FAQs

Due diligence

  1. Where a due diligence committee has been established prior to an offer, is it necessary to appoint a law firm as the Chair of that committee?

  2. the size and type of offer being made

    the complexity of the issuer’s business

    how long the business has been in operation and its future plans, including how the proceeds of the offer will be applied.

Kinds of financial products

  1. I manage a collective investment scheme that is structured as a company in which I sell shares to investors.  Should I comply with the FMC Act requirements for equity securities or for a managed investment scheme?

  2. If a genuine trust arrangement exists, and your business does not provide financial services, your activities are not regulated under the FMC Act. Consult your legal adviser if you are unsure whether your business holds client funds under a trust arrangement.

    It is not uncommon for service providers to hold funds received from, or on  behalf of, clients in trust. Examples are lawyers holding client funds for a sale and purchase agreement, or businesses offering pre-payment facilities  to purchase their goods or services.

    Under the FMC Act, if a genuine trust arrangement exists (this will  generally be evidenced by funds being held in a separate trust account  maintained with a registered bank) the act of holding funds in trust does  not, in itself, constitute a financial product that is regulated. This is because  funds held in trust are not ‘deposited with, lent to or otherwise owing from the service provider’ as required by the definition of ‘debt security’.

    While funds are held on trust by a service provider, clients will generally be deemed to hold an ‘equitable interest’ in respect of their funds. Under the FMC Act, an equitable interest in a financial product can be a financial product. However, we do not consider that an equitable interest which arises in the context of a bare trust arrangement is something which is regulated by the FMC Act. Consult your legal adviser if you are unsure whether your business holds client funds under a ‘bare trust’ arrangement.

    Additionally, even if your ‘bare trust’ arrangement does not constitute regulated activity on its own, there may be features of your product which, when the business/customer relationship is viewed in the round, point to a debtor/creditor relationship, meaning that your product may still be a debt security under the FMC Act. You should seek legal advice if you are unsure whether your product is a debt security.

  3. phantom shares offered either as part of or in association with an employment agreement, may fall within the carve-out, as detailed in section 8(4)(c)(i) of the FMC Act, applying to agreements for the future provision of services

    phantom share schemes that make discretionary payments to employees, where there is no obligation for future provision of service from the employee, would not normally involve an ‘agreement’ that the employee should receive the payment.  Under section 8(4)(a) of the FMC Act, a derivative is an agreement involving consideration from both parties. These phantom share schemes are in substance a gift with no financial exposure for the employee and therefore not a derivative. 

Product disclosure statements (PDS)

  1. there are false or misleading statements, omissions or new matters requiring disclosure in the PDS, application form or register entry, and

    the matter is materially adverse from the point of view of the investor.

    a false or misleading statement, or omission 

    from the PDS, application form or register entry, 

    or a circumstance has arisen since the PDS was lodged that would have been required to be disclosed in the PDS or register entry, 

    and the matter is materially adverse from the investor’s point of view,

  2. explains it replaces or supplements an existing PDS

    identifies the PDS that it supplements or replaces; and

    if it’s a supplementary document, identifies all previous supplementary documents lodged with the Registrar about the offer. It must also explain the new document is to be read together with the PDS it supplements and any previous supplementary documents.

  3. supplement a PDS for an offer of managed investment products in a managed fund; or

    to supplement any part of the KIS unless the document covers the whole KIS.

  4. How do I amend a PDS that has already been lodged on the Disclose register?

    You can lodge a replacement PDS in order to correct, update, or add to an existing PDS. Alternatively, you can lodge a supplementary document for the same purpose, unless regulation 46 of the FMC Regulations 2014 applies.

  5. makes it clear why those circumstances are significant to the particular issuer or the particular equity securities (as compared to other issuers or equity securities)

    helps investors to assess the ‘likelihood’ of any impact arising from those circumstances

    helps investors to assess the ‘nature’ of any impact arising from those circumstances; and

    helps investors to assess the ‘potential magnitude’ of any impact arising from those circumstances.

  6. where products were issued with the intention for the original holder to deal with them

    if the issuer advises, encourages, or knowingly assists the offeror in the offer of the financial products

    when the offeror controls the issuer and the products are not sold through a licensed market.

  7. Offerors need to ensure investors are given the PDS before applications to invest are accepted.

    A PDS for an offer is treated as being given if the application form used is included in or attached to the PDS, the application form prominently identifies the relevant PDS and the application form includes a written confirmation that the investor has received the PDS.

    Offerors can give investors the PDS by electronic means. While offer disclosure rules are technology neutral, disclosure must be done in a way that prominently identifies the PDS for the offer, ensures the investor can readily store the PDS in a permanent and legible form and that the offeror can evidence that the PDS was given to the investor. This means not all forms of electronic communication will be suitable.

    PDS by email

    Email attachments are generally the best form for disclosure. The email with the PDS attachment can be accessed from multiple devices and readily retrieved for future reference. Emails with a hyperlink to the PDS can be used but offerors must ensure the link is accessible on an ongoing basis – a link that subsequently breaks cannot usually evidence that the investor has actually been given the PDS. A PDS provided through a hyperlink must also be storable in a permanent and legible form by the investor.

    PDS by webform

    Offerors may use a webform that prominently identifies the PDS for the offer. When using webforms, to ensure that the offeror can evidence that the PDS has been given before applications to invest are accepted, we recommend that offerors ensure that the investor downloads the PDS for the offer and confirms that the PDS has been downloaded before the investor can proceed to invest. The investor must be able to store a PDS provided using a webform in a permanent and legible form. 

  8. for equity, debt and managed investment products in funds and other schemes — the section in the PDS on tax

    for derivatives — the section in the PDS ‘about the issuer’.

Dual-language PDS exemption

Equity offers Financial information

  1. where there is a business acquisition

    where there are material changes affecting the comparability or usefulness of the financial information.

  2. describe the basis on which the pro forma information has been prepared

    identify where on the Disclose Register the principal assumptions on which the pro forma information is based can be obtained, and

    identify where on the Disclose Register the reconciliations to the GAAP-compliant information can be found.

Debt offers financial information

  1. where there is a business acquisition

    where there are material changes affecting the comparability or usefulness of the financial information.

  2. describe the basis on which the pro forma information has been prepared

    refer to the register where the principal assumptions on which the pro forma information is based, and

    identify where the reconciliations to the GAAP-compliant information can be found.

Schedule 1 offers

  1. will need to separately consider the safe harbour certificate when signing the relevant documents; and

    would recognise the safe harbour certificate as a separate document.

Offers under employee share purchase schemes

Small offers

  1. The first offer of shares relates to the shares that are purchased by the SPV. 

    The second offer relates to the shares of the SPV itself which are sold to the underlying investors.

Offers of financial products of same class as quoted financial products