ASIC today released updated requirements for unlisted debentures and unsecured notes to improve disclosure to retail investors. The guidance is set out in an updated version of Regulatory Guide 69 Debentures and unsecured notes–improving disclosure for retail investors (RG 69).
The updated version of RG 69 sets out:
- adjustments to the eight benchmarks that issuers should disclose against on an 'if not, why not?' basis from 1 September 2010, including those relating to minimum amounts of equity capital; adequate liquidity; and disclosure about loan portfolios and valuations
- the plain-English explanations that issuers should provide in prospectuses from 1 September 2010 about the importance of their benchmark disclosures
- information on naming restrictions that will apply to debentures and unsecured notes under s283BH of the Corporations Act 2001 from 1 July 2011.
ASIC Chairman, Tony D'Aloisio, said 'the regulatory guide is consistent with ASIC's Three Point Plan to improve disclosure, help retail investors understand and assess unlisted unrated debentures, but maintain the flexibility of the public fundraising process'.
The Three Point Plan, released in August 2007, included the introduction of disclosure benchmarks where issuers provide disclosure to investors relating to the benchmarks on an 'if not, why not?' basis. That is, if a particular benchmark is not met there needs to be an explanation of 'why not?'. The benchmarks improve disclosure and allow investors to make informed decisions but are flexible enough not to be strict requirements that must be followed in every case.
From 1 July 2011, ASIC will no longer permit some products to be called debentures. It will discontinue its interim no action position announced in 2005 in relation to non-compliance with the naming restrictions in s283BH limiting the types of financial products that can be called debentures. This will mean products not secured over tangible property (i.e. property with an actual physical existence) will need to be called unsecured notes or unsecured deposit notes. We have adopted this approach following concerns that some issuers that have failed over the past two years have incorrectly described their products as debentures implying the products had a greater level of security than was actually the case.
The updated policy is subject to transitional periods and follows industry consultation as outlined in the newly released Report 200 Response to submissions on CP 123 Debentures: Strengthening the disclosure benchmarks (REP 200) discussing the submissions received on the proposals in the consultation paper and outlining ASIC's response to the submissions.
Finally, ASIC has also made consequential amendments to Regulatory Guide 156 Debenture and unsecured note advertising (RG 156), which sets outs ASIC's policy for issuers advertising debentures and unsecured notes, and will soon release updated versions of the ASIC investor guide regarding unlisted debentures and unsecured notes and Pro Forma 223 'Interim auditor's benchmark report.
This updated requirements are consistent with ASIC's first priority, which is to assist and protect retail investors and consumers in the financial economy.
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