Generally, when companies raise funds by offering shares to the public they must have available to prospective investors certain disclosure documentation prescribed by the Corporations Act 2001 (Cth) (the Act). The type and extent of disclosure depends on the circumstances and may include a full or short-form prospectus, profile statements and other information statements.

The disclosure provisions are also subject to various exemptions, including offers made to sophisticated investors.

ASIC’s concerns emanate from recent strategies by some advisers to formulate trust or company structures that represent their clients as sophisticated investors. Consequently, the statutory disclosure requirements are bypassed and retail investors do not receive the level of protection otherwise afforded through the prescribed disclosure requirements.

Corporate fundraising and the sophisticated investor

Disclosure is designed to provide detailed information to potential investors to enable them to make informed and balanced decisions about the investment on offer.

Disclosure may however be dispensed with if the minimum amount payable for the offer is at least $500,000 or a proposed individual investor:

·  has net assets of at least $2.5 million; or

·  has a gross income for each of the last two financial years of at least $250,000; and

·  a certified accountant provides the relevant sophisticated investor certificate no later than six months prior to the investment offer being made.

ASIC exposes loopholes in sophisticated investor strategies

The Australian Securities and Investment Commission (ASIC) has broad regulatory powers to ensure the provisions of the Act are upheld.

Recent investigations have discovered that inappropriate sophisticated investor certificates have been issued with respect to investments in phone-app company Kwickie International Pty Limited (KIPL).

By using certain trust or company structures, investors who would otherwise be deemed retail investors, have been offered shares without a prospectus or other prescribed disclosure documents.

Sophisticated investor certificates were issued on the basis of the aggregate net worth of the respective members of the investment entity. In other words, whilst the overall value of the investor vehicle exceeded that necessary to invoke the exemption provisions, the individual wealth of each investor fell short of the test.

ASIC has declared that shares in KIPL may not be offered to retail investors through a trust vehicle and is conducting further investigations into the use of certain structures designed to undermine the disclosure requirements of the Act.


Statutory disclosure obligations exist to protect retail investors by requiring a corporation offering securities to provide prescribed information concerning the contemplated investment. Attempts to circumvent these rules pose serious risk to the investors and significant compliance concerns with those facilitating such schemes.