The amendments impact on financial services regulation, fundraising, company reporting obligations, corporate governance and general compliance.  The following is a brief summary of a number of the recent amendments.

Rights Issues for Quoted Shares

A listed entity may now undertake a rights issue (i.e. an offer of securities to its existing members on a pro rata basis) without such offer being accompanied by or made under a Prospectus if, amongst other things, the entity issues a form of ‘cleansing notice’ within the 24 hour period before the offer is made.  Rather than adopting the more onerous disclosure requirements of a Prospectus, the level of disclosure in a ‘cleansing notice’ is similar to a cleansing notice to facilitate a secondary sale under Section 708A(5), with the additional requirement of stating the potential effect the rights issue has on the control of the entity.

At face value, the removal of the requirement for a rights issue to be made under a Prospectus would appear to reduce the cost of raising capital pursuant to a rights issue.  However, it remains imperative that appropriate due diligence is undertaken and the ‘cleansing notice’ is factually accurate, particularly when consideration is had to the potential liability which may arise from the issue of such a ‘cleansing notice’ and the lack of a ‘due diligence’ style of defence.

Dissemination of Shareholder Materials

Previously, shareholders had to elect to receive the financial report electronically; it was not the default means of distribution.  Recent amendments allow for the electronic distribution of financial reports.  Shareholders will simply receive notification that they are able to access the latest financial report on the company website once it becomes available unless they have notified the company otherwise.  The benefits of distributing financial reports in this way should be considerable.

Offer Information Statements

The maximum amount which an entity may raise utilising Offer Information Statements has been increased from $5 million to $10 million.

Related Party Approvals

A threshold of $5,000 has been introduced with respect to the giving of a financial benefit to a related party of a public company.  Any financial benefit below this level (when combined with all benefits issued in reliance upon this exemption in that financial year) does not require member approval to be obtained pursuant to Part 2E of the Corporations Act.

Financial Reporting Thresholds Lifted

The Corporations Act requires certain companies (such as listed, public and large proprietary companies) to prepare audited financial reports.  There is an obvious preparation cost and opportunity cost (use of company resources) associated with this form of financial reporting.

The recent amendments to the Corporations Act have lifted the criteria of whether a company is a ‘large proprietary company’ requiring it to prepare and distribute financial reports, to be a company that satisfies at least 2 of the following:

1. The consolidated revenue of the company is at least $25 million (up from $10 million);
2. The consolidated assets of the company is at least $12.5 million (up from $5 million); or
3. The company and any entities it controls have at least 50 employees (this criteria is unchanged).

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