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13 August 2002
On June 28 2002 the Australian Securities and Investments Commission (ASIC) issued a class order extending its interim relief from provisions of the Corporations Act until December 11 2002. These provisions are designed to prevent the issuance of securities without a prospectus where the securities are sold on to retail investors without a prospectus within 12 months of issuance. At the same time ASIC also released a discussion paper setting out its proposals for permanent relief and sought public comment on them. ASIC's final policy on permanent relief is expected to be available before the interim relief expires.
Reason for Interim Relief
Interim relief was granted in response to submissions made to ASIC about practical difficulties arising as a consequence of legislative changes that came into effect on March 11 2002. The changes are related to activities that were previously regarded as unexceptional, particularly in respect of placements of securities with institutional investors. For further details on the scope and terms of the interim relief, please see New Rules for Institutional Placements.
Terms for Permanent Relief
The proposals for permanent relief differ in a number of respects from the interim relief currently available. Permanent relief will be available for certain debentures and managed investment products for which no interim relief is available. Interim relief is available for the securities of an issuer included in the Australian Stock Exchange's (ASX) Standard & Poor's 200 Index at the time of the issue and at the time of the offer for on-sale, provided certain other conditions are satisfied. However, permanent relief will not be available on those terms.
Disclosure-based relief will be available for securities and managed investment products under two sets of circumstances. The first of these is 'additional notification', where the issuer of the securities or the responsible entity of the product's managed investment scheme notifies the ASX of certain information at the time (or within two business days after) it issues them, and before any of them are sold on. This is either (i) information that it previously withheld and which would otherwise need to be included in a prospectus or product disclosure statement, or (ii) a statement that there is no information of that kind to disclose. The second case in which disclosure-based relief is available is 'other offering documents', where a prospectus or product disclosure statement related to securities or products of the same class is issued at or after the time that the relevant securities or products are issued and before they are sold on.
Some other conditions must apply before disclosure-based relief is available, the most important of which are the following:
Exemption-based relief will be available for the following:
The Corporations Act requires a prospectus or product disclosure statement to be lodged with ASIC for issues of securities and managed investment products unless an exemption applies. Exemptions are available for issues to wholesale investors and, in limited circumstances, for issues to retail investors. An anti-avoidance provision requires the lodgement of a prospectus or product disclosure statement where:
The primary legislative purpose of those provisions is retail investor protection.
In the discussion paper, ASIC expresses the view that any significant relief from the anti-avoidance provisions can only be justified if a comparable level of protection is otherwise available to such investors (eg, through other disclosure mechanisms). The proposed availability of disclosure-based relief and some types of exemption-based relief is consistent with that view. However, for other types of exemption-based relief, comparable protection may not be available. For them, the relief is justified by ASIC on the ground that it is reasonable to extend the relief available for some offers of securities and products to offers of them for on-sale within 12 months, particularly in circumstances where the anti-avoidance provision would otherwise have the anomalous effect of imposing disclosure obligations on retail investors who acquire the securities or products from issuers under a disclosure exemption. However, ASIC does not propose that exemption-based relief be available for on-sales in all circumstances in which relief for issues is available (eg, for debentures offered to existing debenture-holders). It is not apparent why this should be the case.
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