Should joint lead managers (and other third parties) include a disclaimer of liability in a PDS or on the Disclose Register entry?
No. We believe the use of disclaimer wording in a PDS, or on the Disclose Register entry is contrary to the spirit and intention of the FMC Act.
Any such disclaimer is likely to be misleading to investors, and is unlikely to be clear, concise and effective. Under the FMC Act, third parties will only have liability for information in a PDS if they have been involved in a contravention about that information. If a third party has been involved in a contravention, stating that the PDS has been prepared solely by the issuer and disclaiming liability will not in itself have any effect.
We note that a number of PDSs registered during the early implementation period of the FMC Act have included disclaimer wording about the liability of joint lead managers. We do not intend to take action about these but we have indicated to relevant parties, we do not expect to see such disclaimers in future.
I have lodged a PDS for a regulated offer of convertible financial products (debt securities that are convertible into equity securities of the issuer at the option of the holder). Does section 82 of the FMC Act continue to apply to the new product (ie the equity securities) once the convertible debt securities have been issued?
No. For non-continuous offers of convertible financial products that are convertible at the option of the holder, section 82 of the FMC Act will only apply to the offer up to the point of issue of the original convertible securities. This is because both the original debt securities and the new product cease to be offered at that point. Section 82 prohibits offering, or continuing to offer products if:
there are false or misleading statements, omissions or new matters requiring disclosure in the PDS, application form or register entry, and
the matter is materially adverse from the point of view of the investor.
Section 82 does not apply to the financial products after the convertible debt securities have been issued, however, Regulation 54 of the FMC Regulations (see below) will apply if the equity securities are not quoted at any time when the product holder may exercise the option to convert.
Regulation 54 provides that if the issuer becomes aware of:
a false or misleading statement, or omission
from the PDS, application form or register entry,
or a circumstance has arisen since the PDS was lodged that would have been required to be disclosed in the PDS or register entry,
and the matter is materially adverse from the investor’s point of view,
then the issuer must as soon as becoming aware of the matter, send a copy of a correct document (or a notice of how to obtain a copy of a correct document) to all holders of the convertible financial product and make it publicly available.
What is required when lodging a replacement PDS or supplementary document?
You must include a statement at the beginning of the new document that:
explains it replaces or supplements an existing PDS
identifies the PDS that it supplements or replaces; and
if it’s a supplementary document, identifies all previous supplementary documents lodged with the Registrar about the offer. It must also explain the new document is to be read together with the PDS it supplements and any previous supplementary documents.
You will also need to state on your website the replacement PDS or supplementary document has been lodged and describe where and how a copy can be obtained.
Note: where an offeror becomes aware its disclosure is defective and applications have already been made by investors, the offeror must take further steps. The choices are set out in section 80 of the FMC Act 2013.
Reference: sections 71-75 and 79-80 of the FMC Act 2013
When must I lodge a replacement PDS rather than a supplementary document?
Regulation 46 states that a supplementary document cannot be used to:
supplement a PDS for an offer of managed investment products in a managed fund; or
to supplement any part of the KIS unless the document covers the whole KIS.
How do I amend a PDS that has already been lodged on the Disclose register?
You can lodge a replacement PDS in order to correct, update, or add to an existing PDS. Alternatively, you can lodge a supplementary document for the same purpose, unless regulation 46 of the FMC Regulations 2014 applies.
Do I need to include information in the ‘Selected financial information and ratios’ table about all business acquisitions and disposals that have occurred within the ‘relevant periods’ prior to an equity offer?
No The ‘Selected financial information and ratios’ table in an equity PDS only needs to contain material information about the acquisitions and disposals if the financial information about those acquisitions or disposals is material information.
Issuers should not rely on a fixed quantitative measure (such as a percentage of net assets) to determine whether financial information about a particular acquisition or disposal is material information. The comparative size of transactions is a factor to be taken into account, but other factors are also likely to be relevant, such as the nature of the acquisition or disposal and when it happened.
We recommend directors avoid over-relying on opinions from auditors to determine whether the information is material or not. Directors should be best placed to understand what information would be reasonably expected, or likely to, influence those who commonly invest in financial products, when they decide whether to acquire the equity.
Should the key information summary (KIS) summarise all risks included in the main risk section of an equity PDS?
No. Under clause 12 of Schedule 3 of the FMC Regulations, the KIS needs to include a ‘brief summary’ of just ‘the most significant’ circumstances disclosed in the main risk section.
What sort of risks should be described in an equity PDS?
The ‘Risks’ section of the PDS should describe circumstances that affect the particular issuer, or the particular equity securities that make the risks of investing different from the risks of other issuers or equity securities. You should distinguish between the ‘circumstances' that affect the particular issuer, and the potential ‘impact’ those circumstances could lead to.
The focus should be on circumstances that ‘exist or are likely to arise’ for the particular issuer, where they ‘significantly increase the risk to the issuing group’s financial position, financial performance, or stated plans. There is no need to describe in this section of the PDS any circumstances that do not ‘significantly increase’ the risks to the issuing group’s financial position, financial performance, or stated plans.
Descriptions of the relevant circumstances should include information that:
makes it clear why those circumstances are significant to the particular issuer or the particular equity securities (as compared to other issuers or equity securities)
helps investors to assess the ‘likelihood’ of any impact arising from those circumstances
helps investors to assess the ‘nature’ of any impact arising from those circumstances; and
helps investors to assess the ‘potential magnitude’ of any impact arising from those circumstances.
One way of addressing these requirements is by using a table to show these 4 characteristics for each relevant circumstance, although other formats may also be effective.
When is a PDS required when offering financial products?
A PDS must be given to investors before they invest in ‘regulated offers’. Regulated offers include offers: where a financial product is being issued for the first time and in some circumstances where an offer is made to sell a financial product already issued.
When selling financial products, a PDS is required in the situations described in clauses 31-34 of Schedule 1 of the FMC Act. These are broadly:
where products were issued with the intention for the original holder to deal with them
if the issuer advises, encourages, or knowingly assists the offeror in the offer of the financial products
when the offeror controls the issuer and the products are not sold through a licensed market.
However, no disclosure for offers, by way of issue or sale, is required if an exclusion under part 1 of Schedule 1, of the FMC Act applies (although see the exception to this in clause 12 (4) of the ‘small offers’ exclusion).
There may be other limited disclosure requirements or warnings in place of a PDS in some cases. For more information, see a summary of Schedule 1 exclusions under the FMC Act.
Can an offeror send a PDS electronically to a prospective investor?
Offerors need to ensure investors are given the PDS before applications to invest are accepted.
A PDS for an offer is treated as being given if the application form used is included in or attached to the PDS, the application form prominently identifies the relevant PDS and the application form includes a written confirmation that the investor has received the PDS.
Offerors can give investors the PDS by electronic means. While offer disclosure rules are technology neutral, disclosure must be done in a way that prominently identifies the PDS for the offer, ensures the investor can readily store the PDS in a permanent and legible form and that the offeror can evidence that the PDS was given to the investor. This means not all forms of electronic communication will be suitable.
PDS by email
Email attachments are generally the best form for disclosure. The email with the PDS attachment can be accessed from multiple devices and readily retrieved for future reference. Emails with a hyperlink to the PDS can be used but offerors must ensure the link is accessible on an ongoing basis – a link that subsequently breaks cannot usually evidence that the investor has actually been given the PDS. A PDS provided through a hyperlink must also be storable in a permanent and legible form by the investor.
PDS by webform
Offerors may use a webform that prominently identifies the PDS for the offer. When using webforms, to ensure that the offeror can evidence that the PDS has been given before applications to invest are accepted, we recommend that offerors ensure that the investor downloads the PDS for the offer and confirms that the PDS has been downloaded before the investor can proceed to invest. The investor must be able to store a PDS provided using a webform in a permanent and legible form.
Can I have a glossary of defined terms in my PDS?
Yes. You can include a glossary where this assists the clear, concise and effective presentation of information. However, where certain information is required to be included in a particular section of the PDS (such as descriptions required in the key information summary), the text included in that section must convey all the necessary information without an investor needing to cross-refer to the glossary.
The glossary is considered part of the PDS and so length restrictions must be met.
What do I need to include in a PDS word count to comply with the length limits in the FMC Regulations 2014?
The FMC Regulations specify the maximum words allowed in a PDS. However, the overriding obligation of a PDS is that it should be clear, concise and effective, so we encourage issuers to use fewer words where possible.
In calculating the word count, you should include all words, including those used in tables and graphs.
You can exclude the cover page’s word count if it does not contain any relevant information beyond what is required or allowed for the cover page. (Reference: Regulation 21(2) of the FMC Regulations)
You should include any numbers used within the text of the PDS in your word count. However, any numbers used in financial tables and graphs may be disregarded.
For an offer of convertible financial products, the relevant word count is the one which relates to the initial convertible product. For example, for an offer of debt securities convertible into equity securities, the word count would apply to the debt securities, in this case, 15,000 words for the PDS and 1,500 for the key information summary.
Do I have to follow the format of a PDS described in the FMC Regulations?
Yes. You must follow the format of the PDS set out in the relevant schedule of the FMC Regulations. You will also need to take note of the requirements in Part 3 of the FMC Regulations (15 to 72).
Can information that is not required by the FMC Regulations be included in a PDS?
Yes, provided the additional information comes after:
for equity, debt and managed investment products in funds and other schemes — the section in the PDS on tax
for derivatives — the section in the PDS ‘about the issuer’.
Additional information may also be included in other sections of the PDS if it does not detract from the prominence of the required information. Length restrictions must be met and there are strict limitations on the information that can be included on the front page of the PDS or in the key information summary.
Reference: clause 34, FMC Regulations
Is it necessary to follow the prescribed wording in the FMC Regulations, including the wording in the prescribed warning statements?
Yes. An issuer is only permitted to use different wording if the differences are necessary because particular information doesn’t apply to their offer or it is necessary to ensure the statement is not false, misleading, deceptive or confusing, and those differences don’t go further than what is necessary to address that.
Reference: clause 9, FMC Regulations