ASIC’s latest report on its oversight of corporate finance activity between January to June 2019 has been published today and includes an update on specific focus areas for the next six months.

Report 630 ASIC regulation of corporate finance: January to June 2019 (REP 630) provides statistical data, and includes relevant guidance, about ASIC’s regulation of:

• fundraising transactions
• mergers and acquisitions
• experts
• corporate governance issues.

The report also discusses key concerns arising from practices in these areas, including the conduct that has caused us to intervene, our response to issues identified in transactions during the period, and offers insights into future areas of focus.

Key observations and recommendations for better practice are summarised below:

Fundraising

• We requested additional or amended disclosure in more than a quarter of all prospectuses lodged during the period. Consistent with prior periods, we remain concerned about inadequate or unclear disclosure of business models, use of funds and risks disclosure. There is clearly room for improvement and advisers are urged to keep this in mind when assisting with the preparation of disclosure documents.
• We observed an increase in the number of IPOs by technology development and service companies that are relatively early stage and loss making. In many instances, we have sought corrective and additional disclosure in relation to revenue growth and customer numbers which appears to be a considerable focus area in prospectuses for such types of issuers.
• Issuers that engage marketers to promote offers are reminded that they should actively monitor marketing and promotional activities and materials to ensure that it is not misleading or deceptive.

Experts

• Our surveillance of independent expert licensees during the period identified that several experts did not maintain or had inadequate internal documentation of internal processes relating to the preparation of expert reports.

Mergers and acquisitions

• On four occasions during the past 12 months, ASIC either withheld no-objection letters or intervened to oppose the approval of a scheme of arrangement. We will closely scrutinise schemes of arrangements involving practices we consider are contrary to the principles underlying the regulation of takeovers and which undermine the integrity of the scheme process.
• We recommend that directors who will receive benefits under a scheme consider potential conflicts of interest when considering whether to make a recommendation and carefully disclose such considerations in the scheme documentation.
• In addition to matters concerning disclosure and offer structuring, we also identified concerns with practices during transactions that affect the integrity of the markets in which they take place, including matters pertaining to substantial holding disclosure and takeover bid minimum acceptance conditions.

Corporate Governance

• ASIC continues to maintain a focus on climate risk disclosure, and we outline our recent efforts to clarify our policy in relation to the disclosure of risks and opportunities associated with climate-change.

ASIC encourages corporate advisers to attend the bi-annual Corporate Finance Liaison meetings to be held in most capital cities between 25 September and 3 October 2019. Liaison meetings offer an opportunity for ASIC to discuss the content of these reports in greater detail and address issues that have arisen since the reporting period, as well as answer questions from participants. For more information, visit the Corporate Liaison Meeting page on ASIC’s website.

Download REP 630

Background

ASIC’s Corporations team is responsible for regulating conduct by corporations, with a particular focus on equity fundraising and control transactions.

As part of ASIC’s work, the team:

• conducts real time oversight of corporate finance transactions, including control and fundraising transactions
• promotes good corporate governance
• assesses applications for relief from certain parts of the Corporations Act including the financial reporting provisions in Chapter 2M, the takeovers provisions in Chapter 6, and the fundraising provisions in Chapter 6D.

The team also publishes regulatory guidance, conducts targeted surveillances of identified risk areas and conducts deterrence activities.