PDF DOWNLOADOn 12 April 2011, the Australian Securities and Investment Commission (ASIC) released Consultation Paper 155 – Prospectus disclosure: Improving disclosure for retail investors (Consultation Paper) and an accompanying draft regulatory guide. Two of the central themes highlighted in the Consultation Paper relate to ASIC’s guidance on:
- how to word and present prospectuses (and certain other documents) (Prospectus) in a ‘clear, concise and effective manner’; and
- how to satisfy the ‘general content testing’ under section 710 of the Corporation Act 2001 (Cth).
Following the release of the Consultation Paper, ASIC has invited industry to provide it with feedback regarding the proposed reforms by 7 June 2011. It is anticipated that ASIC will release a new regulatory guide, which will adopt some of the submissions lodged during the consultation period, in December 2011.
Rationale for Consultation Paper
In the 12 months prior to the release of the Consultation Paper, ASIC ran a project to “identify the difficulties that issuers have when preparing prospectuses and the difficulties that retail investors face when reading prospectuses”. This was achieved by ASIC revisiting previous disclosure concerns identified by it and reviewing complaints received by it regarding Prospectus disclosure, amongst others. Accordingly, the proposals in the Consultation Paper are based on recent issues and concerns regarding Prospectuses.
Proposed Key Changes
Some of the key proposed changes in the Consultation Paper include:
- Investment Overview Section
Future Prospectuses should include an “Investment Overview” section at the beginning of the document which would replace the often used “Investment Highlights”, “Frequently Asked Questions” (and similarly named sections) containing information that is crucial to retail investors when considering whether to apply for the proposed securities.
- Presentation
ASIC recommends that the use of photographs in Prospectuses should be kept to a minimum and not be used in the “Investment Overview” section at all. ASIC wants to ensure that the “Investment Overview” only contains the key information that a potential investor requires when determining whether to invest in a company. In ASIC’s view, the use of glossy pictures in this section adds very little, if anything, to such investment decision.
- Description of Business Model
A detailed description of the issuer’s business model (e.g. how the issuer proposes to generate revenue or capital growth for investors) explaining the key assumptions that underpin such model should be given. Key information that may be included is information regarding finance arrangements, strategy, dividend policy and essential assets, amongst others.
- Key Risks
ASIC recommends that the “key risks” associated with the issue are disclosed and are accompanied with a detailed explanation. Such risks include events or circumstances that would have a reasonable likelihood of occurring and which would have a significant effect on the issuer’s financial position and the value of shareholders’ investments.
- Directors and Key Managers
A detailed description of each director’s and key manager’s experience and background must be provided. Importantly, such description should include the details of whether or not the person has any criminal convictions, disqualification orders, bankruptcies or any disciplinary orders in Australia within the last 10 years and whether they have been an officer of a company that has entered into a form of external administration within a period of 12 months of their appointment with the issuer.
For further detail on the Consultation Paper, please click here
Recommendations
We recommend that those involved in preparation of Prospectus’ consider, to the extent appropriate, adopting the key recommendations made by ASIC in the Consultation Paper even prior to those recommendations being formalised in a new regulatory guide.
Contact details
Sydney
Darren Pereira, Partner
T: +61 (0)2 8083 0487
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Melbourne
Dan Pearce, Partner
T: +61 (0)3 9321 9840
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Brisbane
Philip Vickery, Partner
T: +61 (0)7 3135 0632
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Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we
endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will
continue to be accurate in the future.