Last week the Government released the Corporations Amendment (Simple Corporate Bonds and Other Measures) Bill 2014 (Cth) which is aimed at developing the retail corporate bond market in Australia.
The previous government had introduced a bill on simple corporate bonds early last year which subsequently lapsed.
The stated objective of the current proposed measures is to improve the attractiveness for companies issuing corporate bonds to retail investors while ensuring that effective consumer protections are maintained.
The key measures are as follows:
- Streamlined disclosure regime – Enabling the issuing of simple corporate bonds to retail investors by way of a 2-part prospectus (consisting of a base prospectus and an offer-specific prospectus) instead of a full prospectus. The content requirements for the 2-part prospectus are to be specified by regulations. ASIC has the power, however, to make a determination to prevent a company from relying on the streamlined disclosure regime.
- Directors’ liability – Directors will have liability for any misstatement in, or omission from, the disclosure document only where they are involved in the misstatement or omission from the disclosure document. The bill also contains due diligence defences to criminal liability relating to false or misleading statements.
- Ability to be traded as depository interests – To allow simple corporate bonds in the wholesale market to be offered to retail investors using depository interests (which is a beneficial interest in the simple corporate bond).
What are ‘simple corporate bonds’?
To be considered as ‘simple corporate bonds’, the debt securities must satisfy certain conditions including the following:
- the securities must be ‘debentures’ as defined in the Corporations Act 2001;
- the securities must be quoted on a prescribed financial market (eg ASX);
- the securities must be denominated in Australian currency;
- the fixed term of the securities cannot exceed 15 years;
- the securities must meet certain conditions about repayment, interest rates and payment of interest;
- the face value for the security cannot exceed $1,000;
- the securities can only be redeemed before the end of the fixed term in specified circumstances;
- the debt to security holders is not subordinated to debts to unsecured creditors;
- the securities must not be able to be converted into another class of securities;
- the price payable for securities must be the same for all persons who accept the offer;
- the body offering the securities must have continuously quoted securities or be the wholly-owned subsidiary of a body corporate that has continuously quoted securities (and if a wholly-owned subsidiary, the bond must be guaranteed by the parent);
- the most recent auditor’s report on the most recent financial statements of the issuer must not contain certain statements (eg. a description of an irregularity in the financial report);
- other conditions or requirements that may be set out in regulations.