Question

Business and Corporations Law

5. Larry Large started a business in early 2001 involving direct marketing of a range of garden products. He operated through a proprietary company, Large Larry Pty Ltd. The business was quite successful, aided apparently by a media campaign featuring Larry himself. In 2017 he decided to dramatically expand the business and to change the operation from direct marketing to distribution of products through various retail outlets. In that year he converted the proprietary company into a public company (Large Larry Ltd). He now wants to raise $15 million in additional funds to assist with the expansion and also to retire some debt. One option that is being considered is to offer shares in Large Larry Ltd to a number of large institutional investors. An alternative option is to float the business, that is offer the shares to the public and apply for listing on the Australian Stock Exchange (ASX). Larry is very upbeat about the company’s prospects. He believes that with favourable economic conditions the company will double in size within a year. He approaches you and asks you to advise him on the following matters:

a) What are the implications under Chapter 6D of the Corporations Act of the two fundraising options being considered?

b) If a decision is made to carry out a float, what type of disclosure document will be required and what type of information must it contain?

c) If the offer document includes forecasts consistent with Larry’s view concerning the prospects of the company, what consequences could follow if the forecasts are not met?

Answer 1

a) The implications to be considered are:

    Off market sale from the controller,here an offer of a body's securities that are in sale needs to be disclosed to the investors under this part only when - 1) individual making the offer controls the body or company

2) securities are not quoted or although they are quoted but not offered to sale in the financial market and section 708 does not stay otherwise

b) A disclosure document is the broad term used to describe all regulated documents required for fund raising by issue of securities.However here a PROSPECTUS is required and it should have all the information required.It usually contains

1)Description of the offering

2)History of the business

3)products and services

4)Financial statements

5)Details of management

6)legal opinion regarding formation of the company

7)SEC disclaimer

c) Section 728 Forecasts and other forward looking statements:

A person will be taken into making a false or misleading statement about any matter,if they don't have any reasonable proof to give such statements.

If the forecasts are not met,the person who prepared the document can be referred to a misleading statement which don't have any reasonable grounds to making such statements.