Here are 10 key things that have led to ASIC requiring replacement prospectuses to be issued. This is based on personal experience in being involved in 4 recent IPOs/reverse listings on the ASX, and from a review of some replacement prospectuses that were issued last year.
1. More detailed disclosure of key risks in the Chairman’s letter
ASIC required a summary of certain key risks that were specific to the relevant offer to be included in the Chairman’s letter section of a prospectus. This was required notwithstanding that the risks had already been disclosed elsewhere in the prospectus.
2. More detailed disclosure around valuations/estimates
ASIC required more detailed disclosure around the basis or justification for valuations or estimates included in prospectuses where those valuations or estimates were made by directors or management (rather than independent third parties).
3. More detailed explanations relating to financial matters
In a number of prospectuses, additional disclosure was required on the level of debt owed by relevant companies, and to further explain issues relating to bad and doubtful debts, proposed debt forgiveness mechanisms and the remaining useful life of key assets.
4. More disclosure in relation to intellectual property
Further information and disclosures were required in relation to the status of intellectual property rights/assets used by the company issuing the prospectus. In at least one case where the issuer had no registered intellectual property rights, ASIC also required this fact to be disclosed.
5. Inadequate historical financial information
A number of replacement prospectuses needed to be issued last year due to the initial inclusion of inadequate historical financial information (particularly where the issuer was proposing to acquire operating companies or businesses in conjunction with the issuer’s capital raising). In May 2016, ASIC released Consultation Paper 257, which contains ASIC’s current views relating to the disclosure of historical financial information.
6. Inclusion of audited, amalgamated accounts for the last 2.5 to 3 years
In a number of instances where the issuer was a newly incorporated Australian public company that was incorporated to acquire an operating group of companies via a restructure, ASIC required the details of the audited, amalgamated accounts for the last 2.5 to 3 years for the post-restructure group to be prepared and included in the relevant prospectus.
7. Disclosure of directorships with companies in voluntary administration
In a recent replacement prospectus, ASIC required the disclosure of a director’s former directorships with companies that had gone into voluntary administration.
8. Inclusion of references where there was no independent expert or market report
ASIC required the inclusion of a list of reference sources for certain technical statements made in a prospectus relating to a medical product (where the relevant prospectus did not contain an independent expert or market report). The references were added in the main body of the replacement prospectus after each relevant statement, and a list of reference sources also needed to be included in a separate section towards the end of the replacement prospectus.
9. More detailed “Use of Funds” information
The “Use of Funds” details in prospectuses are heavily scrutinised by ASIC. ASIC will often require more detailed information on how the relevant issuer intends to use funds to achieve its future strategies and how these strategies will be impacted if less than the maximum amount is raised under the relevant prospectus.
10. More detailed information about regulatory environment
ASIC has required the inclusion of more detailed information of an issuer’s present and future products and how applicable licensing and other regulatory requirements could impact on future revenue and strategies.
It is very common for ASIC to pick up issues during the exposure period, even with the most well drafted and comprehensive prospectuses. However, keeping in touch with the areas that ASIC is focusing on (and following the guidance included in the numerous Regulatory Guides that ASIC has released) will reduce the chances of additional disclosure being required.
Author: Samantha Khoo, Senior Associate, Sierra Legal Pty Ltd.
If you have any queries about this article or in relation to prospectuses in general, please contact Samantha Khoo (Senior Associate - firstname.lastname@example.org), Michael Jeffery (Principal – email@example.com) or Craig Sanford (Managing Director – firstname.lastname@example.org).