A Guide to the Law of Securitisation in Australia - Clayton Utz

More documents

Recommendations

Info

• if the securities are to be traded on a financial market,details of this; and• an expiry date, being a date no later than 13 months afterthe date of the prospectus.Sections 712 and 713 also contain special rules for prospectusesin certain situations (where shortform prospectuses are to beused or where the securities are continuously quoted).Sections 714 and 715 set out the disclosure obligations inrelation to, respectively, profile statements and offer informationstatements.3.2.3 Breach of the statutory disclosure obligationsSection 728Section 728(1) of the Corporations Act provides that a personmust not offer securities under a disclosure document if there is:“(a) a misleading or deceptive statement in:(i) the disclosure document; or(ii) any application form that accompanies the disclosuredocument; or(iii) any document that contains the offer if the offer is not inthe disclosure document or the application form; or(b) an omission from the disclosure document of materialrequired by section 710, 711, 712, 713, 714 or 715; or(c) a new circumstance that:(i) has arisen since the disclosure document was lodged; and(ii) would have been required by section 710, 711, 712, 713,714 or 715 to be included in the disclosure document if ithad arisen before the disclosure document was lodged.”Criminal consequencesA person commits an offence if they contravene section 728(1)and the misleading or deceptive statement or the omission ornew circumstance is materially adverse from the point of view ofan investor (section 728(3)). Such an offence carries a maximumpenalty of 200 penalty units, imprisonment for five years or both(section 1311 and Schedule 3).Civil consequencesIn addition, section 729(1) provides that a person who suffersloss or damage because an offer of securities under a disclosuredocument contravenes subsection 728(1) may recover the amountof the loss or damage from certain persons or classes of person.They include the person making the offer, each director or personnamed in the disclosure document with their consent as aproposed director of the body making the offer, an underwriter(but not a sub underwriter) named in the disclosure documentwith their consent, a person named in the disclosure documentwith their consent in relation to a statement included in thedisclosure statement or which a statement made in thedisclosure document is based (but only if the contraventionrelated to the statement) and any other person involved “in thecontravention “of section 728(1) (see section 3.3.6 for themeaning of the phrase involved “in the contravention”).DefencesSection 731 provides that a person does not commit a criminaloffence, and is not civilly liable under section 729, for acontravention of section 728(1) because of a misleading ordeceptive statement in a prospectus, or an omission from aprospectus in relation to a matter, if the person proves that they:• made all inquiries (if any) that were reasonable in thecircumstances; and• after doing so, believed on reasonable grounds that thestatement was not misleading or deceptive or that there wasno omission from the prospectus in relation to the relevantmatter.This is known as the “due diligence defence”.There are also other defences in sections 732 and 733.3.2.4 The application of the positive disclosure obligations tosecuritisationIn most cases, sections 728 and 729 have no direct application toinformation memorandums used by the securitisation industry.The reason is that the sections do not apply where the offer ofsecurities does not need disclosure to investors under section708. This, though, does not mean that sections 728 and 729 canbe completely ignored. They continue to have indirect relevancein determining whether an omission from an informationmemorandum can lead to civil liability, which is the subject of thenext section.3.3 Civil liability for a defective information memorandum3.3.1 Legislative overviewIn Australia, civil liability is imposed in relation to an informationmemorandum used in relation to a securitisation where it is“misleading or deceptive “or “is likely to mislead or deceive”.17
18The statutory source for this stems from (depending on thecircumstances) section 1041H of the Corporations Act, section12DA(1) of the ASIC Act or, if these previous provisions do notapply, section 52 of the TPA.Section 1041H provides:“A person must not, in this jurisdiction, engage in conduct inrelation to a financial product or a financial service, that ismisleading or deceptive or is likely to mislead or deceive.”Section 12DA(1) of the ASIC Act provides:“A person must not, in trade or commerce, engage in conduct inrelation to financial services that is misleading or deceptive or islikely to mislead or deceive.”Whilst the sections substantially overlap and proscribe the sameconduct, there are some important differences, including:• section 1041H applies to conduct “in this jurisdiction”, whilstsection 12DA(1) has extra-territorial application;• standing is required to bring an injunction in relation to abreach of section 1041H whilst this is not required in relationto a breach of section 12DA(1); and• while a breach of both sections give rise to civil liabilities, theregimes for this are different for each.Section 1041H and section 12DA(1) are borrowed from section52 of the TPA. The approach taken by most commentators whenanalysing section 995(2) (the predecessor to section 1041H) wasto conclude that by adopting the language of section 52 of theTPA, the legislature intended to import the interpretation thatthe courts have placed on section 52. This approach is supportedby Fraser v NRMA Holdings Limited (1995) 13 ACLC 132, a casebrought under section 52, but where the court stated that hadthe applicants sought to rely on section 995(2), the issues fordetermination would have been substantially the same. Such anapproach is likely to also apply in relation to sections 1041H and12DA(1).3.3.2 Misleading or deceptive conductThe touchstone for liability for a breach of sections 1041H and12DA(1) is that the effect of the misstatement in, or omissionfrom, the information memorandum must be misleading ordeceptive. The meaning attributed to these words is to “lead intoerror”. A court will take a practical and realistic view of theeffect of the relevant conduct. Evidence that a particular personhas been misled, whilst persuasive, is neither conclusive noressential, as a court will determine the question for itself.While the test is objective, the likely effect of the relevantconduct is not assessed in isolation. Instead, the court identifiesthe relevant section of the public exposed to the conduct inquestion and attributes to the audience a standard ofsophistication against which the court decides whether theconduct was misleading or deceptive or was likely to mislead ordeceive. The audience may be as wide as the public at large ormay be confined to a segment of it, such as the investing public.It is likely that a court will attribute a relatively high level ofsophistication to investors in the wholesale capital markets. As aresult, unlike where the recipients are ordinary members of thepublic or are relatively unsophisticated, a court will probably beless willing to construe half truths and ambiguities in aninformation memorandum as constituting misleading or deceptiveconduct.3.3.3 Omissions from an information memorandumTraditionally, the greatest concern of those involved in thepreparation of an information memorandum is that despite theprecautions that may be taken to ensure that all relevantinformation is disclosed, an omission may nevertheless occurwhich could be regarded by a court as constituting misleading ordeceptive conduct.The extent to which silence can amount to misleading ordeceptive conduct has been, and continues to be, one of the morecontentious areas of the case law in relation to section 52 (andhence, also, sections 1041H and 12DA(1)).The current approach of the courts is to assess whether thecircumstances are such as to give rise to a “reasonableexpectation” of full disclosure. In determining this, the courtstake into account factors such as the relationship between theparties, their knowledge and expertise, previous communicationsand any other relevant factors.Where there is a “reasonable expectation “ that certain materialwill be disclosed, the failure to do so is misleading or deceptiveas it implies that the material does not exist.The test of whether an omission from an informationmemorandum constitutes a breach of sections 1041H and12DA(1) depends, therefore, upon whether an investor had a“reasonable expectation “ that the omitted material would bedisclosed. Although the sections do not create an independentduty of disclosure, in practice they have this result through the“reasonable expectation “ test. If the test is not satisfied, thenthose responsible are exposed to potential liability for a breachof these sections. It is therefore important for those involved inthe preparation of an information memorandum to be able to
Page 6: 12.7.3 Euroentitlements............
Page 9 and 10: 1 General overview of the nature of
Page 12: An interest in a managed investment
Page 15 and 16: 142.3.4 Provision of a financial se
Page 17: 3 The disclosure and civil liabilit
Page 21 and 22: The implication of this approach in
Page 23 and 24: Interestingly, the majority then we
Page 25 and 26: 4 Stamp duty and securitisation244.
Page 27 and 28: 264.8 Relief for mortgage-backed se
Page 29 and 30: 4.10 ConclusionStamp duty is a very
Page 31 and 32: Despite the absence of an express a
Page 33 and 34: 32share of the profits of the compa
Page 35 and 36: (d) before the issue:(i) the compan
Page 37 and 38: 365.4 Debt/equity rulesDivision 974
Page 39 and 40: Entities that make GST-free supplie
Page 41 and 42: • “ enterprise” is defined in
Page 43 and 44: 6 The Consumer Credit Code andsecur
Page 45 and 46: 7 The regulation of the participati
Page 47 and 48: inclusion within the ELE depends on
Page 49 and 50: 8 Set-off and securitisation8.1 Int
Page 51 and 52: 50However, this result and the prin
Page 53 and 54: 9 Insolvency and securitisation529.
Page 55 and 56: 54• if the trustee has not limite
Page 57 and 58: Section 588FG provides a measure of
Page 59 and 60: 10 Issues relating to debt securiti
Page 61 and 62: 60indemnity existed) and had no han
Page 63 and 64: The effect of the decision has been
Page 65 and 66: the ASX has discretion to ask the e
Page 67 and 68: • Public Trustee Members - for pr
Page 69 and 70:
When Austraclear receives notificat
Page 71 and 72:
have been completed in relation to
Page 73 and 74:
Some CMBS transactions allow the is
Page 75 and 76:
14.3 GamingIn the past, another con
Page 77 and 78:
16 Clayton UtzOur securitisation te
show all

A Guide to the Law of Securitisation in Australia - Clayton Utz

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?