is something you should ask a competent lawyer, the Federal
Court has recently said. We would say that, of course, but read
If you're offering securities in Australia, the
Corporations Act may require lodgement of a disclosure
document with ASIC, such as a prospectus. The rules are complex and
there are exceptions but, in general, for offers to members of the
public not rolling in cashola, this should be considered.
In this case, 3 directors of a UK public limited company found
this out the hard way when the court disqualified them from
managing corporations for periods ranging from 9 to 12 years. Why
so? In an earlier hearing, the court found that the UK company and
its Australian nominee company had breached the Act by offering
shares to retail investors in Australia without lodging a
So why didn't they lodge? Well, they put in place a
convoluted structure which lead them to believe they were not bound
by the Act. This involved issue of shares to the Australian nominee
to be held on trust and then, through brokers, transferred to
investors in Australia – genius!
Well, no. Offers of shares received in Australia are caught. If
shares are issued without an appropriate disclosure document for
onsale within 12 months to persons where disclosure would have
been required, you must disclose.
So how did this somewhat flawed plan come to fruition? One of
the directors was a lawyer (in Australia and the UK no less).
Another director sought various assurances from him that the plan
was kosher. The third director left it to the others. They never
sought "competent and independent" legal advice, which
the court found was not the standard of care required of a director
under the Act.
A few lessons from this:
If securities are being offered in another jurisdiction,
chances are you need to comply with local law; so get independent
Directors cannot absolve themselves of responsibility by
leaving matters to others; they must make their own independent
assessment of information and advice.
As the old saying goes, a lawyer who acts for themselves has a
fool for a client. Ok yeah, we would say that.
We do not disclaim anything about this article. We're
quite proud of it really.
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Do not depart from the contract terms, or encourage the other party to do so, unless you plan to alter the contract.
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