The Full Court of the Federal Court's decision in the National Exchange v ASIC case could have serious implications for companies seeking to raise funds.
The Full Court dismissed the appeal as it agreed with the primary judge that the offer document was misleading and deceptive, and National Exchange had breached section 1041(H) of the Act.
This section prohibits a person engaging in conduct in relation to a financial product or financial service that is misleading or deceptive or likely to mislead or deceive.
In this case National Exchange offered to purchase shares held by certain shareholders in One Steel Limited (One Steel) under a single page offer document which was sent to 5,000 minority shareholders of One Steel. The offer document stated that the offer was to buy their shares in One Steel for $2 each. It also included a table that invited comparison between the offerors price of $2 per share and the current market price of $1.93 per share.
However, there was little reference to the payment terms of the offer and what was in the offer appeared after, and less prominently than, the offer heading and the comparative table. The payment terms were that National Exchange would pay the offer price in 15 equal annual instalments (i.e. over 15 years) with the first annual instalment payable at least 1 year after the date of the offer.
This decision is of particular importance to corporations who fundraise and issue a form of disclosure document, which is exempt from the fundraising provisions of the Act on the basis that the investors are sophisticated investors, or the offer is being made through a licensed dealer etc. Normally a disclosure document subject to the fundraising provisions of the act would be subject to section 728 of the act, which prohibits a person from offering securities under a disclosure document if there is a misleading and deceptive statement in the disclosure document.
Although section 728 will not apply to an exempt disclosure document, section 1041H(1) of the Act will apply and all care should be taken when preparing offer documents to ensure this section is not breached.
Tracey Wood, senior associate 9288 6923
Geoff Stevens, partner 9288 6926
Phillips Fox