Corporations Act of Australia, 2001 emphasis on a lot of disclosures to be made for the users of the financial statements. S708 mentions that the disclosing entities must disclose all the price sensitive information that is not available to be disclosed as per ss674-675. Further, corporate fundraising is a big activity which relies on the proper, complete, effective and reliable information to be disclosed to the investors. (Alexander, 2016) This guarantees proper and adequate information to the investors basis which they can take the informed decisions. The disclosure requirements that are generally required is the type of secutity being offered, debt or equity capital being issued with the rate of return, payment terms of the interest and the principal amount, taxation amount to be incurred. All these diclosures are required to obtain the capital fom the market without which the retail investors would not have access to the information. This ensures protection of the investors from being exploited. This is generally done through an offer document called prospectus, which generally helps the investors to know and access the anticipated risks closely associated with the industry and the company.This also ensure the circulation of the necessary information in a cost effective manner. (Belton, 2017) These disclosures helps the investors to know the potential liability of the offering company and thus it follows the rule of “caveat emptor”. It may be in the form of a short for prospectus or the offer information document or profile statements.
S706 of Corporation Act mentions the need to disclose the information in case of offer of securities for issue unless particularly mentioned in ss708 or 708AA. In my opinion, these sections generally exempt the defendant i.e., the offering company to make the disclosure requirements in order to be cost effective such as in the case of the rights issue or in the case of the small scale offers or personal offers where not more than $ 2 Mn is raised from not more than 20 investors within a period of 12 months. Disclosure is also not required in case of the sophisticated investors like who are going to pay a minimum of $ 500000 on offer and a licensed accountant has certified them to have the gross assets worth $2.5 Mn or gross income of $ 250000 per year for the last 2 financial years or in case of professional investors having business asssets exceeding $ 10 Mn or also in case of senior executive officers who have huge knowledge of the business. (Bromwich & Scapens, 2016). Thus, in our view, the exemption from disclosure requirements is justified based on the above facts and cost effectiveness.
Prospectus is generally an offer document containing all the information requirements for the investors. It a mandatorily required comprehensive document in case the fund requirement is above $ 10 Mn. It may be in the form of the short form prospectus or the profile statements or the offer information statement. A short form prospectus is a summary of all the material information including technical analysis, etc. (Dichev, 2017) Offer information statement is for those companies which are SMEs or small or start ups and the fund requirement will be generally less than the $ 10 Mn over the life of the company. It should contain the details like
Profile statements are very brief statements and contain very less information and is used very rarely. It contains only the material information and is given alongwith the offer. It is prepared to give readily required information to the investors in the comprehensive manner.
Defence prepares may utilise some of the cases in relation to the defective content as per CA 731, 732 and 733. As per section 731, liability can be avaoided if they prove that they made the reasonable due deligence and inquiries and that the statements were not misleading deceptive in the circumstances of the case and he has reasonable grounds to believe that there was no omission. (Trieu, 2017) Further, section 732 calls for lack of relevany knowledge or they didn’t know that the statement was misleading or deceptive. This can be used only in the case of information statements. Section 733 deals with reasonable reliance defence which says that the prospectus preparers need to prove that they placed reliance on the information provided by the person other than company’s director, employee or agent or individual’s employees or agent. This can only be used only when the information was supplied by some professional or specific advisory firm and the preparer relied on it.
Insider trading is the sharing or trading of the the shares or other financial products when the person is in the possession of the price sensitive information which is not available otherwise. It is prohibited under Division 3, Pt. 7(10) of CA, 2001. It covers a wide range of the financial products like shares, superannuation, derivatives and other financial products that are being widely traded on the financial market. (Raiborn, Butler, & Martin, 2016) The person with whom the insider deals is also liable of criminal offense and will attract civil penalty provisions. To avoid all this, the ss 674 – 677 warrants the continuous timely disclosure of this price sensitive information by the company to avaoid the insider trading.
It is prohibited on a lot of grounds including fairness i.e., access to equal information by the market participants on the company, fiduciary duty of the person issuing the securities who holds the position of trust and should not work for personal gains at the expense of the others, to prevent the economic efficiency i.e., to maintain the integrity of the financial market and also to avoid the corporate injury to both the issuing company and the investors and shareholders who dealt with the insiders.Insider trading needs to be avoided and is prohibited as this irregular and illegal faster dissemination of the price sensitive information harms the investor confidence. Further, the person possessing the insider information must not induce or incite or encourage any other person directly or indirectly to engage into any such further act. Therefore, it applies even if the insider is a principle or an agent. (Knechel & Salterio, 2016) He must not disclose or communicate any such information to another person who he believes with purchase, sale or enter into an agreement to trade into any such financial products based on the information obtained.
The insider is a person defined in S 1043A of the act having the “insider information” or who reasonably ought to know that he satisfies the criteria mentioned in the Act. He can be an individual like officer or employee of the company or even a company itself. Insider information is defined in S 1042A of Act which says it is information which is not generally available or if it is generally available, the reasonable person would be aware of its material impact on the price of the financial product. Generally available information means readily observable matter or which is referred to in the company’s financial statements, corporate information and disclosure requiremnents in media releases and Australian Stock Exchange. Informaation is said to be material if it impacts the decision of the investor to invest or divest in the financial products in which they are commonly trading. The person possessing the inside information will be called an insider only if he/she knows that the information is an insider information. Thus, the definition is inclusive. (Belton, 2017)
There are multiple exceptions that are being provided to the insider trading prohibition under section 1043. Some of it is like Chinese walls which is an administrative arrangement where officers of a body corporate who possess the insider information are prohibited from doing the trading in the financial products and are prohibited and separated from the other department such that the information does not flow from one person to another. The other exception is underwriters who agree for acquiring or applying for the securities of the company in case it is less subscribed in lieu of the underwriting fees. They generally work for the success of the issue and a blanket exemption is thus provided to them. Other examples include holders of Financial services licences too.
The concept of takeover has been extensively defined in the Corporation Act in section 602. It implies the change of control from the acquired company or target company to the new or the acquiring company. It may be in the number of ways like the acquisition of the entire business or the entire assets and liabilities or the entire share capital of the acquired company. The provisions w.r.t. to takeover aims at creating the efficient, competitive and the informed markets such that the market forces are in equilibrium and the users are benefited. (Goldmann, 2016) In this case, the target company generally has all the information on the bidding parties, their business, their financial position and status, they have adequate time to consider the offer and are provided with all the necessary and sufficient information to take the informed judgements. All the shareholders of the company have the equal and reasonable chance to participate in the prescribed process.
However, in respect of the takeover, there are certain prohibitions given by the act like the 20% threshold to be maintained by the target company, the other company should be of the relevant interest and the associates of the parent company are restricted from participating in the takeover.
There are few exemptions in the process of the takeover which includes on market transaction being conducted by the bidder during the acceptance of the takeover bid. Further, it should be approved by the members of the company in the general meeting of the target company which should be properly convened after a due notice and agenda being circulated. The creeping of 3 % over 6 months post the takeover is completed is also exempted in this case. Further, share allotment on a pro rata basis is exempt and does not falls under the ambit of the takeover code. The DRP, dispute resolution panel or committee also need not be formed in case all the necessary conditions of the takeover are being satisfied and completed.
There are generally 2 parties to the takeover process, one which is acquiring the estate of the other company, the 1st being called the acquiring company or new company and the other being called the acquired or target company.
The procedure for takeover involves a number of steps and can be both off market and on market. In off market transaction, all the offers must be the same, however, the transaction price or consideration may be different depending on the curcumstances of the case, the consideration is generally in the form of cash or securities. (Raiborn, Butler, & Martin, 2016) In case it is in cash, the price should not exceed the highest cash being paid by the bidder in the last 4 months. Moreover, the offer is open for a time period of generally 1 to 12 months and it may be conditional too. In the case of on market takeover, the procedure is a bit different. In this, the offer is generally taking place on the market floor and is available for all the holders of the equity of that particular class. There is a market announcement for the same before the takeover transaction takes place and transaction is usually paid in cash only. (Werner, 2017) The consideration should not be there in securities. Again, as in off market, here also, if the consideration is being paid in cash, it should not exceed the highest amount being paid in the last 4 months. Here, the offer is generally unconditional.
There are certain documents which are required in the given timeframes. It includes bidder’s statement which should include the content and should be sent to the target shareholders within 14-28 days since it has been sent to the target company, the target statement which again should include the content prepared by the target company and it should be sent within 15 days from the date of dispatch. (Visinescu, Jones, & Sidorova, 2017) The documents should include the information on the compulsory buyout as well as compulsory acquisition thing.
References
Alexander, F. (2016). The Changing Face of Accountability. The Journal of Higher Education, 71(4), 411-431.
Belton, P. (2017). Competitive Strategy: Creating and Sustaining Superior Performance. London: Macat International ltd.
Bromwich, M., & Scapens, R. (2016). Management Accounting Research: 25 years on. Management Accounting Research, 31, 1-9.
Dichev, I. (2017). On the conceptual foundations of financial reporting. Accounting and Business Research, 47(6), 617-632.
Goldmann, K. (2016). Financial Liquidity and Profitability Management in Practice of Polish Business. Financial Environment and Business Development, 4, 103-112.
Knechel, W., & Salterio, S. (2016). Auditing:Assurance and Risk (fourth ed.). New York: Routledge.
Raiborn, C., Butler, J., & Martin, K. (2016). The internal audit function: A prerequisite for Good Governance. Journal of Corporate Accounting and Finance, 28(2), 10-21.
Trieu, V. (2017). Getting value from Business Intelligence systems: A review and research agenda. Decision Support Systems, 93, 111-124.
Visinescu, L., Jones, M., & Sidorova, A. (2017). Improving Decision Quality: The Role of Business Intelligence. Journal of Computer Information Systems, 57(1), 58-66.
Werner, M. (2017). Financial process mining – Accounting data structure dependent control flow inference. International Journal of Accounting Information Systems, 25, 57-80.
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