The Australian Securities and Investments Commission (ASIC) and
the Australian Securities Exchange (ASX) have recently announced
changes to the rules governing partly-paid securities. This follows
retail investors exposing themselves to huge liabilities after
purchasing instalment receipts in BrisConnections.
In the BrisConnections case, investors were offered partly-paid
stapled units for AU$1 each in connection with the initial public
offering of BrisConnections in July 2008. Each partly-paid unit
came with an additional obligation to pay two future instalments on
those securities to the value of AU$2. The price of the party-paid
unit has subsequently dropped to AU$0.001 and shareholders have
been left with substantial liabilities to pay further installments
on virtually valueless securities. Certain retail investors who
acquired the partly-paid units are now claiming that the additional
liability to pay installments was not adequately disclosed to them
and that they acquired the units without understanding that there
were liabilities attaching to them.
The changes to the rules governing partly-paid securities will
take effect from 1 May 2009 and are intended to ensure that retail
investors are more fully informed of the implications associated
with trading in partly-paid securities.
The specific changes to the rules regarding partly-paid
the insertion of a new definition of 'partly-paid
security' in the definitions section of the market rules;
a requirement for market participants and retail clients to
enter into a Partly-Paid Security Client Agreement (which indicates
that the retail client is aware of the responsibilities associated
with trading in partly-paid securities) prior to the retail client
buying party-paid securities for the first time. Similar
requirements already exist with respect to trading in options,
futures and warrants.
Accordingly, brokers will now be required to inform retail
clients of the 'rights and obligations' associated with
trading partly-paid securities.
Despite the above, the new changes will not apply to partly-paid
securities in no-liability companies, as these companies do not
have a contractual right to recover calls on the unpaid issue price
of their shares.
Ultimately, the changes to the rules governing partly-paid
securities are designed to reinforce the existing provisions in the
Corporations Act 2001 which require brokers to disclose
the risks associated with trading in complex financial products
(for example options, futures and warrants).
Phillips Fox has changed its name to DLA Phillips Fox
because the firm entered into an exclusive alliance with DLA Piper,
one of the largest legal services organisations in the world. We
will retain our offices in every major commercial centre in
Australia and New Zealand, with no operational change to your
relationship with the firm. DLA Phillips Fox can now take your
business one step further − by connecting you to a global
network of legal experience, talent and knowledge.
This publication is intended as a first point of reference
and should not be relied on as a substitute for professional
advice. Specialist legal advice should always be sought in relation
to any particular circumstances and no liability will be accepted
for any losses incurred by those relying solely on this
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In the years following the global financial crisis of 2008 many Australian investors lost their life savings as financial products failed and the Australian Stock Exchange shed over 3,000 points.
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