Australia: ASIC review of IPO due diligence practices finds poor due diligence linked to defective disclosure

On 14 July 2016, ASIC released ASIC Report 484: Due diligence practices in initial public offerings (REP 484).

REP 484 sets out the key findings of ASIC's review of recent IPO due diligence processes - which identifies a correlation between poor due diligence and defective disclosure, and highlights ASIC's concerns regarding current due diligence practices (particularly for small to medium sized IPOs). It also sets out ASIC's suggested approach to IPO due diligence, including its view on the elements of a "robust due diligence process".

We recommend that issuers and advisers involved in IPO transactions carefully consider the findings and recommendations set out in REP 484.

ASIC review of IPO due diligence

Between November 2014 and January 2016, ASIC undertook a systematic review of 12 IPOs - comprising 10 small to medium sized issuers and two large issuers (from a variety of industries).

The process involved reviewing due diligence materials (including due diligence process documents, verification materials and opinions / sign-offs) and interviews with the issuers' officers and advisers (including lead managers, brokers, legal and financial advisers).

From the 12 IPOs that were reviewed, 10 resulted in supplementary disclosure, one was withdrawn and one was subject to a final stop order.

Key findings from the ASIC review

ASIC sets out the following key findings in REP 484, arising from its review of the IPO due diligence processes:

  • Correlation between poor due diligence and defective disclosure.
  • Considerable variation in due diligence processes adopted (with generally fewer due diligence processes for smaller to medium sized issuers), with reasonable inquiries often lacking.
  • Concern with a "check the box" approach to due diligence and failure to focus on prospectus disclosure.
  • Superficial involvement by the board of directors of the issuer.
  • Poor oversight of due diligence conducted by foreign advisers.
  • Inconsistency in the quality of contribution of advisers.
  • Cost cutting during due diligence may lead to a defective disclosure, delays and costs (to correct defective disclosure), potential liability (for issuers and directors) and reputational damage.

ASIC's recommended approach to IPO due diligence

ASIC acknowledges there is an absence of previously published guidance on implementing / undertaking due diligence.

In REP 484, ASIC has articulated a suggested approach to IPO due diligence, which is summarised below.

  1. Implement a robust due diligence process
  2. Issuers should adopt a robust due diligence process, which contains the following elements:

    • Oversight - by establishing a due diligence committee, escalating material matters to the board of directors, issuing a final report of the due diligence committee and setting materiality guidance for due diligence investigations.
    • Investigation - which includes (but is not limited to) conducting management interviews, director questionnaires, and specific investigations being conducted by accounting, legal, tax and industry experts (as necessary).
    • Appropriate record keeping - which involves maintaining a key or significant issues list.
    • Verification of all material statements in the prospectus.
    • Continuation of due diligence process - the due diligence process should not end on lodgement of the prospectus, but should continue throughout the offer period.
  1. Substance over form approach
  2. ASIC encourages issuers and their advisers to:

    • adopt a thorough and investigative approach to due diligence;
    • approach due diligence with rigour and an independent mind; and
    • exercise professional judgement to determine the appropriate level of due diligence.
  1. Director involvement
  2. Directors should be actively engaged in the due diligence process and should not be passive participants. In particular, directors should (amongst other things):

    • provide effective oversight to ensure that the due diligence process is implemented and followed;
    • apply an independent mind to the due diligence process;
    • apply their own skills in assessing prospectus disclosure; and
    • ensure that all "red flag" issues are followed up and appropriately resolved.
  1. Engage appropriate professional and expert adviser
  2. Issuers should appoint appropriate experts and advisers who are competent and have the necessary skills, knowledge and experience that is relevant to the preparation of the prospectus.

  1. Additional recommendations - emerging market issuers
  2. Australian legal advisers should provide oversight and apply an appropriate level of scepticism to the due diligence work of foreign advisers, and ensure an understanding of the local political, cultural and business practices of the jurisdiction in which the issuer operates.

    Language and cultural barriers should also be addressed to enable all directors to effectively participate in the due diligence process.

Implications of REP 484

ASIC has indicated that it intends to conduct wider ranging systematic reviews of due diligence (focusing on different aspects of public company fundraising processes) - with the aim of promoting good market practices for fundraising.

With the release of REP 484 and ASIC's continued focus on due diligence processes:

  • We recommend that issuers and advisers review their due diligence processes (and due diligence process documents) - for consistency with ASIC's suggested approach to IPO due diligence.
  • Directors need to be more involved in due diligence processes, and consideration should be given to increased director representation on due diligence committees for IPOs.
  • Issuers should appoint experts and advisers who have the necessary skills, knowledge and expertise on IPOs. Cost cutting during due diligence may lead to defective disclosure, potential liability (for issuers and their directors) and reputational damage.

ASIC's findings and recommendations support our view that robust due diligence is a critical building block for effective disclosure, liability / risk management and ultimately a successful IPO.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.