FOREIGN COMPANIES RAISING CAPITAL IN AUSTRALIA Raising Equity Capital in Australia – What Do You Need to Know? This is the first in a series of publications to assist foreign companies to understand the fundraising regulatory landscape in Australia. This publication provides an overview of the disclosure and licensing regulatory regime for foreign companies seeking to raise equity capital in Australia. This publication does not extend to the listing regulatory requirements for foreign companies seeking a listing on the Australian Stock Exchange, which will be covered in a future publication. Overview of Australia’s Fundraising Laws Foreign companies seeking to raise capital from Australian retail investors are required to comply with Chapter 6D of the Corporations Act. The general proposition is that a company (or person) must not make an offer of securities or distribute an application form until a disclosure document (such as a prospectus – see further information below) for the offer has been lodged with the ASIC, unless the offer is exempt from disclosure. Where no exemption applies, the company must not accept an application for the issue (or transfer) of securities to Australian investors until seven days after lodgement of the disclosure document with ASIC. This seven day period is known as the “exposure period” and gives the market and ASIC an opportunity to consider the information in the disclosure document. ASIC may, and often does, extend the exposure period to 14 days. A key requirement is that the disclosure document must be worded and presented in a “clear, concise and effective” manner to assist retail investors to make informed investment decisions. ASIC has the power to issue a stop order if it considers that the disclosure document contains a misleading or deceptive statement or an omission of information required to be provided under the legislation (whether because of a new circumstance having arisen or otherwise). If ASIC imposes a stop order on the disclosure document, the offeror company is not allowed to offer, issue, sell or transfer its shares while that order is in force. Generally, before that occurs, however, the company will have the opportunity to discuss ASIC’s concerns and rectify any statements in the disclosure document by issuing a supplementary disclosure document (with the legislative consequences prescribed in the Corporations Act). Exemptions from Requiring a Disclosure Document The following is a summary of the key exemptions from the requirement for a company offering securities to have a regulated disclosure document under Chapter 6D of the Corporations Act (although this list is not exhaustive and legal advice should be obtained to determine whether an offer may be exempt or not): Offers to sophisticated An investor invests (pays) at least AU$500,000 for securities upon accepting the offer (which may include amounts investors (> investment already invested in the same class of securities). threshold): Offers to sophisticated An investor produces a certificate from a qualified accountant, no more than 6 months before the offer was made, investors (> wealth threshold): certifying that the investor has at least AU$2.5 million in net assets or has earned at least AU$250,000 per annum gross salary over the last two years (or a company or trust controlled by such investor). Offers to professional An investor who meets the definition of “professional investor” under section 9 of the Corporations Act investors: (for example, an Australian Financial Services Licence (AFSL) holder or their principal, an APRA-regulated superannuation fund with assets of at least AU$10 million; a listed entity or a related body corporate of a listed entity, or a person who controls gross assets of at least AU$10 million). Offers by AFSL holders to The offer is made through an AFSL holder or their principal who: experienced investors: • is satisfied on reasonable grounds that the investor to whom the offer is made has previous experience in investing in securities that allows them to assess the merits of the offer, the value of the securities, the risks involved in accepting the offer, their own information needs and the adequacy of the information given by the person making the offer; and • provides the investor a statement of their reasons for being satisfied of those matters and the Investor signs a written acknowledgement that the AFSL holder or their principal has not given them a disclosure document. Offers to retail investors within The offer is a “personal offer” to 20 or fewer retail investors and the total amount to be raised is no more than the small scale (AU$2 million) AU$2 million in a 12 month period. A “personal offer” is one that can only be made to a person whom the offeror offer exemption: is aware is likely to be interested in the offer, having regard to previous contact, a professional or other connection or statements or actions by the person indicating that they are interested in offers of that kind and it may only be accepted by that person. Offers by listed foreign The offer is made by a listed foreign company to 20 or less retail investors in Australia in any 12 months and the companies to 20 or less retail offer otherwise complies with ASIC Regulatory Guide 72 (foreign securities prospectus relief). investors in any 12 months: Offers to senior managers: The offer is made to a “senior manager” of the company (or a related body) or their spouse, parent, child, brother or sister or a body corporate controlled by any of these persons. Senior managers are persons (other than directors and secretaries of a corporation) who make or participate in making decisions that affect either the whole or a substantial part of the business of a corporation or have the capacity to affect significantly the corporation’s financial standing. Offers for nil consideration: The offer is for the issue or transfer of securities (excluding options) for no consideration. Offers of options for no The offer is for options over securities or options over unissued securities, where no consideration is to be paid for consideration: the issue or transfer of options and no consideration is to be provided for the underlying securities on the exercise of the options. Similarly, an option to subscribe for an unissued share does not require a disclosure document at the time of the offer. Offers connected to an eligible The offer is to employees of options or fully-paid shares (in respect of unissued shares) under an employee share employee share scheme: scheme which meets the requirements of ASIC Regulatory Guide 49 and the securities are in a class listed on ASX or other “approved foreign market”.1 Offers to existing holders The offer is of fully-paid shares to existing holders of securities in the company under a dividend reinvestment plan under a dividend reinvestment or bonus share plan. plan or bonus share plan: Offers under a regulated The offer is made by a bidder under an Australian regulated (Chapter 6) takeover offer or qualifies for conditional Australian takeover offer and ASIC relief as either a foreign scrip takeover offer in certain jurisdictions (e.g. Italy, Japan, Malaysia, Germany, certain foreign regulated Hong Kong, France, Canada, Netherlands, New Zealand, UK, US, Singapore, South Africa), where no more than offers: 10% of the bid class securities are held by Australian investors. In both cases, the offer must be accompanied by a bidder’s statement. Offers under a Part 5.1 scheme The offer is by an acquirer under a Part 5.1 scheme (that is, a scheme regulated and approved under Part 5.1 of of arrangement and certain the Corporations Act) or an offer of securities made under a foreign scheme of arrangement that is regulated in a foreign regulated schemes: similar manner to Part 5.1 (i.e. Hong Kong, Malaysia, New Zealand, Singapore, South Africa, UK). ASIC specific relief for a scheme of arrangement in other foreign jurisdictions may also be permitted in certain circumstances. Offers under certain foreign The offer is a renounceable or non-renounceable rights offer by a foreign entity of securities in the same class rights issues: which have been quoted continuously on an approved foreign exchange for at least 36 months, where the offer to Australian investors represents 10% or less of aggregate securities offered (by value) and the offer otherwise complies with ASIC Regulatory Guide 72. Can a Foreign Company Raise Funds from Australian Investors There is a prohibition against cold calling members of the public to sell Via an Australian Proprietary Limited Subsidiary? securities, subject to very limited exceptions, as follows: A foreign company may seek to raise funds from Australian investors • unsolicited offers may be made to sophisticated and professional through a subsidiary that is a proprietary limited company incorporated investors (see the first few exemptions in the above table) or under in Australia (i.e. a company with no more than 50 non-employee an eligible employee share scheme (see sections 736 (2) (a), (b) and shareholders) (Subsidiary) in the following limited circumstances: (e) of the Corporations Act); and • from existing shareholders and employees of the Subsidiary; and • a licensed securities dealer may offer listed securities by telephone to any person or may offer securities to any of their existing clients • from the general public, if the fundraising by the Subsidiary (who they have had as a client in the last 12 months) by whatever does not require a disclosure document under Chapter 6D of the communication means under sections 736 (2) (c) and (d) of the Corporations Act (i.e. it must qualify for one of the exceptions to Corporations Act respectively, subject, in each case, to applicable disclosure listed in the table above).