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Executives frustrated by stop orders

RELENTLESS pressure and heavy handiness by Australia’s corporate watchdog is increasing frustration levels among many top business executives.

Among their concerns are the methods employed by the Australian Securities and Investment Commission to stamp stop orders on offer documents.

And WA firms are receiving more than their fair share of stop orders.

In the past six months, 35 per cent of stop orders – or 14 out of a total number of 40 orders – were issued to WA firms.

Eastern States firms EcoForest and FodderKing have joined a growing number of concerned company executives who believe they have been treated unfairly when ASIC has stamped stop orders on their prospectuses.

The group’s members are preparing a report on the negative experiences they have had with ASIC and the perceived inefficiencies with the current process.

EcoForest Limited managing director Damien Lynch said what was initially only a minor and insignificant concern from ASIC turned into a lengthy and drawn-out process.

“We have just lost six weeks off our lives and are still not happy with the process involved in ASIC addressing their ‘concerns’,” Mr Lynch said.

“It concerns me that small companies seeking to raise capital find themselves subjected in this way to stop orders on seemingly minor matters buried in documents submitted to ASIC.

“The damage caused to small business by these seemingly arbitrary actions by ASIC should be a concern to anyone wanting to see a robust and varied economy in Australia.”

He said the current procedures put in place only served to discourage economic activity.

“EcoForest is preparing a report on the apparent inefficiencies in the process involved with submitting documents to ASIC,” Mr Lynch said.

“This report is being prepared in association with several other companies that have had similar negative experiences and will be distributed to key decisions makers within weeks.”

EcoForest said ASIC’s main concern in discussions after the commission placed an interim stop order on the company was that the supplementary prospectus may have been intended as an entirely new prospectus for the rights issue.

“As such it contained significant deficiencies and deceptive and misleading statements,” an EcoForest statement quotes ASIC as saying.

“How ASIC could make this leap of reasoning is beyond understanding. The document was clearly marked ‘Supplementary Prospectus’, the EcoForest statement says.

“Unfortunately, after speaking with representatives from other small companies raising funds, it appears that this is not an uncommon occurrence. Few, though are prepared to publicly acknowledge their experiences.”

Many believe that expressing their concerns would mean they would be victimised by ASIC in the future.

One willing to speak out has been HiTec managing director Alan Scott. In his efforts to raise up to $2.8 million to develop its electrofuel project, Mr Scott told WA Business News recently that HiTec found dealing with the ASIC officers a difficult and bureaucratic process.

In the past financial year a national campaign has resulted in 77 stop orders on prospectuses seeking to raise at least $291 million on 913 equity raisings.

Besides HiTec, other firms to get stop orders issued against them include: Reliance Mining Limited; Golden State Resources; Yilgarn Gold Limited; Empire Oil & Gas NL; and Acclaim Exploration NL.

More recently, ASIC announced that it had placed an interim stop order on a prospectus issued by Oretek Limited, a Perth-based public company with patented technology in cyanide and acid remediation from mining sites. The stop order was revoked a month later.

ASIC corporate finance director Richard Cockburn defended the methods employed by ASIC and said he could not understand why firms would fear speaking out against the watchdog.

“That is a behaviour that I just don’t understand,” Mr Cockburn said.

“They don’t have to fear any retribution.”

He said the reason why WA had a seemingly disproportionate number of stop orders was because the State was the second highest issuer of offer documents behind New South Wales.

“I review the grounds for the decision and they are never inappropriate,” Mr Cockburn said.

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