W3 - FUNDING COMPANY OPERATIONS

To encourage investment

To protect the investing public

Full and accurate disclosure of relevant information concerning the activities of PUBLIC companies

A person is prohibited from offering securities or distributing application forms unless disclosure document has been lodged with ASIC (Australian Securities and Investments Commission)

Breaching s727 = Criminal offence
S1311

with ASIC
S719

Can be given to potential investors immediately

7-day waiting period

If any incorrect information that exists in the disclosure document, parties can apply for injunction to stop the fundraising

An offer of securities for issue needs disclosure to investors unless exemptions under s708 apply.

"Offer", as defined in s700(2), is inviting application

"Securities", as defined in s92(4), are shares of a body, debentures

"Issue" = primary, not secondary trading

To a particular person, not to the public

< 20 investors over 12 months

< $2mil over 12 months

Minimum amount payable for securities = $500,000
S708(8)(a)

Does not include the company's loans

Minimum $250,000/year for the 2 last financial years

Minimum $2.5mil

Made through a financial services licensee

Licensee must approve that the investor has enough experience to assess the gains and risks

Investor must sign a written acknowledgement of no disclosure document provided

= Financial services licensee

= A body regulated by APRA (Australian Prudential Regulation Authority)

= A trustee of a superannnuation fund with net assets = min 10mil

Takes part in the management of the company

Not director or secretary of the company

No disclosure document required when offering securities to senior manager

of the body

of a related body

of their spouse, parents, child, brother or sister

Offers fully paid shares to the existing security holders under

Dividend reinvestment plan

Bonus share plan

Must contain all information that investors and their advisors would reasonable require to make an informed assessment

Rights and liabilities attached to securities

Assets and liabilities, financial position and performance, profit and losses and prospects of the body

If restructuring, disadvantages as well as advantages of proposed restructure

terms and conditions of offer

disclosure of interests, fees and benefits

quotation

expiry date

lodgement with ASIC

Must have reasonable grounds for making the forward-looking statement

Test made by the court when the plaintiff accused that the company was not providing any closure documents

The compulsory additional document sent with the prospectus if ASIC approved the use of profile statement instead of disclosure statement

The body and the nature of securities

the nature of the risks involved in investing in the securities

all amounts payable in respect of the securities

the person given the profile statement is entitled to a free copy of the prospectus

Be lodged with ASIC but ASIC takes no responsibitlity of the contents

Additional information required by the regulations or ASIC approval

Enable a prospectus referring to documents associated with the Australian Securities and Investments Commission (ASIC)

OIS provides an option to prospectus for small fundraisings, amount raised less than 10 million-total

A person prohibited from offering securities under a Disclosure Document if it contains

Misleading or Deceptive statement

Omission of information required

Once a person becomes aware of the Misstatement Disclosure or omission, they must

Stop making offer

And send a replacement document

offer maker

director of the company which makes the offer

a person

have name in Disclosure document

with their consent as a proposed director of the body whose securities been offered

an underwriter to the issue or sale named in the disclosure document with their consent

*An underwriter is often an investment bank or broker-dealer.

a person named in the disclosure document with their consent of having made a statement

that is included in the disclosure doc

OR, that based the inclusion of other statement

a person who violates or involves in the violation of the prohibition under s.728 (1)

(only available for prospectus)
A person made all reasonable inquiries and believed the statement on reasonable grounds

have a proper system of checking statements

many co set up a "due dilligence committees" to do this

available for OIS and profile statements

unaware of misleading or deceptive statements or omissions

(1)

reasonably relied on info given by someone else (other than a director, employee or agent)

(3)

If proposed directors/maker of statement publicly withdrew their consent to be named in disc doc.

(4)

unawareness of new matter, not liable if new matter has arisen since the lodgement of disclosure document.

ASIC can stop further offers, issues, sale or transfer of the securities in case of

s. 728 : Misleading Deceptive

s. 715A: not clear, concise and effective

Breach of S. 728 (1) is criminal ONLY if

Misleading deceptive statement or ommission is materially adverse from the view of an investor.

Right to recover compensation in misleading or deceptive statement or omission

Different type of Debt Financing

Bank Loans

The most common form of loan capital for a business. A bank loan provide medium or long-term finance

Bond Issues

Traditional Bond

is the debt security, where the issuer owe the holders a debt and have the obligation to repay the interest or repay the principal at the maturity date

Debenture
(Notes secured by tangible property)

a legally binding undertaking by company or other body to repay the debt where that debt is money deposited with or lend to the company or other body. (Corporation Act s 9)

Company raising debt capital must comply with Chapters 2L, 6D of Corp Acts

Security of Debentures

protect the Lenders: have the right to sue for breach of contract from the borrower

all property of borrower may be given as security

Unsecured Notes

Enforceable but offer no protection in the event of deforce by the company.

Security Interest

Types of Security Interest

Non Circulating Security Interest

Example: House

Circulating Security Interest

Circulating asset

Current asset

High liquidity

Replaceable

Example: Inventory

Chapter 4 of the Personal Property Securities Act 2009 (Cth) (‘PPSA’) provides general enforcement rules dealing with seizure, disposal or retention of collateral, and steps to be taken after a security interest in collateral has been enforced.

Security Interest Procedure

Attachment

Attach

governed by the terms and conditions the security interest and thus relates to the relationship between the secured party and the grantor

The grantor has rights in the collateral

Do not need to be ownership rights but there needs to be some form of rights

Value be given for the security interest

If the security interest does not attach to collateral

It is enforceable between the debtor and the secured party

s 19(1) PPSA

the debtor “authenticates” a security agreement

The attachment does not need to occur before "perfection"

If the security interest is registered before attachment occurs, perfection starts at the time of registration

s 55(5) PPSA

Perfection

the last requirement to preserve the priority of a a security intereset

Position of secured party

Position of other creditors of the grantor

Cannot occur unless there is a valid security interest, which attaches to the underlying collateral s.21

Can occur more than a method, by both registration and possesion

Security Interest Enforcement

Who can enforce?

Based on s.110 of PPS 2009, the debtor, the grantor and a secured party.

Parties would be able to contract out of most of the enforcement provisions of the PPS Act where collateral is not used predominantly for personal, domestic or household purposes.

The enforcement provisions do not apply when a receiver or controller has been appointed to deal with property under Part 5.2 of the Corporations Act 2001 (Cth)[4].

The secured party may dispose of the collateral[8] by exercising a power of sale but must give a notice to the grantor, which includes particulars of the collateral, the enforcing secured party and the manner of sale.

On the default of a grantor under a security agreement, the secured party can commence enforcement action under the priority rules

s55(2)

s55(4) - i.e the legislation time for collateral

Subtopic

Priorities

between unperfected security interests

Through: the order of attachment of each

between perfected security interests

Through: the priority time for each

s55(5) Priority time (listed in order of priority)

Time of registration

Time of possession/control of collateral

Time of perfection

perfected security interest HAS PRIORITY OVER unperfected one

s55(3)

perfected by control security interest HAS PRIORITY OVER a security interest perfected by any other means

s57(1)