$2.8 Million Penalty: A Stark Reminder About Fundraising Disclosure Obligations

The Federal Court has sent a powerful message to company directors about the consequences of ignoring fundraising disclosure obligations.

In Australian Securities and Investments Commission v Open4Sale Global Ltd (No 2) [2025] FCA 1038, two directors were ordered to pay $2.8 million in civil penalties and were disqualified from managing corporations for up to 12 years after breaching disclosure laws on over 101 occasions.

What Happened?

From March 2019 through to July 2023, Open4Sale Global Ltd (Open4Sale) secured $1.3 million in funding from 83 retail investors. The company failed to lodge disclosure documents with ASIC or provide them to potential investors as required by law.

Rather, investors received marketing materials containing wildly optimistic and unverified financial projections (forecasting revenues of US$57 billion over five years). These projections had no basis in reality given the company’s track record of zero income from 2016 to 2022, with losses in the vicinity of $9 million.

The Court’s findings revealed concerning conduct including:

• None of the investors qualified for exemptions from disclosure requirements. Investors were retail investors entitled to proper disclosure;
• One of the directors, Mr La Barrie, diverted more than $1.4 million from investor funds to cover personal living costs, including household rent and children’s school fees; and
• The other director, Mr Hafer, earned nearly $138,000 in commissions procuring new retail investors while knowing the company had not prepared or issued the required disclosure documents.

Justice Charlesworth found the contraventions to be particularly serious, noting that both directors demonstrated “a blatant disregard for the law.” When the directors argued their conduct hadn’t yet harmed investors, Her Honour disagreed, pointing to records so inadequate that “it is not possible to discern [the company’s] actual financial position.”

As a result, the Court ordered that:

• Mr La Barrie pay a $2 million penalty and be disqualified from managing corporations for 12-years; and
• Mr Hafer pay a $800,000 penalty and be disqualified from managing corporations for 8-years.

The Court declined to impose financial penalties on the Open4Sale company itself, finding that the removal of the culpable directors from the board served as sufficient deterrence.

Key Takeaways for Directors

The Open4Sale decision reinforces fundamental principles that apply to all Australian companies when raising capital:

• Public companies offering securities must generally provide disclosure to investors in accordance with Chapter 6D of the Corporations Act by preparing and lodging a disclosure document with ASIC (ie., a prospectus, product disclosure statement, offer information statement, etc). Listed public companies should also consider the requirements of any applicable stock exchange listing rules when raising capital.
• Proprietary companies face similar prohibitions – section 113 of the Corporations Act prohibits proprietary companies from engaging in any activity requiring disclosure under Chapter 6D (except for in certain limited circumstance). Proprietary companies can therefore only raise capital if certain specific exemptions enabling them to do so apply (see below).
• Section 708 of the Corporations Act provides exemptions from disclosure requirements in certain circumstances (such as offers to sophisticated investors, professional investors, small scale offerings, and offers to existing shareholders/employees), but to qualify for these exemptions, specific criteria must be satisfied. These are the most common exemptions relied on by private companies when raising capital.
• Even when operating within disclosure exemptions, a company and its officers are not exempt from the misleading and deceptive conduct rules in the Corporations Act. As Open4Sale discovered, directors can still face civil and criminal penalties for false or misleading statements, dishonest conduct, or misleading or deceptive conduct relating to financial products, regardless of whether an exemption applies.
• Directors must always consider their director duties. Courts will not tolerate a “blatant disregard for the law.” Personal benefits flowing to directors from non-compliant fundraising, misappropriation of investor funds, and inadequate record-keeping will attract severe penalties and lengthy disqualification periods.

The Bottom Line

As ASIC Deputy Chair Sarah Court emphasised in this matter: “Disclosure laws exist to make sure that investors are clearly and accurately informed about the nature of their investments and how their money will be used.”

The consequences of non-compliance can include personal financial penalties, reputational damage, disqualification from corporate management and potential criminal liability for directors.

If you are considering raising capital for your company, seek legal advice before commencing any fundraising activities. Understanding your disclosure obligations and ensuring compliance is not optional , especially when dealing with retail investors. As the Open4Sale directors discovered, the cost of compliance is far less than the price of contempt.

Queries

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Disclaimer

This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to Cornwalls’ clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action