The Federal Government has recently proposed amendments to the Corporations Act to improve the attractiveness of issuing corporate bonds to retail investors.
The proposed amendments to the retail corporate bond fundraising regime are part of the government’s push to establish a strong and liquid retail debt market in Australia.
The government proposes to do this by reducing the regulatory burden, cost and complexity of issuing simple corporate bonds to retail investors by:
- introducing the concept of “simple corporate bonds”
- simplifying the disclosure requirements, and
- easing the liability burden on directors by removing the automatic civil liability provisions for misleading or deceptive statements or omissions in the offer document.
Simple corporate bonds
Key to the application of the proposed amendments is the type of instruments that will be considered “simple corporate bonds”. In summary, to qualify as a “simple corporate bond” the bond must:
- be a debenture as defined in the Corporations Act
- be quoted on a prescribed financial market (such as ASX)
- be denominated in AUD
- be offered on the basis that no bonds will be issued unless a minimum subscription amount of $50m is raised from the first offer
- have a fixed term of up to 10 years at which point the principal and accrued interest must be repaid
- have a face value of no more than $1,000
- rank higher than any debts owed to the issuer’s unsecured creditors
- not be convertible into any other security, and
- be redeemable before the end of the fixed term only in certain circumstances
Proposed new disclosure requirements
The proposed amendments to the corporate bond disclosure regime will dispense with the requirement to prepare a “full” prospectus and allow companies to issue simple corporate bonds to retail investors using a two part prospectus. The two part prospectus will consist of a base prospectus and an offer specific prospectus. An offer specific prospectus will need to be issued for each tranche or offer of simple corporate bonds under the base prospectus.
Director liability amendments
The proposed amendments remove the “automatic” civil liability of directors and proposed directors of the issuer for misleading statements or omissions in the combined prospectus. Instead these persons will be civilly liable for misleading or deceptive statements and omissions only if they had a direct involvement in the making of the statement or omission.