CLERP fundraising changes: Seven crucial days

Richard Cockburn* outlines how the CLERP Act changed the fundraising provisions of the Corporations Law and ASIC's policy on some of these changes.

You can now read offer documents up to seven days before applications for fundraising open. This is just one of the substantial changes to the fundraising provisions of the Corporations Law introduced by the Corporate Law Economic Reform Program Act 1999 that start on 13 March. We have released six new policy statements, new class orders and a series of information releases in preparation for these fundraising changes as well as the new takeover provisions.

During the transitional period we will exercise our discretionary powers in line with our pre-CLERP policy. This will assist in a smooth transition to the new provisions. Our policy statement Fundraising: discretionary powers tells you which policy statements, practice notes and class orders will continue to operate, are being reviewed or are superseded. Our staff are using databases which enable them to identify CLERP issues and to answer your queries consistently across Australia.

The biggest single change to the Law is that the registration process for fundraising documents has been abolished. There will now be a seven-day exposure period for offer documents. During this time:

* you will be able to read them.

Examining offer documents

We do not expect to examine many offer documents during the new seven-day exposure period. We will examine some based on risk or complaints we receive. We expect your competitors will continue to be a valuable source of information for us on fundraising documents. When we receive a complaint that appears to justify follow up action, we will send issuers requisitions during the exposure period. If they are not satisfactorily dealt with that period will be extended another seven days. If it has not been resolved at the end of that period we will generally issue a stop order. Given the relatively short exposure period it is likely that the first an issuer knows of the examination is shortly after the exposure period when they receive requisitions. We will scan most offer documents lodged with us by unlisted entities to see if they fall into a high risk category. Only these, or documents on an issue we are currently focusing on, will be examined. If a defect is discovered our usual practice will be to tell the issuer and give them an opportunity to correct it in a supplemental or replacement prospectus. This places the onus on advisers preparing disclosure documents to get them right and not to rely on us to double check them.

Public exposure

To assist issuers and people wanting to examine fundraising documents we have launched Offerlist on our Internet site (www.asic.gov.au). This register tells you what documents have been lodged and where to get a copy of them. Unless someone complains, or there is not enough information to put it on Offerlist, we will assume the document was made generally available. However, we have the power to extend the exposure period by up to a further seven days. We aim to scan and make issue documents available on our public search system for public searching about three business days after they're lodged. We are also encouraging issuers to put their document on their Internet sites during the exposure period and to quickly respond to requests for hard copies.

Accepting applications during the exposure period

Issuers may passively receive applications during the exposure period. If there is a first-come-first-served regime in place for an oversubscribed issue, applications received during the exposure period are to be regarded as received at the close of business on day one of the offer period. We recommend that no application forms be distributed during the exposure period.

Profile statements

Profile statements are very short documents that allow investors in some managed investment schemes to make comparisons between similar schemes. It is very likely that investors may invest solely on the basis of a profile statement (although the liability regime in effect deems them to have relied on the lodged prospectus).We have given relief to encourage the use of profile statements particularly for those managed investment products that can use concise prospectus.

Profile statements must include more information than is set out in the Law. This is because in market research we undertook for the simpler managed investment prospectus project investors indicated they wanted better information. Therefore issue documents must answer the following questions:

* How will the scheme generate returns for investors and what form will those returns take?

* How can an investor invest in the scheme?

* How and when can an investor withdraw their investment from the scheme?

* How can an investor switch into other schemes (if relevant)?

The risk disclosure must include a graphical illustration of the returns over a 10 year period (or the life of the scheme if that is shorter). The fees and charges disclosure must include separate figures, as well as the aggregate of all entry, on going and exit fees, charges and commissions.

Debenture issues

We have given relief to issuers of debentures allowing them to include the rate and term details in an application form or to have them printed on applications which are lodged with us. Financial reports In our policy statement Financial reports for offer information statements we have clarified how financial reports included in an issue document must be prepared and by whom.

More policy reviews

We will review a large number of our policies in the fundraising and takeovers areas in the next 12 months to make sure they are relevant to the policy underlying the CLERP amendments. Our wide consultative processes will continue and I want to thank the large number of you who make yourselves and the resources of your firms available to comment on our policy proposals.

*Richard Cockburn MAICD is ASIC's national co-ordinator for Mergers & Acquisitions, and Fundraising. Visit ASIC's Policy and Practice page on www.asic.gov.au where copies of major CLERP releases can be downloaded

Disclaimer

The purpose of this database is to provide a full-text record of all articles that have appeared in the CDJ since February 1997. It is aimed to assist in the research and reference process. The database has a full-text index and will enable articles to be easily retrieved.It should be noted that information contained in this database is in pre-publication format only - IT IS NOT THE FINAL PRINTED VERSION OF THE CDJ - therefore there might be slight discrepancies between the contents of this database and the printed CDJ.