RAISING EQUITY CAPITAL UNDER THE CORPORATIONS ACT

Abstract

The Corporations Act 1989 (Cwlth) ('the Act'), which is expected to come into force on 1 January 1991, will introduce major changes to the regulation of fund-raising by a corporation.

The notion of an offer to the public, which governs whether a prospectus is required to be issued or not under the Companies Code 1981 ('the Code'), will be replaced by a blanket prohibition on offers or invitations for subscription or purchase of securities, subject to enumerated exclusions. Consequently, rights issues and dividend reinvestment schemes will be required to be accompanied by the issue of a prospectus, as will offers of prescribed interests.

While farm-outs and unincorporated joint ventures fall within the present definition of 'prescribed interests', the Australian Securities Commission (ASC) has indicated that Regulations will be promulgated to exempt them.

The contents of prospectuses will be governed by a general disclosure provision together with a catalogue of factors designed to ensure that the information supplied in a prospectus is directly proportional to the informational needs of the proposed offerees.

The Act has expanded the civil liability of persons associated with the preparation of a prospectus by increasing both the class of potential plaintiffs and the class of potential defendants.

To fine-tune the operation of the scheme and the significant changes wrought, the legislature may have to resort to the promulgation of regulations as well as amendment by statute.