The Australian Securities and Investments Commission (ASIC) has acted to ensure that fundraising documents contain enough information to allow investors to make an informed decision about potential investments.

In the past two months, ASIC has issued four final stop orders and revoked a further eight interim stop orders on fundraising documents that contained insufficient information for investors.

Final stop orders were issued on the fundraising documents of Metals Quest Australia Limited, Prema Group Limited, Arkoma Wilcox No.1 Limited and BCAS Limited.

Interim stop orders were issued (and subsequently revoked) on the fundraising documents of Quantum Energy Limited, Gold Bullion Limited, Local Telecom and Internet Limited, Oroya Mining Limited, QED Occtech Limited, Hill End Gold Limited, Legend Mining Limited and Kanowna Lights Limited, following the lodgement of either a replacement or supplementary document.

‘ASIC regularly publishes the details of defects in fundraising documents of companies who have been subject to an interim stop order or final stop order to assist other parties involved in preparing fundraising documents’, ASIC Director Corporate Finance, Mr Richard Cockburn said.

‘The issue of an interim stop order prevents a company from issuing, selling or transferring securities under the fundraising document. In most cases, the company will address ASIC’s concerns by lodging a supplementary or replacement document, at which point, ASIC will revoke the interim stop order’,

‘A final stop order may be issued following a hearing, if ASIC considers any proposed amendment to the document does not provide sufficient information to make an informed investment decision, or if the company consents to the placement of a final stop order because it wishes to lodge an entirely new fundraising document, or because it chooses not to proceed with the fundraising’, he said.

Metals Quest Australia Limited

ASIC placed an interim stop order on the prospectus of Metals Quest Australia on 2 February 2003, due to concerns that potential investors may not be fully informed about new circumstances that may be materially adverse to the company.

Metals Quest Australia is an exploration company based in Perth. The prospectus, dated 24 May 2002, related to an initial public offering (IPO) where the company was seeking to achieve official quotation on the Australian Stock Exchange (ASX), and raise a minimum of $2.5 million for the exploration of gold and nickel tenements. ASIC understands that the minimum subscription was raised.

The prospectus stated that the Silver Swan Ultramafic Project was the company’s lead project. A significant proportion of the capital raised through the IPO was to be spent on the project.

ASIC learned that three of the five tenements at the Silver Swan Ultramafics Project had been recently forfeited. A tenement is a licence to mine a particular parcel of land.

Metals Quest subsequently determined not to proceed with the current offer. ASIC issued a final stop order on the prospectus on 21 February 2003, with the consent of the company.

Prema Group Limited

ASIC issued a final stop order by consent on 25 February 2003 on the prospectus issued by Prema Group Limited, dated 17 January 2003.

Prema Group, an organic food processor and wholesaler based in Perth, was seeking to raise a maximum amount of $3,000,000 by way of an issue of ordinary shares. The company is presently an unlisted public company and proposed to acquire an existing organic food processing business. The offer had a minimum subscription of $125,000 and was not underwritten.

ASIC was concerned that the prospectus contained insufficient disclosure of:

• the company’s current business;
• the terms and conditions of the acquisition of the Prema Organics business;
• the company’s financial information;
• unsubstantiated comments concerning the future growth of the organic food industry;
• reference to listing on the ASX; and
• information concerning the prospects of the company.

ASIC was of the view that it would have been difficult for an investor to determine the merits of investing in Prema.

The company considered it needed additional time to address all of ASIC’s concerns and thereby agreed to a final stop order.

Arkoma Wilcox No. 1 Limited (Arkoma)

ASIC issued a final stop order on 28 February 2003 on the replacement prospectus issued by Arkoma dated 13 February 2003, due to concerns the prospectus was potentially misleading for prospective investors.

Arkoma, an unlisted public company, was seeking to raise up to $US3million for the purpose of entering into agreements that would enable the company to acquire a part-working interest in a selection of oil and natural gas wells in the Arkoma and Wilcox Basins, located in the states of Louisiana, Oklahoma and Arkansas in the United States of America.

ASIC considers that Arkoma Wilcox is an investment company that proposed to invest the funds raised in interests in mining agreements, and was therefore required to comply with the dealer’s licensing provisions of the law.

Under Australian law, Arkoma is required to hold an Australian Financial Services Licence (AFSL) in order for the company to carry on the business proposed in the prospectus

As the company did not hold an AFSL, ASIC issued a final stop order on the prospectus to prevent the company from raising funds in Australia.

Arkoma subsequently lodged a new prospectus in which arrangements with licensed intermediaries were disclosed.

BCAS Limited

ASIC issueda final stop order, by consent, on 12 March 2003 after forming a view that the information in the prospectus issued by BCAS was potentially misleading.

BCAS is an unlisted, public company, which invests in listed securities as well as bank term deposits. The company also provides loans to its shareholders.

BCAS was seeking to issue redeemable preference shares in itself under a prospectus lodged with ASIC, dated 30 December 2002.

ASIC issued an interim stop order on the prospectus due to concerns it contained a lack of disclosure in relation to:

• the methodology used to allocate undistributed profit to company shareholders;
• the company’s policy regarding loans made to company shareholders; and
• the risks associated with investing in the company.

ASIC was also concerned that the prospectus implied that the company may lawfully issue its own shares in these particular circumstances. However, as the company does not hold an AFSL, any offer of securities under the prospectus would constitute a contravention of the Corporations Act.

Quantum Energy Limited

An interim stop order was placed on the prospectus of Quantum Energy, dated 10 January 2003, due to concerns about a lack of disclosure in the prospectus.

Quantum Energy is a Sydney-based company, involved in the manufacture and distribution of hot water systems, central heating systems and swimming pool heaters.

Quantum was seeking to raise a maximum amount of $1,500,000 to assist in meeting its working capital requirements.

ASIC was concerned the prospectus did not adequately disclose:

the basis for an intangible asset which was valued at more than $60 million and accounted for more than 90 per cent of Quantum’s assets;

• the basis for the claimed future market capitalisation of Quantum of more than $211 million;
• the status of Quantum’s contracts; and
• the nature of Quantum’s patent programme and intellectual property.

ASIC also had a number of concerns in relation to the treatment of various items in the financial statements of Quantum, and their compliance with Accounting Standards.

ASIC revoked the interim stop order on 14 March 2003, after Quantum lodged a replacement prospectus which addressed ASIC’s concerns, including writing off the vast majority of the value of the intangible asset, and removing the reference to the claimed future market capitalisation.

Gold Bullion Limited

ASIC placed an interim stop order on prospectus of Gold Bullion, dated 14 February 2003, due to concerns the prospectus contained potentially misleading or deceptive statements, and omitted material information.

Gold Bullion is Melbourne-based, listed company, that is seeking to securitise gold through the issue of redeemable preference shares. This involves the offer of ‘Gold Bullion Securities’, which enable investors to purchase an interest in physical gold bullion, and to buy and sell that interest through the ASX.

The prospectus, dated 19 February 2003, sought to raise approximately $422,346 by a non-renounceable entitlement issue of shares. The offer was not underwritten and had no minimum subscription.

The interim stop order was revoked on 11 March 2003 following the lodgement of a supplementary prospectus that addressed ASIC’s concerns.

QEC Occtech Limited and Kanowna Lights Limited

ASIC placed interim stop orders on the fundraising documents of QED Occtech and Kanowna Lights due to concerns the documents did not disclose the financial position and prospects of the company in the event that the offer was not fully subscribed.

QEC Occtech is a Perth-based, waste water treatment technology company. The prospectus, dated 7 March 2003, is seeking to raise up to $500,000 by a placement and up to $1,949,397 by a non-renounceable pro-rata Entitlements Issue of shares. There is no minimum subscription amount or underwriting for the placement.

ASIC revoked the interim stop order on 18 March 2003, following the lodgement of a supplementary prospectus that satisfied ASIC’s concerns.

Kanowna Lights, a Perth-based mineral exploration company, is seeking to raise up to $820,000 by a placement of new shares and options. There is no minimum subscription amount or underwriting.

ASIC placed an interim stop order on the original prospectus, dated 18 February 2003, and a supplementary prospectus, dated 24 February 2003. These stop orders were revoked on 20 March 2003 after the company lodged a second supplementary prospectus, which satisfactorily addressed ASIC’s concerns.