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Chapter 12
Fundraising
Chapter Summary
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OPERATION OF CHAPTER 6D
Chapter 6D applies to invitations for securities in a company: s 700. “Securities” is defined in s 761D and
includes interests in managed investment schemes. Any attempt to contract out of the Chapter is void: s 703A.
Proprietary companies must not engage in any activity that would require disclosure to investors under Chapter
6D, except for an offer of its shares to existing shareholders of the company or a shareholder who was an
employee of the company or a subsidiary of the company: s 113.
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TYPES OF DISCLOSURE DOCUMENTS
2.1
Prospectus
The prospectus is the standard full-disclosure document. Section 709 provides that if an offer of securities needs
disclosure under Part 6D.2, a prospectus must be used unless the use of an offer information statement is
permitted under subs (4).
A prospectus must contain all the information that investors and their professional advisers would reasonably
require to make an informed assessment of the matters set out in the table in s 710: s 710(1).
In deciding what information should be included in a prospectus, regard must be had (under s 710(2)) to:
 the nature of the securities and of the company or body; and
 if the securities are investments in a managed investment scheme – the nature of the scheme; and
 the matters that likely investors may reasonably be expected to know; and
 the fact that certain matters may reasonably be expected to be known to their professional advisers.
Information need only be included in a prospectus only to the extent that it is reasonable for investors and their
professional advisers to expect to find the information in the prospectus, and only if a person whose knowledge is
relevant actually knows the information or in the circumstances ought reasonably to know the information by
making inquiries: s 710(1).
A person’s knowledge is relevant (for the purposes of s 710(1)) only if they are one of the following (s 710(3)):
 the person offering the securities; a director of the company or body offering the securities;
 a proposed director of the company or body whose securities will be issued under the offer;
 an underwriter of the issue or offer who is named in the prospectus;
 a financial services licensee involved in the sale or issue who is named in the prospectus;
 a person who is named in the prospectus with their consent as having made a statement that is included in
the prospectus or on which a statement made in the prospectus is made;
 and a person who is named in the prospectus with their consent as having performed a particular
professional or advisory function.
The prospectus must:
 set out the terms and conditions of the offer: s 711(1)
 disclose the interests and fees of certain people involved in the offer (s 711(2)), and any benefits or
benefits that have been paid or agreed to pay to them (s 711(3)). The relevant persons are: any directors
and proposed directors, any professional or adviser named in the prospectus, a promoter and any
underwriter or financial services licensee named in the prospectus: s 711(4).
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2.2
If the prospectus states or implies that the securities will be traded on a financial market, it must state
that the securities have been admitted to quotation on the financial market, or that an application for
admission of the securities to quotation on that financial market has been made or will be made within
seven days of the date of the prospectus: s 711(5).
state that no securities will be issued on the basis of the prospectus after its expiry date: s 711(6).
The prospectus must state that a copy of the prospectus has been lodged with ASIC and that ASIC takes
no responsibility for the content of the prospectus: s 711(7).
Short-form prospectus
A short-form prospectus may simply refer to a document lodged at ASIC: s 712(1). The short-form prospectus
must contain sufficient information about the contents of the document to allow a person to whom the offer is
made to decide whether to obtain a copy of the document. If the document contains information that is primarily
of interest to professional analysts or advisers, or investors with similar specialist information needs, the shortform prospectus must contain a description of the contents of the document and a statement that the information is
primarily of interest to those people: s 712(2).
2.3
Continuously quoted securities
A prospectus for an offer of continuously quoted securities or options for such securities may be allowed where it
contains information to enable investors and their professional advisers to make an informed assessment of the
investment. The information required (s 713) is not as extensive as that required for prospectuses (s 710). The
document must contain all the information that investors and professional advisors would reasonably require to
make an informed assessment: s 713(2).
2.4
Profile statement
A profile statement for an offer may be prepared in addition to the prospectus if ASIC has approved the making of
offers of a particular kind. The approval by ASIC may specify what information is to be included in the profile
statement: s 709(3). Under s 714(1), the profile statement must:
 identify the body or company and the nature of the securities;
 state the nature of the investment risks;
 give details of all amounts payable in respect of the securities;
 state that a person given the profile statement is entitled to a free copy of the prospectus;
 state that a copy of the statement has been lodged with ASIC which takes no responsibility for the
statement; and
 give any other information that is required by the regulations.
2.5
Offer Information Statement
An offer information statement may be used if the amount of money to be raised by the body or company by
issuing the securities when added to all amounts previously raised by it or a related company does not exceed $5
million: s 709(4). Under s 715(1), the offer information statement must:
 identify the body or company and the nature of the securities;
 describe the body’s business;
 describe what the funds raised will be used for;
 state the nature of the investment risks;
 give details of all amounts payable in respect of the securities;
 state that a copy of the statement has been lodged with ASIC, which takes no responsibility for the
statement; and
 give other information.
In addition, it must also:
 state it is not a prospectus and that it has a lower level of disclosure requirements than a prospectus: s
715(1)
 include a copy of a financial report for the body or company: s 715(1). It must a report for a 12-month
period and must include statements that are less than six months old: s 715(2).
 state that no securities will be issued after the expiry date (which must be not later than 13 months after
the statement: s 715(3)).
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DISCLOSURE TO INVESTORS ABOUT SECURITIES
3.1
When is disclosure to investors required?
Offer of securities for issue
An offer for issue needs disclosure under the Part unless exempted by s 708: s 706. Offers of existing securities
for sale may need disclosure if required by s 707: s 707(1).
Offer of securities for sale
Disclosure is required where the person making the offer controls the company or body and where the securities
are not quoted or, although the securities are quoted, they are not offered for sale in the ordinary course of trading
on a relevant financial market, and s 708 does not say otherwise: s 707(2). Section 50AA provides when a person
has control of a body.
Disclosure may also be required in the case of an indirect issue of shares, which is the offer for sale shares within
12 months after their issue. This is required where the securities were issued to investors without disclosure under
the Part, and the company issued the securities with the purpose of the person selling or transferring them or
granting an option over the securities, or the person to whom the securities were issued acquired them with the
purpose of selling or transferring them or granting options over the securities, and s 708 does not say otherwise:
s 707(3).
3.2
OFFERS THAT DO NOT NEED DISCLOSURE
The following specific exclusions are provided for in section 708:
Small-scale offerings exclusion
This is where there is a personal offer of securities and where none of the offers results in a breach of the 20investors ceiling and none of the offers results in a breach of the $2-million ceiling: s 708(1).
An offer by a person to issue securities results in a breach of the 20-investors ceiling if it results in the number of
persons to whom securities of the body have been issued exceeding 20 in any 12-month period. An offer by a
person to issue securities results in a breach of the $2-million ceiling if it results in the amount raised by the body
by issuing securities exceeding $2 million in any 12-month period: s 708(3).
A personal offer may only be accepted by the person to whom it is made and be made to a person who is likely to
be interested in that offer, having regard to (under s 708(2)):
 previous contact between the person making that offer and that person; or
 some professional or other connection between the person making the offer and that person; or
 statements or actions by that person that indicate that they are interested in offers of that kind.
An offer by a person to transfer securities results in a breach of the 20-investors ceiling if it results in the number
of persons to whom the person sells securities exceeding 20 in any 12-month period. Such an offer results in a
breach of the $2-million ceiling if it results in the amount raised by the person from selling the body’s securities
exceeding $2 million in any 12-month period: s 708(4).
Sophisticated large investors exclusion
An offer of securities does not need disclosure if the minimum amount payable for the securities on acceptance of
the offer is at least $500 000: s 708(8)(a). An exemption is also available where the amount payable by the
investor for the securities on acceptance of the offer and the amounts previously paid by the investor for securities
of the company of the same class add up to at least $500 000: s 708(8)(b).
Under s 708(8) the offer does not need disclosure if it appears from a certificate given by a qualified accountant,
no more than six months previously, that the person to whom the offer is made has net assets of at least the
amount prescribed by regulations or has a gross income for each of the last two financial years of at least the
amount specified in regulations. The regulations specify that the prescribed net assets are $2.5 million and the
gross income prescribed is $250 000: reg 6D.2.03.
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PROCEDURE FOR OFFERING SECURITIES
The various steps are summarised in the table in s 717.
4.1
Preparation of disclosure document
The first step is the preparation of the disclosure document, making sure that it:
 sets out all the information required
 does not contain any misleading or deceptive statements
 is dated and that the directors consent to the disclosure document (, ss 710 to 716).
The offering of securities under a disclosure document that is materially deficient is prohibited: s 728. The
making of such an offer renders the person liable to prosecution: s 729.
4.2
Lodge the disclosure document with ASIC
The second step requires that a disclosure document to be used for an offer of securities must be lodged with
ASIC: s 718. Applications for non-quoted securities cannot be processed for seven days after the disclosure
document is lodged: s 719 (the “exposure period”).
4.3
Offer of the securities
Offers of securities for which a prospectus is being used must be accompanied by the prospectus: s 721(1).
(Breach is an offence: s 721(5)).
If ASIC has given the necessary approval and a profile statement complies with the requirements in the ASIC
approval: ss 721(1A) & (2), the securities may be offered in, or accompanied by, a profile statement. The person
making the offer must give the person a copy of the prospectus free of charge if the person asks for it:, s 721(3).
Offers for which an offer information statement is being used must be made in, or accompany, the offer
information statement: s 721(4).
A person must not make an offer of securities, or distribute an offer of securities, that needs disclosure to
investors unless a disclosure document for the offer has been lodged with ASIC: s 727(1).
4.4
Application money must be held in trust until issue of securities
Any application money that is received from a person applying for securities must be held on trust until the
securities are issued or transferred, or the money is returned to the applicants: s 722. (The applicants may have a
right to a refund and have their money returned under ss 724, 737 and 738).
4.5
Securities cannot issue unless the application form is completed
If an offer of securities needs a disclosure document, the securities can only be issued or transferred if the
applicant has completed the application form, which must be in the disclosure document or profile statement: s
723(1).
4.6
Conditions
If the disclosure document contains a statement that the securities will not be issued unless an application for a
minimum number of securities has been received, the person making the offer must not issue or transfer any
securities until that condition has been satisfied:, s 723(2).
If the disclosure document states or implies that the securities will be quoted on a financial market (in Australia or
elsewhere), then any issue or transfer of securities is void if an application for the admission of the securities is
not made within seven days of the date of the disclosure document or the securities are not admitted to quotation
within three months after the date of the disclosure document. In such circumstances, the person offering the
securities must return the money received by the person from the applicants as soon as possible: s 723(3).
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CHOICES OPEN TO OFFERER IF DISCLOSURE DOCUMENT DEFECTIVE
Where the disclosure document is deficient or a significant new matter has arisen, the offeror may choose to lodge
a supplementary or replacement disclosure document under s 719, or alternatively to return money to applicants
under s 724: s 724(2)(a).
If the offerer chooses to issue a supplementary or replacement disclosure document, then the applicants must be
given one month to withdraw their application. This action should be taken either before or after the transfer of
securities: ss 724(2)(b) and (c).
If a person offers securities under a disclosure document and the disclosure document passes its expiry date,
then the person must deal with the applications in accordance with s 725. If an application is received on or before
the expiry date, then the person may issue or transfer securities to the applicant: s 725(2). If the application is
received after the expiry date, the person may return the money or issue a new disclosure document and give the
applicant one month to withdraw the application and be repaid: s 725(3).
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PROHIBITIONS, LIABILITIES AND REMEDIES
6.1
Misstatement or omission from the disclosure document
Section 728 prohibits the offer of securities where there is a misstatement or omission from the disclosure
document or where a new circumstance has arisen since the disclosure document was lodged that would require
disclosure.
6.2
Recovery of loss or damage
Where a person suffers loss or damage because of a contravention of s 728, that person can recover the amount of
loss or damage from a person who is referred to in the table in s 729(1), namely:
 the person making the offer;
 each director of the company or body making the offer;
 a person named in the disclosure document with their consent as a proposed director;
 an underwriter;
 a person named in the disclosure document with their consent as having made a statement that is
included in the disclosure document or on which a statement in the disclosure document is made; and
 a person involved in a contravention of s 728(1).
The above persons also have a duty to inform the offeror about any deficiencies in the document: s 730.
6.3
Defences
Those persons have a number of defences available to them to avoid liability where there is a misleading or
deceptive statement in the disclosure document:
 A due diligence defence is available under s 731 where the person has made all inquiries that were
reasonable in the circumstances and, after doing so, believed on reasonable grounds that the statement
was not misleading or deceptive.
 s 732 lack of knowledge defence applies where a person proves that they did not know that the statement
was misleading or deceptive.
 A defence is available where a person has placed reasonable reliance upon information given to them by
someone other than a director, employee or agent of the company: s 733(1).
 A defence is available where a person named in a disclosure document as being a proposed director or
underwriter or as making a statement has publicly withdrawn their consent to being named in the
disclosure document in this way: s 733(2).
 A defence is also available where the person proves that they were unaware of a new matter that has
arisen since the disclosure document was made: s 733(4).
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PROHIBITIONS ON ADVERTISING
It is prohibited to advertise an offer or intended offer or publish a statement that directly or indirectly refers to the
offer or intended offer or is reasonably likely to induce people to apply for securities under the offer, if the offer
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requires a disclosure document: s 734(2). This does not apply if the advertisement or publication is authorised by
ss 734(4) to (7).
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ASIC’S POWERS
ASIC has power to issue a stop order where it is satisfied that there is a contravention of s 728, in that there has
been a misstatement or omission from the disclosure document or a new circumstance has arisen since the
disclosure document was lodged that would require disclosure: s 739(1).
Before making such an order, ASIC must hold a hearing and give a reasonable opportunity to any interested
person to make oral or written submissions to ASIC on whether an order should be made: s 739(2). ASIC may
make an interim order where any delay in making an order pending the holding of a hearing would be prejudicial
to the public interest: s 739(3).
An interim order may be made during a hearing, and such an order lasts until ASIC makes an order under s 739(1)
after the conclusion of the hearing or the interim order is revoked: s 739(4). ASIC also has power to make an
anti-avoidance determination where a number of different bodies are closely related and their transactions should
be aggregated for the purposes of Chapter 6D: s 740(1). ASIC can also determine where the transactions of a
body and a controller are to be aggregated for the purposes of the chapter: s 740(2).
ASIC also has power to exempt a person from the operation of Chapter 6D or declare that the chapter applies to a
person as if specified provisions were omitted, modified or varied as specified in the declaration: s 741(1).
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EXEMPTIONS
The Financial Services Reform Act 2001 enabled regulations to be made to exempt a person or class of persons, a
security or class of persons from specified provisions in Chapter 6D or to omit, vary or modify those specified
provisions: s 742.
Regulations have been made to exempt an offer under a dividend reinvestment plan or bonus share plan of fullypaid shares in a foreign company to an existing holder of shares in the foreign company: reg 6D.2.02.
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