1. Prospectus issuers on notice: practical impact
of Consultation Paper 155
Simon Jenkins and Sarah Meyerkort PRICE SIERAKOWSKI CORPORATE
Consultation Paper 155
Consultation Paper 155 (“CP155”) which was released
by ASIC on 12 April 2011 sets out ASIC’s proposals to
give new guidance on:
(a) how to word and present prospectuses in a “clear,
concise and effective” manner, and;
(b) howtosatisfythecontentrequirementsforprospectuses,
to help retail investors make informed investment deci-
sions.
The majority of the proposed guidance contained in
CP155 and its accompanying draft regulatory guide has
been foreshadowed by ASIC and does not come as a
complete shock to issuers. CP155 proposes specific
guidance on the content of prospectuses and also requires
that the information disclosed be succinct and concise in
order for the document to be user-friendly to the
potential investor. CP155 reinforces ASIC’s view that
clear, concise and effective fulfilment of the disclosure
requirements of a prospectus must always be an issuer’s
principal objective.
The proposed guidelines of CP155 must be taken into
account by issuers during the interim period until the
final regulatory guide is released in December 2011.
Overview of CP155
The impact on issuers
In the interim period before the regulatory guide is
released, and without further guidance from ASIC,
issuers will have difficulty when attempting to practi-
cally implement the requirements of CP155, as the
requirements in CP155 are subject to a great degree of
interpretation.
Issuers must endeavour to balance the extensive
disclosure requirements of the Corporations Act and
ASX Listing Rules with ASIC’s predominant goal of
“clear, concise and effective” information.
On a practical level, issuers need to re-think not only
the format of prospectuses, but the specific content of
the documents.
Issuers need to carefully consider the target audience
of a prospectus in order to ensure that the level of
information in a prospectus, and the message to the
investors, is clear, concise and effective.
A trap that many issuers fall into is using pro-forma
and precedent documents. Such documents should not
be followed closely, even in the event of similarity of
offers and company details. CP155 addresses this issue
by cautioning against the use of boilerplate text. Issuers
must keep in mind that disclosure documents do not fall
into a “one size fits all” category. An effective method
for ensuring a clear, concise and effective document is
the implementation of a specifically tailored due dili-
gence program.
Key changes
Issuers must be aware of the following key proposed
changes:
• Pursuant to s 715A of the Corporations Act, the
document must be worded in a “clear, concise and
effective” manner. Essentially the document must
be as short as possible, but must simultaneously
satisfy the disclosure requirements of the Corpo-
rations Act and ASX Listing Rules.
• The document should include an “investment
overview” section within the first few pages of the
document. The investment overview section will
need to be a balanced summary of the key infor-
mation which is useful for the potential investor to
make an informed decision regarding the offer.
Prescriptive guidance has been given by ASIC in
relation to the content and presentation of the
investment overview.
• CP155 gives guidance on disclosure of the effect
of the offer. This should generally include:
— proposed use of funds;
— current balance sheet and adjusted pro forma
statement of financial position;
— capital structure;
— any control implications of the offer; and
— the potential effect of the fundraising on the
future of the company.
• An explanation of the essential components of the
company’s business model is required. This expla-
nation must include the relevance of the elements
of the business model to the offer and an explana-
tion of any assumptions made by the model.
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2. • Issuers with an operating history should consider
including, for the 3 most recent financial years, a
summary of the historical audited annual financial
statements and most recent audited or received
half-year statement and issuers with no operating
history should include a current balance sheet.
• The investment overview section should also include
key financial information and key financial ratios
which would generally include net profit after tax,
earnings per share ratio, a gearing ratio and a
discussion on the issuer’s financial position and
any commitments, events or uncertainties that may
materially affect the issuer’s liquidity.
• Information regarding the directors and key offic-
ers of the company must be included, such as:
— their previous relevant experience;
— any relevant convictions; and
— if any companies previously managed by the
directors/officers became insolvent or went into
external administration.
• The document must allow for a wider scope for
disclosure of related party transactions and ben-
efits to directors, possible directors, promoters and
underwriters.
• An outline of the specific risks which apply to the
issuer should be included in the investment over-
view section. The outline of risks must be tailored
to the company and the offer, rather than being a
broad outline of risks which apply to a specific
industry or to the market in general.
• Furthermore, excluding the cover page, photo-
graphs should appear after the investment over-
view section and appear only if they are directly
relevant to the company’s business. Additionally,
photographs must have an explanation which clearly
identifies the contents of the photograph.
Key Issues
Clear,concise,effectiveanddetaileddisclosure?
ASIC have stated that, if care is taken, prospectuses
are able to be simplified. However care must be taken
when simplifying prospectuses in order to ensure that
important information is not omitted. Logical and pre-
cise tailoring of the information required in a prospectus
will result in a shorter, more streamlined document. The
key is to include relevant and required information
rather than excessively descriptive disclosure of any
information relating to the company. Repetition should
be avoided.
CP155 suggests that information that is not key to an
investor’s assessment of the offer (eg. contracts, trust
deeds and secondary specialist reports) may be short-
ened or replaced by incorporating information by refer-
ence. This will require careful consideration by the
issuer as to what is key to an investor’s decision. Issuers
that have traditionally erred on the side of disclosing
more rather than less in a prospectus will need to make
a much more deliberate and detailed assessment of what
information is key to the investment decision.
Investment Overview — Balance of Disclosure
and Marketing
CP155 specifies that the investment overview section
is to be at the forefront of the document, that is, in the
first few pages. The investment overview must provide a
balanced overview of the entire document, without
unnecessary repetition, while simultaneously including
the information prescribed by ASIC. Historically, the
initial sections of disclosure documents have often
contained marketing statements and information. The
changes proposed in CP155 seek to provide investors
with a more balanced summary.
Specific disclosure of business model
Information relating to the company’s business model
must contain relevant company information which is
specifically relevant to the transaction. Any assumptions
must be clearly explained and quantified if possible. It
must not include a general description of the industry’s
background or an extensive description of the compa-
ny’s history. The description of the business model must
address the key components of the business model and
how the components relate to each other.
The problem for issuers is that an expanded descrip-
tion of their business model will require a careful
assessment as to whether it has a reasonable basis to
make certain forward looking statements and whether to
include commercially sensitive information in the docu-
ment.
Photos
Excluding the cover page, photos are to be placed
after the investment overview. This will allow the
potential investor to understand the offer at the outset of
their perusal of the document, including an understand-
ing of all of the benefits and risks, without being
distracted by photos. CP155 provides that this require-
ment is to apply regardless of any disclaimers made
regarding photos.
History of directors and company officers
CP155 requires that the relevant history of directors
and company officers must be disclosed. This includes
bankruptcies, criminal convictions and disqualification
orders.
competition and consumer law news May 2011 77

3. ASIC has explained that it does not want an extensive
list of all criminal convictions, however those that are
relevant to a potential investor must be included, for
example convictions relating to fraudulent behaviour.
The potential investor will want to know the relevant
background of the directors that will be making deci-
sions about the investor’s money.
Requirements for transaction specific prospec-
tuses and other disclosure documents
CP155 offers guidance on the distinction between the
application of CP155 to IPO prospectuses, transaction
specific prospectuses and other disclosure documents.
However, the guidance is not precise and CP155 has
specifically requested feedback in relation to how the
new requirements should apply to transaction specific
prospectuses and other disclosure documents.
Conclusion
The requirements of CP155 are beneficial to both
issuers and investors as ASIC has provided guidance on
how to resolve some key disclosure concerns that have
been identified in the last 12 months. Such guidance is
welcome.
However, issuers will need to consider and identify
the information that is key to an investor’s decision and
present it in a document that is clear, concise and
effective while at the same time meeting their specific
and general disclosure requirements. The challenge for
issuers will be how to achieve this in practice.
Simon Jenkins,
Director,
and
Sarah Meyerkort,
Graduate Lawyer,
Price Sierakowski Corporate
www.pricesierakowski.com.au
The contents of this article are not intended to be a
complete statement of the law and should not be used as
a substitute for legal advice in any circumstance. Price
Sierakowski does not accept any liability or responsibil-
ity for any loss occurring due to anyone acting or
refraining from acting in reliance on any information in
this article.
Sources
• ASIC Consultation Paper 155: http://www.asic.gov.au/
asic/pdflib.nsf/LookupByFileName/CP155-Published-
12-April-2011.pdf/$file/CP155-Published-12-April-
2011.pdf.
• ASIC Media Release: http://www.asic.gov.au/asic/
asic.nsf/byheadline/11-79MR+ASIC+proposes+
major+improvements+in+quality+of+prospectuses?
openDocument.
• AM Program — ABC radio interview:
http://www.abc.net.au/am/content/2011/s3189942.htm.
competition and consumer law news May 201178