concerning the company that a
reasonable person would expect to have a material effect on the
price or value of its securities.
Individuals who have possession of price-sensitive information
relating to a listed company that is not publicly available are
prohibited from trading, or enabling any other person to trade, in
the shares or other securities of that company. The Corporations
Act imposes heavy penalties on persons found to have engaged,
indirectly or indirectly, in 'insider trading'.
The Corporations Act imposes restrictions on the
acquisition of voting power in certain entities (companies or
managed investment schemes). In broad terms, subject to certain
exceptions, an entity must not increase its voting power in a
listed company or in an unlisted company that has more than 50
from 20% or less to more than 20%; or
from a starting point that is above 20% and below 90%.
These restrictions also apply to acquisitions of interests in
listed managed investment schemes.
Exceptions to this restriction include where an entity increases
its voting power in a company by no more than 3% every six months
(although recent statements from the Australian Government indicate
that this 3% "creep rule" is currently under review),
where the acquisition is approved by the target's shareholders
or where an entity makes a takeover bid for the company.
An entity (whether foreign or local) that has an interest
(whether through its own holding or the holdings of its associates)
in 5% or more of the voting shares in an Australian listed entity
is required to lodge a substantial shareholder (or security holder)
notice with the listed entity and the ASX. Further notices are
required whenever this 'relevant interest' in the shares of
the listed entity increases or decreases by 1% or more. A person
may have a relevant interest in shares held by a third party,
depending on the level of control it has over the disposal of, and
voting rights attached to, those shares.
Since the global financial crisis, there has been increased
focus on disclosure of dealings in securities in listed companies,
especially short selling. For instance, regulations exist for the
reporting of short selling transactions to market operators (e.g.
Where a company proposes to give financial assistance to
investors – existing or prospective – for the purpose
of acquiring shares in the company or its holding companies, the
company will generally be required to obtain the prior approval of
its shareholders (and, if applicable, the shareholders of its
holding companies) as prescribed under the Corporations
Act, unless it is able to meet certain limited exemptions.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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This part will cover the legal position in relation to promotional materials and misleading and deceptive conduct.
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