Make no mistake about it: ASIC is on the
prowl!
Misleading and deceptive statements and inadequate disclosure
of important information in offer documents, unregistered managed
investment schemes and “unfit” responsible entities
are among its more recent quarry.
None of this concerns me, I hear you say? I am an experienced
property developer doing no more than what property developers
have been doing for years.
Well, you may be right.
But before embarking on that next project, be safe rather
than sorry. Find out whether the Corporations Act 2001 and
the many practice notes, policy statements and class orders
made under it apply to you and if they do what you need to
do.
It is impossible here to cover all the questions, but some
of the more common are:
-
What structure should I use: (e.g. company,
trust or joint venture)?
-
Can I raise money from the public if
I need it?
-
Are there any restrictions on doing
this and if so, what are they?
-
Do I need a licence to promote my project
to potential investors?
-
Should I register it with ASIC?
-
What can ASIC do to me if my project
or the information I have provided does not comply with
the Corporations Act 2001?
On balance, the most frequently asked question is: What
information do I have to give potential investors? That is,
do I need a prospectus or some other form of disclosure document
such as a short-form prospectus, a profile statement or an
offer information statement?
If you are making an offer of securities (shares, debentures
and so on), the good news is you do not always need a disclosure
document.
You won’t need one if your offer falls within one
or more of the disclosure exemptions.
Some of the more commonly relied upon disclosure exemptions are:
-
The sophisticated investor – someone
ready to part with at least $500,000 or whose accountant
certifies that he or she has the prescribed level of net
assets or gross income.
-
The professional investor – these
include financial services licensees, trustees of superannuation
funds and listed entities.
-
Small-scale offerings – no more
than 20 investors in any 12-month period raising no more
than $2 million.
-
Related party offerings – these
include offerings to executive officers of the issuing
body and their immediate family and any body corporate
controlled by them.
Small property syndicates – which must have 15 investors
or less – also do not require a disclosure document
for their offerings.
If you are not offering securities but are involved with managed investment
schemes or other forms of financial products, then a series of other
questions need to be answered. They usually centre on operational,
advising and dealing issues.
Where or not an Australian Financial Services Licence (AFSL)
is required can be most critical.
If you are promoting managed investment schemes, even if
they are to be less than 20 investors, you will need an AFSL.
You also will need one for advising and dealing where you
are relying on a disclosure exemption (if you have previously
promoted schemes based on a disclosure exemption, you are
not obliged to have an AFSL until 11 March 2004).
No matter how humble your project, there can be a lot of
red tape to negotiate.
If you ignore it or chance your arm on whether you are compliant,
ASIC the corporate cop, may come knocking on your door.
Obtaining legal advice, in advance, is good risk management and sound
planning.
Written by Michael Gough
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