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CORPORATIONS REGULATIONS (AMENDMENT) 1994 NO. 302EXPLANATORY STATEMENT
Statutory Rules 1994 No. 302
Issued by the Authority of the Attorney-General
Corporations Act 1989
Corporations Regulations (Amendment)
Section 22 of the Corporations Act 1989 (the Act) empowers the Governor-General to make regulations not inconsistent with the Act or the Corporations Law prescribing matters required or permitted by the law to be prescribed by regulations within the meaning of the Law or necessary or convenient to be prescribed by such regulations for carrying out or giving effect to the Act or the Law.
Section 111AJ of the Corporations Law, inserted by the Corporate Law Reform Act 1994, enables the making of regulations to declare specified securities of bodies not to be enhanced disclosure (ED) securities, with the result that such securities will not be subject to the continuous and periodic disclosure requirements of that Act.
Section 111AS of the Corporations Law, inserted by the Corporate Law Reform Act 1994, enables the making of regulations to exempt specified persons from all or specified disclosing entity provisions. The disclosing entity provisions are the accounts and audit provisions in Parts 3.6 and 3.7 of the Law, the continuous disclosure requirements in sections 1001A and 1001B of the Law, regulations in force for the purposes of these provisions and certain disclosure requirements as they apply to deeds relating to collective investment scheme securities that are ED securities.
Section 111AV of the Corporations Law, inserted by the Corporate Law Reform Act 1994, enables the making of regulations to modify all or specified disclosing entity provisions.
Sections 1043C and 1043D of the Corporations Law, inserted by the Corporate Law Reform Act 1994, enable regulations to be made to apply the prospectus and related liability provisions, with or without modifications, to a notice which a seller must issue when proposing to sell 30% of the voting shares in a company where those shares are not quoted on a securities exchange. The provisions also enable regulations to be made to prescribe the contents of a notice which other sellers must issue to proposed buyers of unquoted securities.
The purpose of the accompanying Regulations is to amend the Corporations Regulations (the Regulations) to provide for regulations to support the operation of the Corporate Law Reform Act 1994. These regulations are required in connection with the periodic reporting, prospectus and secondary trading requirements of that Act and with certain exemptions from the enhanced disclosure requirements of that Act. The periodic reporting requirements of that Act were proclaimed to commence operation on 1 July 1994. The continuous disclosure and prospectus and secondary trading requirements of that Act will commence operation on 5 September 1994 as a result of subsection 2(3) of the Act.
Details of the accompanying Regulations are at as follows.
Regulation 1 : Amendment
This regulation provides that the Regulations amend the Corporations Regulations.
Regulation 2: New Part heading
This regulation, which effects a technical amendment, inserts a new Part heading entitled 'Part 1.0Miscellaneous' after the heading to Chapter 1, which deals with introductory matters.
Regulation 3: New regulations 1.07A. 1.07B and 1.07C
As a result of the Corporate Law Reform Act 1994, the periodic reporting and continuous disclosure obligations of that Act apply to the following entities (known as disclosing entities) unless the regulations provide otherwise, or the Australian Securities Commission (ASC) exercises its discretionary powers to make appropriate exemptions or modifications: listed entities and listed collective investment schemes
• entities and prescribed interest schemes which raise funds pursuant to a prospectus (including borrowing corporations)
• entities and collective investment schemes which offer securities other than debentures as consideration for an acquisition of shares in a target company under a takeover scheme
• entities whose securities are issued under a compromise or scheme of arrangement.
Regulation 3 sets out the information required to accompany accounts and other documents lodged by disclosing entities in accordance with the following new lodgment requirements inserted into the Corporations Law by the Corporate Law Reform Act 1994:
• section 317A - Lodgment of accounts etc. by companies that are disclosing entities
• section 323A - Application of section 317A to Australian disclosing entities that are not companies or undertakings - it should be noted that section 323A does not apply to foreign companies
• section 323K - Lodging accounts etc. in relation to disclosing entities that are prescribed interest undertakings
• section 1001B - Unlisted disclosing entities to lodge documents containing material information on a continuous basis.
These new requirements have the potential to bring about the lodgment of a very large volume of paper documentation and electronic data at ASC Business Centres. (The requirement to lodge a 'document' with the ASC is wide enough to permit information to be lodged by electronic means (ie by computers talking to one another through a modem.))
If that documentation and data is to be readily processed and, therefore, readily accessible by the public, it is important that it should be lodged in an orderly and consistent manner. It is also important that it should be clearly attributable to a particular disclosing entity.
Under s. 219 of the Law, companies are required to set out their Australian Company Number (ACN) on documents lodged with the ASC. Similarly, under section 362 bodies carrying on business interstate are required to set out their
Australian Registered Body Number (ARBN) on documents lodged with the ASC. Under the new enhanced disclosure requirements, the ASC will be required for the first time to compile data on its national database and document imaging system from undertakings which do not have an ACN or ARBN - namely trusts and other prescribed interest schemes. The ASC will assign a unique identifying number to each registered prescribed interest scheme and establish a single, national and publicly accessible register of such schemes.
Accordingly, regulation 3 will require documents or data required to be lodged with the ASC under the above new requirements to be accompanied by the following prescribed information:
• if the disclosing entity is a company or other body, its ACN or ARBN;
• if the disclosing entity is an undertaking to which prescribed interests or units of prescribed interests relate:
- the name of the management company (or, if there is no management company, the name of the trustee or representative) and the name (if any) of the scheme or undertaking to which those prescribed interests or units relate; and
- the unique identifying number ascribed by the ASC to that undertaking;
• in the case of financial information being lodged under sections 317A(1), 323A or 323K(1), the dates of commencement and end of the relevant accounting period for the disclosing entity; and
• a form of certification complying with Regulation 1.12.
The relevant forms containing this information will be allocated a numerical 4 digit code, with the forms being distinguished one from the other by their last digit. Use of such codes will simplify the task of the ASC systems designers in making the necessary adjustments to the ASC's national database, ASCOT. The forms provided for by regulation 3 are:
• Form 1001 - for disclosure under sections 317A, 323A and 323K with respect to half-year accounts
• Form 1002 - for disclosure under sections 317A, 323A and 323K with respect to annual accounts
• Form 1003 - for section 1001B disclosure.
Regulation 4: New Part 1.2
Regulation 4 inserts a new Part 1.2 entitled 'Disclosing Entities' at the end of Chapter 1 of the Regulations. Part 1.2 provides a number of exemptions from the disclosing entity provisions.
New regulation 1.2.01(a): Exemption for certain listed foreign
Unless exempted by way of regulation or ASC administrative action, foreign companies listed on the Australian Stock Exchange will be subject to the continuous disclosure requirements of section 1001A of the Corporations Law. (They will not, however, be subject to the new periodic reporting requirements contained in section 323A of the Law as that section applies only to bodies, other than companies, incorporated or formed in Australia.)
Having regard to the level of disclosure to the Australian Stock Exchange required by Listing Rule 1B of the Exchange, paragraph (a) of regulation 1.2.01 provides that securities of a body that, under that Listing Rule, is an exempt foreign company, are declared not to be enhanced disclosure (ED) securities.
Under Listing Rule 1B, major international companies are able to list in Australia and not have to comply with the Exchange's Listing Rules (apart from certain requirements, including requirements as to the maintenance of an Australian share register, transfer of securities and issue of certificates and the maintenance of an informed market). To qualify for admission to the Official List as an exempt foreign company, an applicant must currently have net tangible assets exceeding A$500 million or be a going concern with operating profit before income tax for each of the past 3 years of at least A$100 million. In addition, the applicant must be listed on an approved overseas home foreign exchange. The listing rules of the applicant's overseas home exchange or the provisions of the legislation in the applicant's home country of incorporation must make adequate provision with respect to market information and market regulation.
For the purposes of this rule, the following exchanges are currently approved foreign exchanges:
(a) American Stock Exchange Inc.;
(b) New York Stock Exchange Inc.;
(c) New Zealand Stock Exchange;
(d) Stock Exchange of Hong Kong Ltd;
(e) Stock Exchange of Singapore Limited
(f) The Amsterdam Stock Exchange;
(g) The Frankfurt Stock Exchange;
(h) The International Stock Exchange of the United Kingdom and the Republic of Ireland Limited;
(i) the Milan Stock Exchange;
(j) The NASDAQ National Market;
(k) The Paris Bourse;
The Tokyo Stock Exchange;
(m) The Toronto Stock Exchange;
(n) The Zurich Stock Exchange.
Under Listing Rule 1B, an exempt foreign company is required to communicate immediately to the Exchange all information provided to its overseas home exchange.
New regulation 1.2.01(b): Exemption for the Australian Bloodstock Exchange Limited
The Australian Bloodstock Exchange Limited (ABEL) has approval to operate as an approved securities organisation. This Exchange trades in stallion shares (the ownership of the stallion being divided into equal parts creating a tenancy in common amongst the fractional interest holders) and 'nominations' (ie. the right to nominate a mare to be sent to the stallion for servicing in any one of 3 given years). The market operates via computer.
As a result of new section 111AE of the Corporations Law, securities traded on ABEL are ED securities and the body which issues the securities is a disclosing entity subject to the enhanced disclosure requirements of Corporate Law Reform Act 1994.
This is not appropriate. Each bloodstock syndicate has less than 100 participants. In such circumstances, the application of the new enhanced disclosure requirements would not add materially to market efficiency or enhance investor protection.
Accordingly, regulation 1.2.01(b) declares that securities of bodies quoted on ABEL will not be ED securities.
New regulation 1.2.02: Exemption for foreign scrip offers
New regulation 1.2.02 exempts a foreign company from the disclosing entity provisions in circumstances similar to those provided for under ASC Class Order 92/716. These circumstances are:
(a) where the foreign company issues its securities in connection with a foreign takeover offer or foreign scheme of arrangement;
(b) where the securities issued are, at the time of issue, securities in a class of securities quoted on an approved foreign exchange;
(c) in respect of which the terms and conditions of the issue to Australian citizens and permanent residents are the same as those extended to each other persons in the same class;
(d) in respect of which each Australian citizen or permanent resident has been provided with the same notices, documents or other information (or where applicable an English translation of these), as modified to include any additional information for the purposes of complying with Division 2 of Part 7.12 of the Law, as those provided to other persons at the same time or as soon as practicable after such notices, documents or other information are made available to those other persons; and
(e) which complies with all legislative and stock exchange requirements in the place of location of the approved foreign exchange, or if more than one the principal approved foreign exchange, on which the foreign company's securities are quoted.
For the purposes of this exemption, a foreign takeover offer is an offer made:
(a) to all holders of a class of shares in a foreign company; or
(b) to all such holders other than the offeror or the offeror and its associates (as defined in Division 2 of Part 1.2 of the Corporations Law),
to acquire all or some of their shares.
For the purposes of the exemption, a foreign scheme of arrangement is a compromise or arrangement, between a foreign company and its creditors or any class of them or its members or any class of them, which is subject to court approval.
New regulation 1.2.03: Foreign companies issuing securities under employee share scheme exempt from the disclosing entity provisions
As a result of ASC Class Order 93/254, a foreign company extending a worldwide employee share scheme to its Australian employees is exempted from certain of the requirements of Part 7.12 of the Corporations Law, subject to the satisfaction of certain conditions. However, in the absence of any exemption made by regulation or ASC administrative action, such a foreign company which issued a prospectus would be a disclosing entity as a result of new section 111AF of the Law and would be subject to the enhanced disclosure requirements.
Having regard to that Class Order, new regulation 1.2.03 provides that a foreign company will not be treated as a disclosing entity provided that:
(a) the foreign company:
(i) offers for subscription, or issues invitations to subscribe for, shares in the company, being offers or invitations made pursuant to an employee share scheme extended only to all or any employees of the company and of associated bodies corporate of the company; and
(ii) issues a prospectus in relation to the shares which is lodged with the ASC; or
(b) the foreign company:
(i) offers for purchase, or invites offers to buy shares of the company, being offers or invitations made pursuant to an employee share scheme extended only to all or any employees of the company and of associated bodies corporate of the company; and
(ii) issues a secondary trading notice under whichever of new sections 1043C and 1043D applies which is lodged with the ASC.
For the purposes of this regulation, an 'employee share scheme' is a scheme whereby shares are offered for subscription or purchase (or options over issued or unissued shares are offered) only to any or all full- or part-time employees (including directors) of the foreign company, or of a related body corporate or an associated body corporate, who are employed at the time of the offer of the shares or options. Furthermore. a body corporate is an associated body corporate of a foreign company if
(a) the body corporate is a related body corporate of the foreign company (as defined in section 50 of the Corporations Law); or
(b) the body corporate is entitled to not less than 20% of the voting shares of the foreign company; or
(c) the foreign company is entitled to not less than 20% of the voting shares of the body corporate.
For the purposes of the regulation, a person will be taken to be an employee of a foreign company or associated body corporate if in the full-time or part-time employment of the company or body corporate or a director of the company or body corporate.
A scheme will not be regarded as extended to a person, other than an employee of the foreign company or an associated body corporate, merely because such as employee may renounce an offer of shares made to him or her under the scheme in favour of his or her nominee.
New regulation 1.2.04: Financial institutions exempt from disclosing entity
Certain activities of financial institutions (principally building societies and credit unions) are regulated by both the Corporations Law and the Financial Institutions legislation (comprising the Financial Institutions Code and the AFIC (Australian Financial Institutions Commission) Code as applied by each State and Territory). New Division 10 of Part 3.6 of the Law (inserted by the Corporate Law Reform Act 1994) applies certain of the accounts and audit provisions of Parts 3.6 and 3.7 the Corporations Law (including the new periodic reporting obligations) to financial institutions. The Financial Institutions Codes require financial institutions subject to the Codes to prepare full-year, but not half-year, accounts. Section 272 of the Codes requires the directors of such institutions to ensure that the accounts comply with accounting standards which AFIC has declared to be applicable accounting standards.
The Ministerial Councils for Corporations and for Financial Institutions have agreed on the principles by which the interface between the Corporations Law and the Financial Institutions legislation is to be rationalised. Rationalisation will remove doubts and uncertainties for financial institutions as to which law applies to their activities. It will also remove any regulatory duplication and reduce the associated administrative burden.
Schedule 3 of the Corporations Legislation Amendment Act 1994 made amendments to the Corporations Law which were needed to implement the rationalisation decision in relation to the national companies and securities scheme laws.
At its meeting on 4 February 1994 the Ministerial Council for Corporations resolved that 'providing the Australian Accounting Standards Board (AASB) is satisfied as to the accounting standards applicable through the AFIC system to disclosing entities which are financial institutions, a regulation will be made and maintained to provide that accounts prepared in accordance with those standards will be deemed to meet the requirements of the Corporations Law. (Where AFIC amends its accounting requirements, it will notify the AASB in accordance with agreed arrangements to permit any review of the appropriateness of the exemption.)'
This resolution was also adopted in identical terms by the Ministerial Council for Financial Institutions.
To give effect to these resolutions, regulation 1.2.04 provides, in effect, that in satisfying the requirements of.
(a) Division 4 of Part 3.6; or
(b) Division 4A of Part 3.6; or
(c) Divisions 4 and 4A of Part 3.6;
as applied by new section 323A, a financial institution that is a disclosing entity will not have to comply with the requirements of sections 297,298 and 299 of the Corporations Law (as applied by section 323A) if it has complied with the requirements of section 272 of the Financial Institutions Codes.
Regulation 5: New subregulation 3.6.02(4)
Subsection 297(1) of the Corporations Law provides that a company's directors must ensure that the company's financial statements for a financial year comply with such of the prescribed requirements as are relevant to the financial statements.
Regulation 3.6.02 provides that for the purposes of subsection 297(1), the prescribed requirements in relation to a financial year commencing on or after 1 January 1991 are set out in Schedule 5 of the Corporations Regulations.
Item 114 of Schedule 1 of the Corporate Law Reform Act 1994 amends subsection 297(1) by changing the reference to 'a financial year' to 'an accounting period'. New subsection 50A(2) provides that the first 6 months of a financial year of a company is an accounting period of the company if the company is a disclosing entity at the end of those 6 months. Such an accounting period is referred to as a 'half-year' (subsection 50A(5)).
New section 323A applies section 297 to disclosing entities that are non-companies.
The Australian Accounting Standards Board (AASB) has prepared an accounting standard (AASB 1029) to deal with requirements for half-year reports. The form and content of annual accounts is unchanged.
The amendment which the Corporate Law Reform Act 1994 makes to section 297 could be interpreted as requiring disclosing entities to prepare half-year accounts in Schedule 5 format. The definition of 'financial period' in Schedule 5 of the Corporations Regulations does not, however, support this interpretation.
The policy intention is that the form and content of half-year accounts be codified in the accounting standard. Regulation 3.6.02(4) is designed to counter the perception that Schedule 5 applies to the preparation of half-year accounts of disclosing entity companies and non-companies (other than borrowing corporations).
Regulation 3.6.02(4) also overcomes an incongruity arising from the disclosing entity provisions which would have resulted in borrowing corporations being subject to different half-year reporting requirements from their guarantor bodies.
As a result of the Corporate Law Reform Act 1994, borrowing corporations that have issued debentures would be disclosing entities and would be required to prepare half-year accounts in accordance with Parts 3.6 and 3.7 of the Law and, in the absence of any modification made by the regulations, would not be required to comply with the provisions of Schedule 5 of the Corporations Regulations when preparing those half-year accounts.
By contrast, a guarantor body in relation to a borrowing corporation that has issued debentures would not be a disclosing entity and would continue to prepare half-year accounts in accordance with Schedule 5.
To overcome this incongruity, regulation 3.6.02(4) requires borrowing corporations to comply with the provisions of Schedule 5 of the Corporations Regulations when preparing half-year accounts for the purposes of the Corporations Law.
Regulation 6: New regulation 3.6.02A
Section 309 of the Corporations Law requires the directors' report to disclose benefits directors have received (either directly, via a firm of which they are members or via an entity in which the directors have a substantial financial interest) because of a contract with the company or an associated body. Subsection 309(3) exempts the directors' report from disclosing benefits included in the company's financial statements prepared in accordance with the Corporations Regulations (ie. Schedule 5) or fixed salaries of full-time employees of the company or an associated body.
The Corporate Law Reform Act 1994 amends subsection 309(1) and section 297 by changing the reference to 'financial year' to 'accounting period'.
In line with the policy intention that the form and content of half-yearly accounts be codified in an accounting standard, regulation 3.6.02(4) makes it clear that Schedule 5 does not apply to the preparation of half-year accounts of disclosing entity companies (apart from borrowing, corporations).
The result of the change in terminology in section 309 and the non-applicability of Schedule 5 in relation to the preparation of half-year accounts, is to render the exemption in subsection 309(3) ineffective in respect of half-year accounts. As there was no policy intention to increase the financial disclosures beyond those mandated in the relevant accounting standard, the subsection 309(3) exemption needs to be reintroduced by regulation.
This is done in item 1 of Part 1 of Schedule 9A of the Regulations.
Regulation 7: New regulation 3.6.06
Section 331B of the Corporations Law requires an auditor to report on compliance with applicable accounting standards. As these standards will not apply to financial institutions that are disclosing entities, it is necessary to modify the operation of section 331B.
Accordingly, new regulation 3.6.06 provides that paragraph 331B(1)(c) and subsection 331B(2) of the Law apply, as modified in items 2 and 3 in Schedule 9A, to a financial institution that is a disclosing entity. The effect is that where a financial institution that is a disclosing entity is relieved from compliance with the requirements of sections 297. 298 and 299 of the Law (because of regulation 1.2.04) the auditor is to state whether the financial institution has complied with the accounting requirements of section 272 of the Financial Institutions Codes. If, in the auditor's opinion, the financial statements do not so comply, the auditor's report must set out the quantified financial effect on the financial statements of the failure to do so.
Regulation 8: Regulation 3.8.02 (Documents that are to accompany an annual return)
Section 335 of the Corporations Law requires a company, after the end of a financial year of the company, to lodge an annual return of the company in the prescribed form, containing a list of members and such other particulars as are prescribed, and accompanied by the prescribed documents.
Regulation 3.8.02 prescribes, for the purposes of section 335, those documents which must accompany a company's annual return when it is lodged with the ASC. Given that section 317A of the Corporations Law now requires a disclosing entity to lodge its accounts and reports with the ASC, there is no need for it to lodge its accounts and reports again with its annual return as would currently be required by paragraph (a) of regulation 3.8.02.
Regulation 8 inserts new regulation 3.8.02(2) to make it clear that a disclosing entity that has lodged its accounts and reports with the ASC in accordance with subsection 317A(1) will not be required to comply with the requirements of section 335 of the Law and regulation 3.8.02.
Regulation 9: Regulation 6.12.02 (Prescribed matters for the purposes of clause 18 of a Part A statement)
For offers to be made under a takeover scheme, the offeror must register and dispatch a Part A statement (sections 637 and 644 of the Corporations Law). Section 750 of the Law sets out the contents requirements of a Part A statement. Clause 18 of the Part A statement provides that if the Part A statement relates to an offer to acquire shares in a class of offers in relation to which regulations are in force, the statement shall set out the prescribed matters.
Regulation 6.12.01 specifies various classes of offers for the purposes of clause 18 of the Part A statement. Regulation 6.12.02 provides for various matters to be prescribed for the purposes of clause 18. This latter regulation, in effect, provides for a Part A statement in respect of a scrip bid to contain the information which would be required to be set out in a full prospectus.
Regulation 9 amends this regulation to reflect the relaxation of the prospectus requirements for disclosing entities contained in new section 1022AA of the Corporations Law.
Regulation 10: New Part 7.
Subsection 776(2B) of the Corporations Law provides that, subject to subsection (2C), a securities exchange that makes information about a listed disclosing entity available to a stock market conducted by the securities exchange must, as soon as practicable, give the ASC a document that contains the information. Subsection (2C) provides that the regulations may provide that subsection (2B) does not apply to information of a specified kind.
The chief intention behind subsection 776(2B) is to ensure that the ASC is provided with information which the Australian Stock Exchange releases to the market and which is of interest to the ASC in performing its role of maintaining investor confidence in securities markets through market surveillance. Such information is submitted to the Exchange by listed companies or other parties in paper form, by facsimile or by electronic data transmission. It may also be generated by the Exchange itself
The intention behind subsection 776(2C) is to enable minor information which the Exchange generates itself and which is of no regulatory interest to the ASC to be exempted from disclosure.
In this regard, regulation 7.2.01 exempts from disclosure Stock Exchange Automated Trading System (SEATS) notification messages (for which there is no conversion to paper) and Exchange broadcasts known as 'voiceline announcements' (eg that a prospectus is about to be issued).
SEATS is an electronic securities screen trading system operated by the Exchange. As from 1 November 1990, the Exchange's trading floors were closed and all trading in quoted securities is now executed through the SEATS system. Trading takes place on SEATS from terminals which are connected via communication lines to a central processor. Buy and sell orders at special prices and 'at market´ bids and offers, which are entered via terminals into a co-ordinated file, may only be executed by authorised operators. This information is provided to stockbrokers and various 'information brokers' such as Reuters on commercial terms.
Regulation 11: Regulation 7.12.02 (Exemptions from Chapter 7 of the Corporations Law
Regulation 7.12.02 provides that the prospectus requirements contained in Division 2 of Part 7.12 of the Corporations Law do not apply in relation to an offer or invitation made:
(a) under a takeover scheme and accompanied by a registered Part A statement; or
(b) under a compromise or arrangement approved by the Court.
The Corporate Law Reform Act 1994 has made substantial amendments to the prospectus provisions and the new secondary trading requirements in Division 3A of Part 7.12 the Corporations Law. Having regard to these amendments, regulation 11 amends regulation 7.12.02 to provide that Division 3A of Part 7.12 does not have effect in relation to the classes of transactions specified in that regulation.
Regulation 12: Regulation 7.12.07 (Agent's authority to be lodged)
Regulation 7.12.07 provides that if a prospectus lodged with the ASC under paragraph 1018(1)(a) of the Corporations Law, or a supplementary prospectus lodged under paragraph 1024(1) of the Law, is signed by an agent of a director or proposed director of the corporation, the authority to do so or a verified copy of the authority must be attached to the prospectus. (Agents are able to sign a primary prospectus or supplementary prospectus as a result of subsections 1021(13) and 1024A(4) of the Law. Former subsection 1021(13A), repealed by the Corporate Law Reform Act 1994, provided that secondary prospectuses could only be signed by the seller. The new notices for secondary sales in sections 1043C and 1043D can also only be signed by the seller.)
The Corporate Law Reform Act 1994 has also repealed former section 1024 and replaced it with new requirements relating to supplementary and replacement prospectuses. Under new section 1023B, a corporation must lodge a supplementary or replacement prospectus with the ASC where the corporation becomes aware that the original prospectus contains a material statement that is false or misleading or that there is a material omission from the prospectus. Under new section 1024, a corporation must lodge a supplementary or replacement prospectus with the ASC where the corporation becomes aware that there has been a significant change affecting a matter included in the original prospectus or a significant new matter has arisen.
Regulation 12 amends regulation 7.12.07 to reflect the amendments made to section 1024.
Regulation 13: New regulations 7.12.08A, 7.12.08B and 7.12.08C
New regulation 7.12.08A: Information required in section 1043B notice-limitation
New section 1043B of the Corporations Law provides that a person must not offer unquoted securities of a corporation for purchase, or invite offers to buy such securities, unless the person has lodged with the ASC a notice that complies with whichever of sections 1043C or 1043D applies.
A seller entitled to 30% of the unquoted voting shares in a company or to 30% of the unquoted voting shares in a class of voting shares in the company who is making an offer or invitation relating to those shares is required to comply with the requirements of new section 1043C.
Subsection 1043C(2) provides that, subject to subsection (3), the notice must contain such information as investors and their professional advisers would reasonably require, and reasonably expect to find in the notice, for the purposes of making an informed assessment of.
(a) the assets and liabilities, financial position, profits and losses, and prospects of the company; and
(b) the rights attaching to the shares.
Subsection 1043C(3) provides that the Regulations may limit the information required by subsection 1043C(2) to be in the notice.
The intention behind this provision is to allow the Regulations to contain qualifications along the lines of those contained in subsections 1022(2) and (3) of the Law in the case of prospectuses. Regulation 7.12.08A gives effect to this intention by limiting the information required to be in a section 1043C notice in terms similar to subsections 1022(2) and (3).
New regulation 7.12.08B: Section 1043B notice-application of applicable provisions
New subsections 1043C(5) and (6) provide that the regulations may apply, with or without modifications, the provisions of Part 7.11 of the Corporations Law dealing with prohibited conduct in relation to securities, the provisions of Divisions 2 and 3 of Part 7.12 relating to prospectuses and imposing restrictions on sale of securities, and any related regulations to:
(a) a section 1043C notice, as if it were a prospectus; and
(b) the offer or invitation made by the notice, as if it were an offer or invitation in relation to which section 1018 required a prospectus to be lodged.
New regulation 7.12.08B provides that for the purposes of subsection 1043C(5) of the Corporations Law, the provisions referred to above apply, as modified in Part 2 of Schedule 9A, to a notice to which section 1043C applies.
New regulation 7.12.08C: Section 1043B notice-other sales
As indicated above, new section 1043B of the Law provides that a person must not offer unquoted securities of a corporation for purchase, or invite offers to buy such securities, unless the person has lodged with the ASC a notice that complies with whichever of sections 1043C or 1043D applies. 'Securities of a corporation' includes prescribed interests made available by a corporation -see Corporations Law, section 9 - definition of 'of', in relation to securities.
Section 1043D will apply to the vast majority of secondary sales of unquoted securities. Subsection 1043D(2) provides that a section 1043D notice must contain the information that the regulations require about:
(a) the securities to which the offer or invitation relates; and
(b) the seller; and
(c) the corporation; and
(d) the directors of the corporation; and
(e) if the securities concerned are prescribed interests - the undertaking to which the prescribed interests relate and the trustee or representative in relation to the interests.
For the purposes of subsection 1043D(2), new regulation 7.12.08C prescribes requirements along the lines of those contained in the former section 1080 of the Corporations Law in the case of securities apart from prescribed interests and along the lines of those contained in former regulation 7.12.13 of the Corporations Regulations in the case of prescribed interests.
Regulation 14: Regulation 7.12.11 (Section 1021 (Specific provisions applicable to all prospectuses))
Items 31 to 33 of Schedule 2 of the Corporate Law Reform Act 1994 amended subsection 1021(6) of the Corporations Law to remove the need for prospectuses to contain information which is only of historical interest. In addition to the disclosure of existing benefits and payments, subsection 1021(6) will only require disclosure of benefits conferred upon, and amounts paid to, directors, proposed directors or experts involved in the promotion of corporations in the period of 2 years before the prospectus was lodged. Ongoing benefits, even if conferred under a contract entered into more than 2 years before the prospectus was lodged, will still be required to be disclosed under subsection 1021(6).
Regulations 7.12.10 and 7.12.11 modify the operation of subsection 1021(6) in its application to securities that are prescribed interests. The modification made is similar to the amendments made to subsection 1021(6) by items 31 to 33.
Regulation 14 amends regulation 7.12.11 to ensure that is consistent with subsection 1021(6) of the Law, as amended.
Regulation 15: New regulation 7.12.14A
The amendment of paragraph 1069(1)(f) of the Corporations Law by item 100 of Schedule 1 of the Corporate Law Reform Act 1994 necessitates the prescription of time limits within which the trustee (or representative) of a prescribed interest scheme is to send end-of-year reports to holders of prescribed interests. The present requirement for reports to be sent 'within 2 months after the end of each financial year' has been amended to a requirement for the reports to be sent 'within the prescribed period after the end of each financial year'.
It would be rare for an undertaking with prescribed interests on issue to be other than a disclosing entity. Notwithstanding this, it desirable that the prescribed period for the purposes of disclosing entities and non-disclosing entities should be the same.
Consistent with the position for disclosing entities, new regulation 7.12.14A provides that the prescribed period will be 90 days.
Regulation 16: Regulation 7.12.15 (Prescribed covenants: paragraph 1069(1)(n) of the Corporations Law)
The effect of regulation 7.12.15(1)(b) is that a deed governing a prescribed interest scheme must contain a covenant that prescribed interests subscribed for or purchased in accordance with a prospectus will not be allotted later than 6 months after the issue of the prospectus. To be consistent with the extension of the life of prospectuses from 6 to 12 months as a result of the Corporate Law Reform Act 1994, regulation 16.1 changes the reference in regulation 7.12.15(1)(b) from 6 months to 12 months.
Also, to be consistent with new regulation 7.12.14A, and to take account of the amendment to subparagraph 1069(1)(f)(i) made by item 101 in Schedule 1 of the Corporate Law Reform Act 1994, regulation 16.2 amends regulation 7.12.15(5)(o). As a result, a deed will have to contain a covenant to the effect that the trustee will ensure that:
(a) a copy of the accounts and the report referred to in subparagraph 1069(1)(f)(ia) of the Corporations Law; or
(b) the statement of the accounts referred to in subparagraph 1069(1)(f)(i) of the Corporations Law;
is given to holders of the prescribed interests not more than 90 days after the end of the financial year to which the accounts relate.
To be consistent with new regulation 7.12.14A, new regulation 16.3 amends regulation 7.12.15(7)(a) by omitting '2 months' and substituting '90 days'. The effect is that the management company of a property trust is bound by a covenant to report to the trustee not later than 90 days after the end of each financial year and give the report to prescribed interest holders together with the statement of the accounts of the trust.
Regulation 17: New regulation 7.12.15B
Paragraphs 1071(1)(a) and (b) of the Corporations Law require a management company of a prescribed interest scheme which has (or had) an approved deed to lodge a return with the ASC within 2 months of the end of the financial year or 2 months of the cessation of the deed. Item 104 of Schedule 1 of the Corporate Law Reform Act 1994 amends the timing of paragraphs 1071(1)(a) and (b) to 'within the prescribed period'.
Consistent with new regulation 7.12.14A, new regulation 7.12.15B provides a 90 day period, after the end of the financial year or cessation of the deed, during which management companies for an undertaking would lodge their return with the ASC.
Regulation 18: Regulation 7.12.16 (Return to be lodged under subsection 1071(1) of the Corporations Law)
Paragraph (a) of regulation 7.12.16 provides that a management company return lodged with the ASC under subsection 1071(1) must have with it a copy of the statement of accounts and auditor's report on those accounts.
New section 323K also requires the management company in relation to a disclosing entity that is an undertaking to which prescribed interests relate to lodge a profit and loss account, auditor's report and the trustee's report for each accounting period.
To overcome the duplication between paragraph (a) of regulation 7.12.16 and new section 323K, regulation 18 amends regulation 7.12.16 to provide that paragraph (a) of that regulation does not apply to a case where new s. 323K applies.
Regulation 19: Regulation 7.12.17 (Prescribed invitation or offer: subsection 1078(4) of the Corporations Law)
Subsection 1078(1) of the Corporations Law provides a basic prohibition on securities hawking. That is, a person must not, whether by appointment or otherwise, go from place to place:
(a) issuing invitations to subscribe for or buy securities of a corporation; or
(b) offering securities of a corporation for subscription or purchase.
Subsections (2) and (3) provide exceptions to this basic prohibition and subsection (4) provides that the prohibition does not apply in relation to a prescribed invitation or a prescribed offer.
Item 62 of Schedule 2 of the Corporate Law Reform Act 1994 provides a further exception. As a result of this item, the prohibition on the hawking of securities will not apply to offers of securities made by a licensed dealer, by whatever means, to an existing client.
Regulation 7.12.17 provides, amongst other things, that for the purposes of subsection 1078(4) of the Corporations Law, an invitation or offer that is made in, or accompanied by, a prospectus complying with Division 2 of Part 7.12 of the Law and sent by post is a prescribed invitation or offer.
Division 2 of Part 7.12 previously required the preparation of both primary and secondary prospectuses. As a result of the amendments made by the Corporate Law Reform Act 1994, Division 2 of Part 7.12 only applies to primary prospectuses (referred to in the Law simply as 'prospectuses'). New notice provisions under sections 1043C and 1043D, in new Division 3A of Part 7.12, replace the previous secondary prospectus requirements.
Regulation 19 amends regulation 7.12.17 to reflect the above-mentioned amendments.
Regulation 20: Schedule 1 (List of Forms in Schedule 2)
Regulation 20 adds to Schedule 1 of the Regulations a description of the new forms required in connection with the lodgment of accounts and other documents with the ASC in accordance with the new periodic and continuous disclosure requirements of the Corporations Law.
Regulation 21: Schedule 2 (Forms)
Regulation 21 provides for the forms required in connection with the lodgment of accounts and other documents with the ASC in accordance with the new periodic and continuous disclosure requirements of the Corporations Law. Regulation 3 sets out the information which each relevant form must contain. The new Forms will appear at the beginning of Schedule 2 of the Corporations Regulations, before Form 911.
Regulation 22: Schedule 7 Chapter 4 (Various Corporations)
At present, as a result of paragraph 4.2.02 and Item 7 in Column 2 of Schedule 7 of the Corporations Regulations, an application to register a company name containing the word 'bank', 'banker', 'banking', or words having the same or similar meaning, must have with it the written consent of the Treasurer.
These provisions in the Corporations Regulations are intended to support the operation of section 66 of the Banking Act 1959 which prohibits a person (other than a bank) from using a bank related work in relation to a financial business carried on by the person, unless the person has the written consent of the Treasurer. The Corporations Regulations are also intended to operate as a screening mechanism, alerting Treasury to instances where companies seek to use company names which require the Minister's consent.
Whereas section 66 of the Banking Act requires the consent of the Treasurer to the use in a company name of a word or a like import to the word 'bank', 'banker' or 'banking', when used in combination with other words, letters or symbols and whether or not in English, the Corporations Regulations only require the consent in writing of the Treasurer to accompany an application where the proposed company name includes "the word 'bank,', 'banking', 'banker' or words having the same or similar meaning". The Corporations Regulations have also not been effective in preventing the registration of company names including composite words, such as 'Technobank' and 'Tradebanc', which require the written consent of the Treasurer under section 66 of the Banking Act.
Regulation 22 overcomes these difficulties by amending item 2 in Schedule 7 of the Corporations Regulations to require the written consent of the Treasurer to accompany an application to register a company name which contains a bank related word or such a word which appears as part of another word or in combination with other words, letters or symbols.
Regulation 23: Schedule
Regulation 23 inserts a new Schedule 9A into the Corporations Regulations.
Item 1 of Part 1 of new Schedule 9A makes a modification to subsection 309(3 of the Corporations Law. The rationale for this amendment is explained under Regulation 6 above.
Items 2 and 3 of Part 1 of new Schedule 9A make modifications to paragraph 331B(1)(c) and subsection 331B(2) of the Corporations Law. The rationale for these amendments is explained under Regulation 7 above.
Part 2 of new Schedule 9A (items 4 to 18) applies, with relevant modifications, various provisions of Part 7.11 of the Corporations Law dealing with prohibited conduct in relation to securities, the provisions of Divisions 2 and 3 of Part 7.12 relating to prospectuses and imposing restrictions on sale of securities to:
(a) a section 1043C notice (relating to the sale of 30% of the unquoted voting shares of a company) as if it were a prospectus; and
(b) the offer or invitation made by the notice, as if it were an offer or invitation in relation to which section 1018 required a prospectus to be lodged.
NOTE: The Note on the first page of the accompanying Regulations indicates that the Regulations commence on gazettal in accordance with section 48 of the Acts Interpretations Act 1901. That Note, which is explanatory in nature and does not form part of the Regulations, is not entirely accurate. Only those regulations relating to the periodic reporting requirements in Schedule 1 of the Corporate Law Reform Act 1994, which were proclaimed to commence on 1 July 1994, commenced on gazettal ie. on 2 September 1994. In accordance with section 109DA of the Corporations Law, the remainder of the regulations commenced on 5 September 1994. It was on this date, as a result of subsection 2(3) of the Corporate Law Reform Act 1994, that the continuous disclosure and related enforcement provisions in Schedule 1 of that Act and the prospectus and secondary trading provisions in Schedule 2 of that Act came into operation.
The interpretation rules contained in Part 1.2 of the Corporations Law apply to the exclusion of the Acts Interpretation Act 1901 (Cth) - see subsection 8(2) of the Corporations Act 1989 (Cth) and section 10 of the corresponding State Corporations Acts. Subject to this proviso, the Acts Interpretation Act 1901 (Cth), as in force on 1 January 1991 applies, and that Act as amended at any later date does not apply, in relation to the Corporations Law - see subsection 8(3) of the Corporations Act 1989 (Cth) and section 10 of the corresponding State Corporations Acts.
Section 109DA of the Corporations Law is contained in Part 1.2 of that Law. That section provides that where an Act that does not come into operation immediately upon its enactment results in the amendment of the Law so that the Law, as amended, will confer power to make regulations, this power may be exercised, in the absence of a contrary intention, before the Act concerned comes into operation.
Regulations made under section 109DA take effect:
(a) on the day on which the Act concerned comes into operation; or
(b) on the day on which the regulations would have taken effect if the Act concerned had been in operation when the regulations were made;
whichever is the later.
Subsection 48(1) of the Acts Interpretation Act 1901 is applicable to those regulations relating to periodic reporting. The effect of this provision is that these regulations take effect upon their notification in the Gazette.