Corporations Legislation on Simple Corporate Bonds Commences

Wednesday 17 December 2014 @ 11.52 a.m. | Corporate & Regulatory | Trade & Commerce

The Corporations Amendment (Simple Corporate Bonds and Other Measures) Act 2014 (Cth) (No 100 of 2014) (the Act) commences operation on Friday (19 December 2014) and, as previously reported, is intended to streamline the regulatory requirements for issuing simple corporate bonds to retail investors. In line with the commencement of the Act the Corporations Amendment (Simple Corporate Bonds and Other Measures) Regulation 2014 (Cth) (No. 209 of 2014) (the Regulation) has also been notified on 16 December 2014 and is to also commence on Friday 19 December 2014 in line with the Act.

Legislative Objectives

The legislation is, according to the Federal Government, part of its commitment to develop "a deep and liquid corporate bond market".

The Act's stated objective as indicated in the Parliamentary Papers supporting the Bill through the legislative process is improving the attractiveness for companies issuing corporate bonds to retail investors while ensuring that effective consumer protections are maintained.  As a means of achieving this, the Act streamlines the disclosure and liability regimes for "simple corporate bonds" and also clarifies the "statutory due diligence defence" to the criminal liability provisions in the Corporations Act 2001 (Cth) (the Corporations Act) sections 1308 and 1309.

Key Reforms

The key reforms effected by the Act relate to:

  • the introduction of a streamlined disclosure regime for offers of simple corporate bonds;
  • changes to civil liability provisions relating to corporate bonds issued to retail investors; and
  • clarification of the application of various defences.

The legislation requires bodies corporate to issue a two-part simple corporate bonds prospectus when the issue of certain bond occurs.

It enables simple corporate bonds to be traded using simple retail corporate bonds depository interests and provides that directors have liability for any misinformation in a disclosure document in certain specified circumstances.

The purpose of Regulation is, according to the Explanatory Statement, to "specify the structure and content of the prospectus" material when offering simple corporate bonds in the retail market. This is required because, while the Act sets out the framework for the two-part prospectus, the structure and content is required by the Act to be specified by regulation.

The Regulation provides that the two-part prospectus is to comprise a "base prospectus" and an "offer-specific prospectus".

Information required in the base prospectus is general information about the issuer and their bonds that is unlikely to significantly changeover the life of the base prospectus. The Regulation Explanatory Statement states:

"The prospectus would contain information about

  • what constitutes a bond offer;
  • what information investors need to know about the bonds being offered;
  • information about the bond issuer;
  • the risks involved in investing in the bonds;
  • other information relevant to investing in the bonds; and
  • a glossary of key terms."

Information required in the offer-specific prospectus is required to be specific to the offer of simple corporate bonds that is "material to a consumer’s decision to invest in that offer of bonds". The offer-specific prospectus would contain key dates and details of the offer of bonds and any other offer-specific information relevant to a consumer’s decision in investing in the bonds.

How the New and the Current Provisions Compare

Issuing of Bonds: Currently the issuance of corporate bonds to retail investors requires the provision of a full prospectus. Under the new law the issuance of certain corporate bonds to retail investors will require the provision of a two-part simple corporate bond prospectus.

Trading Corporate Bonds: Currently simple retail corporate bonds like other bonds can be traded directly, but are not able to be traded as depository interests. Under the new law "simple" corporate bonds will be able to be traded using simple retail corporate bonds depository interests.

Liability of Directors: Currently directors and proposed directors of a body making an offer, have liability for any misstatement in, or omission from, the disclosure document (prospectus) whether or not that director was involved in a contravention of the Corporations Act s 728(1) which provides for when a person must not offer securities under a disclosure document. Under the new law directors and proposed directors of a body making an offer have liability for any misstatement in, or omission from, the disclosure document only where they are involved in a contravention of section 728(1). Effectively reducing the breadth of a directors liability under the Corporations Act section 728(1).

Finally, as already mentioned, the new law clarifies what are "reasonable steps" for the purpose of the "statutory due diligence defence to the criminal liability provisions in the Corporations Act sections 1308 and 1309, changes which  have general application and are not made just with respect to simple corporate bonds.

TimeBase is an independent, privately owned Australian legal publisher specialising in the online delivery of accurate, comprehensive and innovative legislation research tools including LawOne and unique Point-in-Time Products.

Sources:

  • Corporations Amendment (Simple Corporate Bonds and Other Measures) Act 2014 (No. 100 of 2014) and Bill and Supporting Materials as reported in the TimeBase LawOne Service.
  • Corporations Amendment (Simple Corporate Bonds and Other Measures) Regulation 2014 (No. 209 of 2014) and Explanatory Statement as reported in the TimeBase LawOne Service.
  • Parliament of Australia Website

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