ASIC today released Regulatory Guide 228 ‘Prospectuses: Effective disclosure for retail investors’ (RG228). RG228 follows on from Consultation Paper 155 (CP155) released in April this year.1
RG228 largely reflects the position taken in CP155 however there have been some clarifications and relatively minor changes in response to submissions made by various interested parties (including Freehills). A number of key points are outlined below.
- ASIC has clarified that the methods it suggests to ensure a prospectus is clear, concise and effective are not prescriptive but may be useful.
- In respect of photographs, ASIC has maintained its initial guidance that there should be no photographs before the ‘Investment Overview’ section (which should be the first section of the prospectus).
- Any photographs included after the investment overview should be relevant, clearly labelled and not misleading. This guidance also applies to photographs of celebrities.
- ASIC has focused on ‘relevant information’ throughout RG228 and considers that provided only relevant information is included, prospectuses issued in compliance with RG228 should not be longer than in the past.
- ASIC continues to encourage incorporation by reference. They noted that while the ‘clear, concise and effective’ requirement applies to documents that are incorporated by reference, where such a document would not itself satisfy that requirement, its incorporation by reference should help to make the prospectus as a whole ‘clear, concise and effective’.
- The investment overview is key to disclosure and ASIC have identified key information that should generally be included. Key information will include the business model, key risks, financial information, directors and key managers, interests, benefits and related party interests, offer details (eg price) and use of offer proceeds.
- ASIC has moved away from requiring specific financial ratios to be included in the investment overview, but have retained their guidance that it should include key financial information. This may include certain ratios and consideration should be given to explaining what the ratios mean. ASIC will provide further guidance in respect of pro forma financial information that is not prepared in accordance with accounting standards following Consultation Paper 150 ‘Disclosing financial information other than in accordance with accounting standards’.
- ASIC has clarified that while the fact that information is confidential does not mean it is excluded from disclosure, issuers will not automatically need to disclose commercially-sensitive information. This is because it may not be relevant to the investment decision or it may be unreasonable for investors (and their advisors) to expect to find the information in the prospectus.
- Key risks will generally be those with a reasonable likelihood of occurring, that are difficult to mitigate and, if they occurred, would be likely to have a significant impact on the issuer’s financial position and the value of a shareholder’s investment.
- A somewhat contentious requirement to disclose involvement by directors and key management in insolvent companies (or companies that became insolvent within 12 months of that person ceasing to be involved with the company) has been retained. ASIC has acknowledged that the disclosure required will partly depend on the company’s circumstances and the role the relevant person will undertake in it. Some examples have been included in RG228. ASIC’s view is that generally previous insolvencies will be relevant unless it is clear that the manner in which the company was managed was not responsible in any way for the company failing.
- ASIC’s guidance is that offer documents for low-doc offers (ie. rights issues conducted without a prospectus) should be ‘clear, concise and effective’ even though there is no statutory requirement. ASIC considers similar duties arise as a consequence of, for example, the requirement not to mislead or deceive.