Prospectus Requirements

The Corporate Law Reform Act 1994 discussed below, extended the life of a prospectus from 6 months to 12 months.

Foreign Collective Investment Schemes

The following foreign collective investment schemes have been granted exemptions in accordance with Policy Statement 65 from compliance with certain prospectus requirements of the Corporations Law:

(a) a scheme involving:

(i) unit trusts as defined in s2 of the Unit Trusts Act 1960 (NZ); or
(ii) the issue of participatory securities as defined in s2(1) of the Securities Act 1978 (NZ) that invests primarily in market traded securities (as defined in para 13(h) of Policy Statement 65); and which provides a buy-back or redemption facility and a reasonable period of notice for the exercise of such a facility, the terms of which are set out in the scheme's constituent documents.

The trust deed of these schemes must be approved by the Registrar or District Registrar and a copy lodged with the District Registrar of Companies under s8 and 9 of the Unit Trusts Act 1960 (NZ).

Effective 21 August 1995

(b) a scheme declared by the Guernsey Financial Services Commission to be an authorized collective investment scheme, Class A1, under section 8 of The Protection of Investors (Bailiwick of Guernsey) Law 1987.

Effective 1 July 1996

Continuing Reporting Obligations

The most substantial regulatory change occurred in the area of continuous disclosure with amendments to the Corporations Law made by the Corporate Law Reform Act 1994. These changes potentially may apply to some foreign companies - i.e., those who have offered securities via a prospectus lodged in Australia. Unless, however, securities of a foreign company are quoted on the ASX under Listing Rule 1A, it is very unlikely that a foreign company will ever be a disclosing entity. This is because:

(a) of the exemption for foreign companies quoted under Listing Rule 1B; and

(b) securities for a foreign company issued pursuant to a prospectus or a takeover scheme or compromise or arrangement under Pt 5.1 are not counted for the purposes of determining a disclosing entity.

These issues are discussed below with some background information on the changes made to the disclosure requirements in Australia.

Enhanced Disclosure

Overview

Part 1.2A of the Corporations Law came into force on 1 July 1994. It introduces the concept of disclosing entities to the Corporations Law. Disclosing entities are required to comply with strict accounting and information disclosure obligations.

A disclosing entity is a body or undertaking (prescribed interest schemes) that has issued securities that are Enhanced Disclosure (ED) securities. The two most common classes of ED securities that are quoted on a stock market (quoted ED securities) and securities to which a prospectus relates.

The consequences of being a disclosing entity are:

(i) half-year and full-year accounting periods apply to the entity for accounting periods which commence after 1 July 1994;

(ii) a continuous disclosure regime applies to the entity;

(iii) the entity may be able to take advantage of the more relaxed prospectus content rule in sec 1022AA.

What is a disclosing entity?

Disclosing entities are defined in sec 111AC:

(i) A body will be a disclosing entity if any securities of the body are ED securities. This applies to all securities except prescribed interests and units of prescribed interests: sec 111AC(1).

(ii) If any prescribed interests or units of prescribed interests are ED securities, the undertaking to which the interests relate is a disclosing entity: sec 111AC(2).

The first and second parts of the definition are mutually exclusive. Therefore, if any corporation has made available units in a prescribed interest scheme, it is the undertaking to which the prescribed interest relate (i.e., the scheme) and not the corporation that is a disclosing entity.

What are ED securities?

Securities of a body will be ED securities if:

(i) the securities are quoted on a stock market;

(ii) a lodged or deemed prospectus relates to the securities;

(ii) the securities were issued as consideration for an acquisition under a takeover scheme or Pt 5.1 compromise or arrangement; or

(iv) the securities are debentures to which sec 1052 (which requires a trustee to be appointed) applies.

Thus, if a company issues shares that are quoted on a stock market, those shares will be ED securities: the company, therefore, will be a disclosing entity. Similarly, if a company makes available prescribed interests that are quoted, the prescribed interests will be ED securities and the undertaking to which they relate will be a disclosing entity.

Exempt Foreign Companies

For foreign issuers listed on the ASX, regulation 1.2A.01 provides securities of an exempt foreign company (in terms of Listing Rule 1B) are exempt from the disclosing entity provisions of the Corporations Law.

SECTION 1B EXEMPT FOREIGN COMPANIES

(1) A foreign company may be considered for admission to the Official List as an exempt foreign company, if;

(a)

(i) it has net tangible assets exceeding AUD500,000,000 or;

(ii) it is a going concern or successor of a going concern having operating profit before income tax for each of the past 3 years of at least AUD100,000,000 and which profits in the opinion of the Exchange are derived from the company's ordinary activities; and

(b)

(i) it has as its overseas home exchange, a stock exchange that is designated as an approved foreign exchange by the ASC for the purposes of the granting of relief from Divisions 2, 3 or 6 of Part 7.12 of the Corporations Law; or

(ii) it has as its overseas home exchange, a stock exchange that has listing rules (or their equivalent), or it is subject to laws, which in the opinion of the Exchange make adequate provision with respect to market information and market regulation. Without limiting the factors to be considered, when determining whether adequate provision has been made, the Exchange shall have regard to the market information principle and regulatory principle. The Exchange may also have regard to the market capitalization and percentage of world trading which takes place on the overseas home exchange, whether that exchange is a member of the Federation Internationale des Bourses de Valeurs (FIBV) and whether that exchange receives concessional treatment from other exchanges; and

(c)

it is subject to the listing rules (or their equivalent) applicable to it in the place of its overseas home exchange; and

(d)

it establishes and agrees to maintain an Australian register or, if no Australian register, then a register of depository receipts or appropriate facilities for transfer registration; and

(e)

it agrees to pay listing fees determined in accordance with Section 4A, 4B and 4C, except that the minimum fees payable by an exempt foreign company shall be $25,000 for the Initial Listing Fee and $5,000 for the Annual Listing Fee; and

(f)

it agrees to submit a copy of the company's Annual Report as specified in Appendix 1B and any subsequent interim report and after admission to the Official List such other number of those documents as is specified in Appendix 1B or as otherwise may be required by its Home Branch; and

(g)

it completes the form of application for admission to the Official List set out in Appendix 1B; and

(h)

the Exchange is satisfied that the company is in compliance with the listing rules (or their equivalent) of the company's overseas home exchange. Without limiting other ways for the Exchange to satisfy itself of this requirement, it may have regard to a statement signed by at least two directors that the company is in compliance with the listing rules (or their equivalent) of its overseas home exchange;

(i)

the Exchange agrees to classify the company as an exempt foreign company; and

(j)

(except in the case of a company incorporated in a jurisdiction whose laws preclude participation in CHESS) if the company is admitted to the Official List on or after 1 January 1995 (or such later date as may be determined by SCH) it satisfies the requirements (if any) for its securities to be CHESS approved securities.

Exemption for the Issue of Securities in Connection with Foreign Takeover

Regulation 1.2A.02 provides a further exemption is provided where foreign companies where:

(a)

the company issues the securities in connection with a foreign takeover offer or foreign scheme or arrangement; and

the securities issued are, at the time of issue, securities in a class of securities quoted on an approved foreign exchange; and

(c)

the terms and conditions of the issue to citizens and Australian permanent residents are the same as those applying to each other person receiving securities that are in the same class; and

(d)

the same notices, documents or other information (or, where applicable, an English translation of these) (modified, if necessary, to include any additional information for the purposes of complying with Division 2 of Part 7.12 of the Corporations Law) are given to Australian citizens or permanent residents as are given to each other person; and

(e)

the notices, documents and other information are given to Australian citizens and permanent residents at the same time, or as soon as practicable after, they are given to those other persons; and

(f)

in relation to the issue - the company complies with all legislative and stock exchange requirements in the place in which is located:

(i) the approved foreign exchange; or
(ii) if more than one - the principal approved exchange;

on which the company's securities are quoted.

"approved foreign exchange" includes:

(a) American Stock Exchange Inc.;
(b) New York Stock Exchange Inc.;
(c) New Zealand Stock Exchange Inc.;
(d) The Stock Exchange of Hong Kong Ltd;
(e) Stock Exchange of Singapore Limited;
(f) The Amsterdam Stock Exchange;
(g) the Frankfurt Stock Exchange;
(h) The International Stock Exchange of the United Kingdom and the Republic of Ireland Limited;
(i) the Milan Stock Exchange;
(j) the NASDAQ National Market;
(k) the Paris Bourse;
(l) the Tokyo Stock Exchange;
(m) the Toronto Stock Exchange;
(n) the Zurich Stock Exchange;

"foreign scheme of arrangement" means a compromise or arrangement that is subject to court approval under subsection 411 (6) of the Corporations Law, between:

(a) a foreign company and a class of its creditors; or
(b) a foreign company and a class of its members;

"foreign takeover offer" means an offer-made to acquire all or some of the shares of:

(a) all holders of a class of shares in a foreign company; or
(b) all holders other than:

(i)the offerer; or
(ii) the offerer and its associates (within the meaning of Division 2 of Part 1.2 of the Corporation Law).

Significance of being a disclosing entity

Division 3 of Pt 1.2A imposes two burdens and one benefit on disclosing entities. Disclosing entities are subject to periodic reporting obligations and continuous disclosure requirements. Disclosing entities may also be eligible for limited relief from certain prospectus content rules.

Periodic reporting obligations

A disclosing entity is subject to half-year and full-year accounting periods.

Continuous disclosure requirements

Disclosing entities are also subject to continuous disclosure requirements. The source of the continuous disclosure regime for listed disclosing entities is the Listing Rules of the Australian Stock Exchange (particularly Listing Rule 3A(1)).

If the Listing Rules apply to the entity and require it to notify the Exchange of specified events or matters so that they can be released to the market, these must be complied with: sec 1001A(1). A disclosing entity must not intentionally, recklessly or negligently fail to notify the Exchange of any such information if it is information that a reasonable person would expect to have a material effect on the price of the ED securities and the information is not generally available: sec 1001A(2).

An unlisted disclosing entity must lodge a document with the ASC containing information if it is information that:

(i) is not generally available;

(ii) a reasonable person would expect, if it were generally available, to have a material effect on the price or value of ED securities of the entity; and

(iii) is not required to be included in a supplementary prospectus or a replacement prospectus in relation to the entity: sec 1001B(1).

An intentional, reckless, or negligent failure to comply with sec 1001B is a contravention of the section but only intentional or reckless contraventions are offences: sec 1001B(2) and (3).

Prospectus relief

The general prospectus content rules are modified in the case of prospectuses issued by disclosing entities.

The continuous disclosure regime in sec 1001A-1001D requires disclosing entities to disclose certain information to the market on a continuous basis. Consequently, much of the information which would have traditionally been provided in a prospectus relating to a securities issue would already have been released to the market. Section 1022AA gives recognition to this fact by limiting the information which must be provided in a prospectus relating to quoted ED securities of a disclosing entity to what has been termed transaction-specific information.

In the commentary that follows, the term "transaction-specific prospectus" is used to describe a prospectus issued in accordance with sec 1022AA. In order to issue the limited form of prospectus in sec 1022AA, the following criteria must be satisfied.

1. The securities the subject of the prospectus must be quoted ED securities in a class of securities that were quoted ED securities at all times in the 12 months before the issue of the prospectus.

2. The entity must not have been exempted from applicable provisions.

3. There must not be an instrument in force excluding the disclosing entity from relying on sec 1022AA.

In Practice Note 53, the Commission has stated that in its opinion there is a further requirement that the continuous disclosure regime has been complied with for the 12 months preceding the issue of the prospectus (.31 at para 47)/

What information must appear in the prospectus for ED securities?

The primary test for inclusion of information in the transaction-specific prospectus is that the prospectus must:

(a) set out the terms and conditions of the offer or invitation contained in the prospectus; and

(b) contain all such information as investors and their professional advisers would reasonably require and reasonably expect to find in the prospectus for the purposes of making an informed assessment of:

(i) the effect of the offer or invitation on the disclosing entity; and
(ii) the rights attaching to the securities; and

(c) contain a statement that:

(i) explains that the disclosing entity, as such an entity, is subject to regular reporting and disclosure obligations; and
(ii) advises that copies of documents lodged in relation to the entity may be obtained from, or inspected at, an office of the Commission: sec 1022AA(2).

There is a safeguard in place to ensure that information which has not been released under continuous disclosure for reasons of confidentiality or prejudice must be included if relevant to the assets and liabilities, financial position and prospects of the disclosing entity or the rights attaching to the securities: sec 1022AA(6).