ASIC CLASS ORDER [CO 14/128]
EXPLANATORY STATEMENT
Prepared by the Australian Securities and Investments Commission
Corporations Act 2001
The Australian Securities and Investments Commission (ASIC) makes Class Order [CO 14/128] under subsection 741(1) of the Corporations Act 2001 (the Act).
Subsection 741(1) provides that ASIC may exempt a person from a provision of Chapter 6D.
1. Background
Chapter 6D of the Act relates to fundraising and regulates disclosure to investors for offers of securities, including the provision of disclosure documents and application forms to them.
Under subsection 723(1) of the Act, if an offer of securities needs a disclosure document, the securities may only be issued or transferred in response to an application form. The subsection also prohibits securities from being issued or transferred unless the person issuing or transferring them (offeror) has reasonable grounds to believe that:
(a) the application form was included in, or accompanied by, the disclosure document when the form was distributed by the offeror; or
(b) the application form was copied, or directly derived, by the person making the application from a form referred to in paragraph (a).
Subsection 727(2) of the Act prohibits a person from making an offer of securities, or distributing an application form for an offer of securities, that requires disclosure to investors under Part 6D.2 unless the offer or application form is included in, or accompanied by a copy of, the disclosure document lodged with ASIC.
Section 724 of the Act sets out how an issuer must deal with unprocessed application forms that relate to a deficient disclosure document where the deficiency is ‘materially adverse’ from the point of view of an investor. An issuer must either repay the application money, or distribute to applicants a supplementary or replacement disclosure document correcting the deficiency and give them one month to withdraw their application and be repaid (see subsections 724(2) and (3) of the Act).
The consequence of lodging a supplementary or replacement disclosure document for any reason (i.e. whether or not it corrects a deficiency that is materially adverse from an investor’s viewpoint) is that the disclosure document is then taken to be the replacement document, or the disclosure document together with the supplementary document, for the purposes of applying Chapter 6D to ‘events’ that occur after the lodgement (see subsections 719(4) and (5) of the Act).
Class Order [CO 00/189] Use of original application form with s724(3) documents provided conditional relief from subsections 723(1) and 727(2) so that an offeror did not have to include copies of current application forms with updated disclosure documents sent under subsection 724(3) if any application form which was referable to the updated disclosure documents sent under that subsection was not different to the application form sent with the original disclosure document.
Repeal of relief to permit use of ‘outdated’ application forms
The relief in Class Order [CO 00/189] was premised on the view that the ‘issue’ of securities in response to an unprocessed application form is an ‘event’ (section 9) for the purposes of subsections 719(4) and (5) of the Act, which is relevant for the purposes of subsection 723(1) of the Act.
According to this view, as this proposed issue of securities, in response to an existing unprocessed application form, will occur after the lodgement of the updated disclosure document, an issuer who has received an application form that was included in or accompanied the original document, but which remains unprocessed, is not capable of having reasonable grounds to believe the application form they are about to process was included in or accompanied the updated document at the time the form was distributed by the issuer.
ASIC has recently reviewed its interpretation of the fundraising provisions in Chapter 6D and their application to the distribution of application forms and supplementary and replacement disclosure documents.
Following that review, ASIC considers that the relief in Class Order [CO 00/189] may no longer be necessary, as it was introduced following the implementation of the reforms under the Corporate Law Economic Reform Program Act 1999 (CLERP Act) as an interim measure, to remove any uncertainty about the use of ‘outdated’ application forms for issuing or transferring securities in certain circumstances in accordance with section 723 of the Act. ASIC considers that the market no longer requires relief under Class Order [CO 00/189].
Paragraphs 724(1)(c) and (d) and subsections 724(2) and (3) of the Act specifically set out how an issuer must deal with unprocessed applications that relate to a deficient disclosure document where the deficiency is materially adverse from an investor's perspective. In contrast, Chapter 6D does not specifically set out how an issuer should deal with unprocessed application forms that were distributed with a disclosure document that is no longer current where a supplementary or replacement document was lodged in circumstances other than to correct a materially adverse deficiency as described in paragraphs 724(1)(c) and (d). Chapter 6D also does not expressly provide for withdrawal rights for persons whose applications have been processed, and at a later point in time, an updated document has been lodged (for any reason), though such persons may have civil remedies under section 729 if they have suffered loss.
ASIC's view is that Chapter 6D is primarily concerned to ensure withdrawal rights (and updated disclosure documents) are provided to applicants in circumstances where the new information contained in the updated disclosure document is such that it might cause a reasonable investor to change their mind about their original decision to invest (i.e. to withdraw). Such is evident from the ‘materially adverse from the point of view of an investor’ test in subsection 719(1) and paragraphs 724(1)(c) and (d) of the Act.
Having regard to the structure of Chapter 6D and the underlying policy, ASIC considers that the reference to ‘events’ in subsections 719(4) and (5) for the purpose of applying those provisions to the prohibition in subsection 723(1) is a reference to ‘offers’. In relation to unprocessed applications, subsections 719(4) and (5) do not relevantly apply because the ‘offers’ to which these unprocessed applications relate would have been offers made before the lodgement of the updated disclosure document. Accordingly, provided the issuer has reasonable grounds to believe the application form they are about to process was included in or accompanied the original disclosure document at the time the form was distributed by the issuer, subsection 723(1) does not prohibit the issuer from issuing the securities. (The issuer may be required to follow the procedures in section 724 if the updated document was lodged to address one of the circumstances in subsection 724(1) of the Act.)
2. Purpose of the class order
The purpose of Class Order [CO 14/128] is to repeal Class Order [CO 00/189], on the basis that the relief for permitting the use of outdated application forms is no longer necessary.
3. Operation of the class order
Class Order [CO 14/128] repeals Class Order [CO 00/189].
4. Consultation
ASIC undertook consultation before making this Class Order by issuing Consultation Paper (CP) 211 Facilitating electronic offers of securities: Update to RG 107. ASIC received 4 submissions in response to CP 211 which indicated support for the views underlying the Class Order. Details of the submissions received are contained in REP 385 Response to submissions on CP 211 Facilitating electronic offers of securities: Update to RG 107 which is available on ASIC's website www.asic.gov.au.
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
ASIC Class Order [CO 14/128]
This class order is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview of the class order
Class Order [CO 14/128] repeals Class Order [CO 00/189].
Class Order [CO 00/189] related to the fundraising provisions in Chapter 6D of the Corporations Act 2001 (the Act). Chapter 6D has provisions relating to the updating of a disclosure document to correct a deficiency which is materially adverse from the point of view of an investor and how an offeror of securities should deal with unprocessed application forms that had been distributed with the original, outdated disclosure document.
In certain circumstances, the offeror must give the applicants the opportunity to withdraw their applications and provide them with the updated disclosure document. Class Order [CO 00/189] provided conditional relief so that the offeror could issue or transfer securities in response to the ‘outdated’ application forms and did not have to include ‘current’ application forms with the updated disclosure documents sent to those applicants.
ASIC has recently reviewed its interpretation of the fundraising provisions and their application to application forms. Following that review, ASIC considers that the relief in Class Order [CO 00/189] may no longer be necessary, as it was introduced following the implementation of the reforms under the Corporate Law Economic Reform Program Act 1999 (CLERP Act) as an interim measure to remove any uncertainty about the use of ‘outdated application forms’ for issuing or transferring securities in certain circumstances. ASIC considers that the market no longer requires relief under Class Order [CO 00/189].
Consequently, Class Order [CO 00/189] was repealed by Class Order [CO 14/128].
Human rights implications
Class Order [CO 14/128] does not engage any of the applicable rights or freedoms.
Conclusion
Class Order [CO 14/128] is compatible with human rights as it does not raise any human rights issues.