The stated objective of the Corporations Amendment (Simple Corporate Bonds and Other Measures) Act 2014 (Cth) (Act) is to improve the attractiveness for companies issuing corporate bonds to retail investors while ensuring that effective consumer protections are maintained. To this end, the Act seeks to streamline the disclosure and liability regimes for ‘simple corporate bonds’ (as well as clarifying the statutory due diligence defence to the criminal liability provisions in sections 1308 and 1309 of the Corporations Act 2001 (Cth) more generally). Whether the measures will successfully kick-start the retail debt market remains to be seen. We will continue to monitor the commencement of the changes which are due to take effect from 11 March 2015 unless proclaimed earlier.
The Corporations Amendment (Simple Corporate Bonds and Other Measures) Act 2014 (Cth) (Act) received Royal Assent on 11 September 2014 and will take effect from 11 March 2015 unless proclaimed earlier.
The reforms are designed to facilitate increased offerings of corporate bonds to retail investors in Australia by introducing a streamlined disclosure and liability regime for listed entities and their wholly owned subsidiaries which issue ‘simple corporate bonds’ to retail investors.
‘Simple corporate bonds’ include debt securities which satisfy certain conditions including:
- they must be ‘debentures’ as defined in the Corporations Act 2001 (Cth) (Corporations Act);
- they must be quoted on a prescribed financial market;
- their face value must not be greater than AUD1,000;
- they must meet certain conditions relating to repayment and interest;
- they must not have a fixed term exceeding 15 years;
- they must only be redeemable before the end of the fixed term in certain circumstances;
- they must not be convertible into another class of securities;
- the debt must not be subordinated to debts to unsecured creditors; and
- the price payable must be the same for every person who accepts the offer.
Specifically, the Act amends the Corporations Act by:
- introducing a 2-part prospectus regime to simplify the disclosure requirements for corporate bond issues (namely, a base prospectus and an offer-specific prospectus), with a $50 million minimum subscription requirement for first offers under a base prospectus ;
- giving ASIC the power to prevent a particular issuer relying on the regime;
- to facilitate trading of simple corporate bonds in the wholesale market, allowing simple corporate bonds to be offered in the wholesale market to retail investors using depository interests (which is a beneficial interest in the simple corporate bond), subject to certain conditions; and
- relieving directors from liability for any misstatement in, or omission from, a simple corporate bonds prospectus unless they are involved in the misleading or deceptive statement or the omission of material.
The Act also clarifies what will constitute ‘reasonable steps’ for the purpose of the statutory due diligence defence to the criminal liability provisions in sections 1308 and 1309 of the Corporations Act. These changes apply generally and not just in respect of simple corporate bonds.
Exposure draft Corporations Amendment (Simple Corporate Bonds and Other Measures) Regulation 2014, which seeks to give effect to the required structure and content of the 2-part prospectus, was released on 21 October 2014 (together with an Explanatory Statement). Submissions on the draft Regulation are due by 14 November 2014.