Legal Requirements for Offering Corporate Securities - Assignment Example

Financial Products Law Name: Student’ Number: Course: Tutor’s Name: LEGAL REQUIREMENTS FOR OFFERING CORPORATE SECURITIES Question 1: There are set requirement that a company should consider while taking any investment decision. These requirements are set in the Corporations Act 2001. Therefore, ABC Ltd should consider the requirements from the Act if it was to adopt David’s proposal. The company needs to ensure that ABC Ltd follows the Corporations Act 2001 to govern its operations. Therefore, the directors should apply the Act as their rules. According to section 710 of the Act prospectus is the general disclosure test. Therefore, ABC Ltd should ensure that this document contains all the information that Eternal Life Ltd and their professional advisors so as to allow them to make the right investment decision on the ABC Ltd issue which are the shares. This calls for ABC to disclose information such as liabilities, assets, current financial position profits and losses that it has earned in the past. This is in order to enable the company to issue shares to Eternal Life Ltd. The directors should also consider s720 which calls for consent for a company to make lodgment about the issue of shares. The company should ensure that consent of lodgment of shares should be accompanied by a disclosure document which is a requirement under s721. The Act also requires both parties to issue notification on any shortcomings of the disclosure document. There is also the legal issue of whether Eternal Life Ltd should offer long term financial support to ABC Ltd. Eternal Life Ltd is a financial service provider as per s766A. the law requires that Eternal Life be provided with disclosure documents so as to know the financial plan that they can formulate. The law also allows Eternal Life to ask for extra information that will enable to make the investment decision. The Act also requires Eternal Life Ltd to disclose superannuation or interests associated with the financing the ABC Ltd. Question 2: ABC Ltd led by David and Eternal Life Ltd need to apprehend that under Section 734 of the Corporations Act, David is restricted and limited on what he needs to advertise and or publicise. David, in this case, advertises that ABC Ltd would receive funds or resources lodged in multiples of $5,000 which is a loan to ABC Ltd. The law does not allow David to advertise or publicise for offers that are exempted by the 20 issues in less than an year. This also may also require a disclosure document as it is stated in s734 and it is prohibited to make such offers. The directors should allow David to advertise if it is allowed by a subsection 4, 5, 6 and 7. The law states that David is allowed to disseminate the disclosure system after it has been lodged with Australian Securities and Investments Commission (ASIC). The reason behind this is that it won’t contravene the Act in any way. Section 739 allows ASIC powers to stop any orders that David would have made if there are some elements of law that he does not satisfy. The ABC Ltd directors should ensure that the disclosure document is worded, clear and concise. This will enable the investors and their advisors to understand the worth of the investment. This will enable the company offer to be allowed by the ASIC. The directors should ensure that the disclosure document does not contain any omission or misstatement because this would be contravening section 728 of the Corporation Acts which is punishable by the law this is provided in sections 734 and 739. According to s 741 ASIC has the power to exempt and modify any disclosure documents lodged by companies. Question 3: It important to establish if the directors of ABC Ltd, qualify to be directors by meeting the requirements of the law under section 9. If they qualify the law allows them to perform their duties and exercise their powers according to the law. The directors should not have selfish interest they should make decisions which are in the best interest of the ABC Ltd. The directors should not make decisions that will lead ABC Ltd to insolvency because this will make them to be liable under the law. This would require them to defend themselves so as to ensure they do not face liability as it is established under the civil law. This would be possible if their defence would establish that there were measures taken to ensure that no new debts were taken. This would help George if the proposal is put in place and leads the company into insolvency. The reason behind this is that he would argue that he notified the other directors there would be a drop of 20% in demand of cars. He would argue that he insisted on the statement to be included in the advertisement. There should be a reasonable ground to suspect that ABC was solvent at the time of the directors’ decisions. This will be enabled by all the company statistics and information available to all directors. This will allow them to know if ABC Ltd is solvent at that moment before taking David’s proposal. The law would David and other directors laible for the losses the company incurs if it establishes that this venture led the company to being insolvent. There are some scenarios under the law that would allow directors to be exempted from liability. Question 4: The Corporations Act 2001 provides A and B with limited statutory duties and an equitable fiduciary duties to act in the best interest of the company and potential investors. Therefore, the decision by A Ltd to offer for sale shareholding in B Ltd of 40% is not against the law because it is stated in s 708 that such offers do not require any disclosure. Therefore, in this scenario, A Ltd has stated in the advertisement it wants to pursue other ventures. This is a small scale offering and according to the law such offers do not require disclosure. Such a small scale offer must maintain 20 maximum number of investors. However, this would be different if A Ltd offer is for indirect issue because it does not apply s 708. Under section 724 subsection 4 it is illegal to make an offer of indirect issues without putting disclosure to investors. These requirements by the law are well known to Green and it is the reason he does not agree. These decisions could be reversed by s739 that gives ASIC power. There is also the issue that A ltd is aware that B ltd will be selling off the part of its profitable venture. They are also aware that B ltd has been earning losses. The decision to sell its shares in B Ltd will ensure that the A Ltd would be saved from insolvency. Therefore, professional investors do not require disclosure and therefore, it is important to identify the kind of investors that will buy the company shares. Any contravening of the law would lead the directors to facing civil liability. Question 5: In this case A Ltd is planning to take for debentures for a period of six months. This information is not known to investors because the company has not disclosed this information to investors. However, according to section 707 not all offers require disclosure. A Ltd shares have not been quoted in stock market. This means that the debentures that the company is taking only need a disclosure if they are quoted and if they are quoted they should not have been offered for subscription or trading. The only disclosure would be a requirement if the investors are established by the issuing company which is the A Ltd. This is provided under section 706 of the Act. The investor and ABC Ltd may have a mutual agreement that no disclosure is required. This is provided under section 708. Under such circumstances ASIC will have to determine that for the last one year the offering company had not contravened the law as per disclosure. Under section 721 there are regulations on what to be done and therefore, Mary being an investor and a stockbroker for the company states that the debenture should be amended for the offer to be acceptable and to be law abiding. Therefore, any offer the company makes should be put together with a disclosure document for investors to have the required information. TRANSACTIONS ON THE CURRENT ACCOUNT Question 3 Basing on statutory regulations, the bank in question is the agent of Jenny Ford and thus obligated to pay cheques. However, there are some regulations that may stop such rights. To begin with, Jenny Ford runs a trustee account meaning that the bank is acting as an authorised custodian thus holding funds for managing late Harry Ford’s Estate. However, the bank ought to understand that it is its legal duties to combine accounts. To this regard, Jane Ford seems to have had or she still has an account with the bank prior to opening Jenny Ford -Trustee for the Estate Late Harry Ford. Therefore basing on legal preceding that involved Garnett v M’Kewan (1872), banks have the right to treat all Jane’s account as a single sum without notifying her for certain purposes. Further to this, while this is its right, it is not obligated and therefore has no legal duties to honour the last cheque drawn by Jane. The bank also needs to note that the right to combine the accounts owned by Jane is further complicated owing to the fact that the two accounts are different. As noted in this case and with regard to Halesowen Presswork & Assemblies Ltd v Westminster Bank Ltd case, Jane was very specific about the purpose of Jenny Ford -Trustee for the Estate Late Harry Ford account there she is limited to the use of the account (as a trustee account). In addition to this, Jenny Ford -Trustee for the Estate Late Harry Ford is a trustee account therefore not an account held by Jane on single capacity and one repercussion of trustee accounts is that the bank has no right to combine the account or make attempts to honour cheques that contravene the agreed purpose of the account in question. Before honouring the cheque, Bank manager should note that Jane holds this account and she is bound by law to take care of the account for the benefit of her late father therefore drawing cheque to pay her personal expenses contravenes relevant laws. References Corporations Act 2001 (Cth) . Read More