Is there a licensing exemption available for the issue of debentures?


A debenture issuer who carries on a financial services business of dealing in debentures will generally be required to hold an AFS licence except where they are merely dealing in their own securities. In this case a person is deemed not to be dealing in a financial product, as set out in the 'self-dealing' exemption: see s766C(4)(c) of the Corporations Act 2001 (Corporations Act).

However, the self-dealing exemption does not apply where a person:

(a) carries on a business of investment in securities, interests in land or other investments, and

(b) invests the contributions of investors after an offer or invitation to the public made on terms that the funds subscribed would be invested (see section 766C(5)).

We have briefly considered these factors in the following paragraphs.

Investment business

Generally, for the purposes of this definition, we consider that a financial arrangement is likely to be a business of investing where a person (in this case the debenture issuer):

  • applies money to acquire shares, interests in land or some other asset
  • expects to generate (or derives) a return from the assets
  • obtains an interest in, ownership, or derives a benefit from the value, of the assets, and
  • engages in those activities as a business. The extent to which the activities are repetitious or systematic is relevant to whether a person is carrying on a business.

We generally do not consider that lending money can be characterised as an investment, at least where there is no understanding that the repayments will be coming from any particular assets or core commercial activity held by the person who borrows the money from the debenture issuer (the borrower).

Offer to the public

Even if the financial facility offered by the debenture issuer constitutes an 'investment business', dealings in debentures are not financial products for AFS licence purposes unless there was an offer to the public to invest the funds raised under the debenture offering.('Offer to the public' is defined in section 82 of the Corporations Act.) A disclosure memorandum issued by a person, even to a person to whom disclosure is not required under section 708 of the Corporations Act, could, depending on the circumstances, amount to an offer to the public. However, we take the view that where the offer is extended only to particular professionals in the business of investment, it is not to be regarded as an offer to the public.(Note: We consider that an offer is not made 'to the public' according to section 82(b) where it is made to a person whose ordinary business is to buy or sell shares, debentures or interests in managed investment schemes, whether as principal or agent.)

The question of whether an offer is 'on terms' that the funds will be invested is a question of fact in each case. We consider that an offer is on terms that the monies raised will be used in an investment business if the conduct of the issuer creates a reasonable expectation that the return of the capital, the rate of return or the financial risk is dependent on the performance of the investment business. It is not sufficient that the terms of the offer make it merely possible that the funds will be invested, nor is it necessary that the terms of the offer require such investment.

Ultimately, whether or not a person is carrying on an investment business and making an offer to the public on terms that the monies raised under a debenture issue will be used in the investment business is a question of fact in each case. A debenture issuer will be dealing in a financial product where they are both carrying on an investment business and making an offer to the public on terms to invest the monies raised because that person could not rely on the self-dealing exemption. If they are carrying on a business of dealing in debentures, the debenture issuer would be required to obtain an AFS licence.

Even if an AFS licence is not required (because of the self-dealing exemption), debenture issuers remain subject to other market conduct provisions of the Corporations Act, including, inter alia, prohibitions on hawking, insider trading, short-selling restrictions and market misconduct provisions contained in Part 7.10.


There are no general licensing exemptions for debenture issuers providing financial product advice about debentures. However, we have exempted debenture issuers from the requirement to be licensed to provide general advice in disclosure documents lodged under Chapter 6D and certain other documents: see Class Order [CO 03/606] Financial product advice - exempt documents. This exemption does not apply to documents that are not issued under the Corporations Act, such as information memoranda provided to wholesale clients. As a result, even if a debenture issuer does not need an AFS licence to offer its debentures to professional investors (because it is not a public offer under section 82, as outlined earlier), it would still technically need an AFS licence if it provides information memoranda containing financial product advice. We are considering what, if any, relief might be appropriate.

Certain other licensing exemptions may apply to the provision of financial product advice. For example, general advice in advertising in various media may be covered by a licensing exemption if appropriate warnings are given: see reg 7.6.01(1)(o).

Note: The licensing relief for debentures issuers in reg 7.6.01(1)(r) ceased to apply after 10 March 2004: see reg 7.6.01(6).

This information was originally published as QFS 121.

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Last updated: 30/03/2021 09:36