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A guide for defective CSF offer documents

6 January 2020

Below is a guide for defective CSF offer documents.

The guide below is from the Corporations Act 2001 (Cth) and all references to sections are from the Corporations Ac.

In a hurry? Jump ahead below. 

738U When a CSF offer document is “defective”

A CSF offer document is defective if:

  • there are any misleading or deceptive statements; or
  • there is an omission of information required by CSF regulations; or
  • since the document was first published on a platform of a CSF intermediary, a new circumstance has arisen that should have been included based on regulations if the document was not already published.

738V Obligation to notify company making offer, and responsible intermediary, if CSF offer document is defective

Failure to comply with the items below is a strict liability offence: s. 1311(1).

Company discovers defective document

If, while a CSF offer is open, the company making the offer becomes aware that the offer document is defective, the company must notify the responsible intermediary as soon as practicable.

Responsible intermediary discovers defective document

If, while a CSF offer is open, the responsible intermediary becomes aware that the CSF offer document is defective, the intermediary must notify the company making the offer as soon as practicable.

Another person discovers defective document

If, while a CSF offer is open, any other person referred to in the table in subsection 738Y(5) becomes aware that the CSF offer document is defective, the person must notify the company making the offer, and the responsible intermediary, as soon as practicable.

738W Company may provide a replacement or supplementary CSF offer document

Company may provide another document

The company making a CSF offer may provide the responsible intermediary with a supplementary or replacement CSF offer document as follows:

  • the company may provide a supplementary or a replacement CSF offer document, that corrects any defect or non-compliance with regulations; and
  • in any other circumstances permitted per the regulations.

Note - defective CSF offer documents give rise to liabilities under section 738Y.

Limits on content

A supplementary CSF offer document or a replacement CSF offer document:

  • must only be updated per regulations; and
  • only correct a defect or non-compliance. 

Statement for supplementary or replacement CSF offer document

At the beginning of a supplementary CSF document, there must be:

  • a statement that it is a supplementary document; and
  • an identification of the affected offer document it supplements; and
  • a statement that it is to be read together with the affected offer document.

Intermediary may publish supplementary or replacement CSF offer document on offer platform

If, the company making a CSF offer provides the responsible intermediary with a supplementary or replacement CSF offer document, the intermediary may update the offer documents on the offer platform. 

However, the responsible intermediary is not required to publish the supplementary or replacement CSF offer document. 

Consents and gatekeeper obligations for replacement and supplementary CSF offer documents

The same provisions that apply to a CSF offer document, also apply to any supplementary or replacement CSF offer document: s. 738M (consents to publish a CSF document) and s. 738Q (obligations of CSF intermediaries). 

No fresh consent needed

Despite section 738M (consents to publish a CSF document), you don't need fresh consent for immaterial changes. 

738X Responsible intermediary's obligations on becoming aware that CSF offer document is defective

This section applies if the responsible intermediary for a CSF offer becomes aware, while the offer is open, that the CSF offer document is defective.

Note: See also section 738V, which imposes notice obligations in relation to defective CSF offer documents.

Responsible intermediary must suspend or close the CSF offer

The responsible intermediary must, as soon as practicable:

  • remove the CSF offer document from the offer platform; and either:
    • close the offer; or
    • suspend the offer by giving notice on the offer platform that the offer is suspended.

Failure to comply with this requirement is an offence: s. 1311(1).

Suspension notice must continue 

If the responsible intermediary suspends the offer, the notice required must continue to appear on the offer platform until the suspension ends or the offer closes.

Failure to comply with this requirement is an offence: s. 1311(1).

Publication of correction

The company making the CSF offer provides the responsible intermediary with a supplementary or a replacement CSF offer document and the responsible intermediary publishes the applicable document on the offer platform.

Suspension ends after correction

If the CSF offer has been suspended, the suspension of the CSF offer ends when the supplementary or replacement CSF offer document is first published on the offer platform.

Notice to each person who has already applied pursuant to CSF offer

The responsible intermediary must, as soon as practicable after the supplementary CSF offer document or replacement CSF offer document is first published on the offer platform, give each person who has already applied pursuant to the CSF offer a written notice, accompanied by that document, advising the person that they may, within 14 days after the date of the notice, withdraw their application and be repaid.

Failure to comply with this requirement is an offence: s. 1311(1).

Also, if the suspension does not end per this section, the responsible intermediary must return the application money when the offer closes: section 738ZB.

Withdrawal of application

A person who is given a notice, may, within 14 days after the date of the notice, withdraw their application. The withdrawal must be by notice in writing to the responsible intermediary.

Note: If an applicant withdraws their application, the responsible intermediary must return the application money (see section 738ZB).

738Y Other liabilities relating to defective CSF offer documents

Obligations giving rise to liabilities

A company must not offer securities under a CSF offer document if the document is defective.

A defect may be corrected by a supplementary CSF offer document or a replacement CSF offer document: s. 738W.

If this requirement is contravened, ASIC may make a stop order under section 739.

When company is taken to offer securities

A company is taken to offer securities under a CSF offer document at all times, before the offer is closed, when the offer document is published on a platform of a CSF intermediary.

When CSF intermediary must not publish CSF offer document

A CSF intermediary must not publish (or continue to publish) a CSF offer document on a platform of the intermediary if:

  • the document is defective; and
  • the intermediary knows that the document is defective.

A defect may be corrected by a supplementary CSF offer document or a replacement CSF offer document: s. 738W.

Criminal liability

A person commits an offence if:

  • a person offers securities under a defective CSF document or if an intermediary publishes or continues to publish a defective document knowing its defective; and 
  • the statement, omission or new circumstance because of which the document is defective is materially adverse from the point of view of an investor.                 

Right to recover loss or damage

A person who suffers loss or damages because of a breach of s. 738Y may recover the amount of the loss or damage from a person referred to in s. 738Y(5). 

Do you have questions or comments about defective crowd sourced funding offer documents? Be sure to leave them below. 


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Vivian Michael
 

Vivian Michael is a lawyer and founder of Michael Law Group. Vivian's mission is to deliver the best quality business legal services to entrepreneurs launching an Australian business, wherever they are in the globe.

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