Question

outline the defenses and remedies for a contravention of the fundraising rules. (company and partnership law)

Answer 1

The general rule provided in the Corporations Act 2001 (Cth) (Act) is that you can’t raise capital in Australia without issuing a disclosure document. Disclosure is generally thought of as being a prospectus but there are also other allowable forms of disclosure documents. Chapter 6D of the Act contains what is widely referred to as the “fundraising provisions” which regulate the way in which capital can be raised in Australia without issuing a formal disclosure document.

Exceptions to the requirement to issue a disclosure document

1. Section 706 of the Act provides that an offer of Securities for issue needs disclosure to investors under Part 6D of the Act unless section 708 or 708AA says otherwise.

The small scale offerings exception (20 issues or sales in 12 months)

The small scale offering exception (known as the “The 20/12 rule”) is contained in section 708(1) of the Act. The provision provides that a disclosure document is not required if a person makes a personal offer of Securities that results in Securities being issued or transferred to 20 or fewer persons with no more than $2 million being raised in any rolling 12 month period. The 20/12 rule provides that:

An offer by a body to issue securities will breach the 20 investor ceiling if:

• it results in the number of people to whom securities of the body have been issued exceeding 20 in any 12 month period; and
• a body makes offers that results in a breach of the $2 million ceiling if the body issues securities exceeding $2 million in any 12 month period.