The Regulatory Guide will change the way prospectuses look (and some other kinds of corporate disclosure). If you've been in any doubt about ASIC's views on some key disclosure issues, this Regulatory Guide makes a lot of them clear. You might not agree with all of them - but you won't die wondering. Will it make prospectuses better? Probably, but it is unlikely to make them shorter. While the market adjusts to this guidance, due diligence and drafting processes will need special focus to consider the disclosure points that the Regulatory Guide emphasises.
The Regulatory Guide focuses on the content and form of prospectuses prepared under section 710 of the Corporations Act 2001 (Cwlth) (“Corporations Act”), i.e. full form prospectuses primarily prepared for floats.
ASIC has also nominated certain sections in the Regulatory Guide which it considers may apply to other documents commonly distributed to shareholders, which relevantly includes:
However, the extent to which the Regulatory Guide is relevant to these types of documents will depend on the type of decision that shareholders are being asked to make and the information available in the market.
ASIC has also flagged that its guidance may assist in complying with continuous disclosure requirements.
Generally, the Regulatory Guide is quite consistent with Consultation Paper 155, but shows signs of ASIC being a little more flexible than the consultation paper. The guidance is couched in a reasonably balanced way. Instead of taking a checklist driven approach, ASIC often provides practical suggestions which should be assessed within the context of the particular transaction.
For example, ASIC has retained its fairly detailed guidance on “clear, concise and effective” wording. However, ASIC has emphasised that its suggested communication tools are not mandatory, but may be useful in ensuring that the document is not misleading.
ASIC has provided firm guidance on some key issues, including:
ASIC also seems to suggest that an issuer that has completed a significant restructure in the period covered by the historical financial information should potentially include financial information pro forma for the effect of that restructure for the full period - this is certainly not market practice and preparing 3 years of pro forma information on that basis would be time consuming and costly for issuers;
In accordance with established practice, ASIC has confirmed its stance that it does not generally pre-vet prospectuses. ASIC has indicated that a company is best placed to determine what information should be included in its prospectus to meet Corporations Act requirements.
Whilst ASIC does not review all prospectuses following lodgement, it has indicated that it may adopt a form of risk rating to determine which types of prospectuses to review.
There are mixed views on the benefits of ASIC’s guidance - the Regulatory Guide does give rise to some concerns that it will limit the practical use of prospectuses as selling documents. Some aspects of the Regulatory Guide may lead to a prospectus being less digestible. For example, ASIC has stated that limited photographs should be used and should only appear after the investment overview (ASIC has conceded that issuers can use photographs of celebrities if they can explain why the celebrity is relevant!).
Nonetheless, we think the Regulatory Guide is a useful practical document that helps to clarify a lot of murky ground relating to the content of prospectuses.