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Small Scale Offering Board

      Introduction

Chapter 6D of the Corporations Act (Cth) 2001 deals with fundraising. It commenced operation in March 2000. The fundraising provisions apply to offers by bodies of securities for issue and offers of securities for sale - that is, securities that have already been issued.

The types of offers that are covered by chapter 6D are those that are “received” in Australia -section 700(4). So an Australian body that offers securities for issue or sale in a foreign jurisdiction which are not received in Australia is not subject to Chapter 6D.

Section 706 provides that an offer of securities needs disclosure by way of a disclosure document (usually a prospectus) unless Section 708 says otherwise.

  Exceptions

There are a number of exceptions to the fundraising provisions requiring a prospectus.

The exceptions apply to both proprietary and public companies, although for various reasons, almost universally, companies seeking external fundraising will need to become a public company.

The 20/12 rule

Section 708(1) says that a disclosure document is not required if a person makes a “personal offer” of securities that results in securities being issued or transferred to 20 or fewer persons with no more than $2 million being raised in any rolling 12 month period.

This exemption is limited to “personal offers”. This is designed to exclude potential fundraisers from making offers to the retail market at large without a disclosure document.

An offer under section 708(1) is a personal offer if it “can only be accepted by the person to whom it is made” and if the person is “likely to be interested in the offer” because:

of any previous contacts; or

of any professional or other connection to the person making the offer; or

they have indicated that they are interested in offers of that kind – s708(2).

Section 708 (7) sets out rules which apply in determining whether offers of issues are within the $2 million ceiling outlined by section 708 (1)(b) – for example, if the security issued is issued on the basis that it only be initially partly paid, then any amount payable at a future time if a call is made, is included in the calculation.

There is no limit on the amount of personal offers that can be made. The exemption is focused not on the number of personal offers made but on the number of investors to whom securities have been issued.

Whilst formal disclosure to investors is not required when relying on the 20/12 exception, advertising or publishing a statement that directly or indirectly refers to the “exemption offer” is not permitted – section 734.

So, summarizing the Section 708(1) exception, you are basically limited to family, friends and business acquaintances. You cannot make unsolicited telephone calls or offers, you cannot issue partly paid securities to get over the $2m threshold and you cannot advertise or publish anything.

These restrictions make access to the 20/12 rule very difficult, cumbersome, time consuming and impractical.

Class order 02/273

The legislation as amended by this class order issued by ASIC under Section 741 (1)(a) of the Corporations Act, acknowledges these limitations  and as part of the government’s policy to encourage small and medium business, recent changes to the fundraising provisions have been enacted.

Under class order 02/273 which came into effect on 11 March 2002, an exemption from the fundraising provisions of the Corporations Act is provided for persons involved in making or calling attention to offers of securities through a “Business Introduction Service”.

Any business “which has as one of its objects the promotion or encouragement of investment in small and medium business enterprises” is an introduction service for the purpose of the class order. That is, we are talking about a fundraising or business broker.

These “Business Introduction Services” or brokers are now self-managed in the sense that they have formed the Small Scale Offering Board which is located at www.ssoboard.com and securities are brokered by way of access to that website.

Leigh Adams

14 March 2006

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