Corporate Fundraising - Essay Example

Corporate Fundraising Question 1: Suggestions for Green Coffee Company Ltd on its Fundraising Obligations under the Corporations Act 2001 (Cth) When raising funds for their business investment goals, corporate entities have been commonly identified to either sell a proportion of shares either to their employees or non-employee shareholders i.e. public. Borrowing the required funds from various financial investors and banks as well can be witnessed as one of the mostly considered options availed by corporate entities when attempting for fundraising (Cassidy 2006). As can be observed with reference to the case scenario presented, The Green Coffee Company Ltd is aiming at investing in Vietnam which requires a substantial amount of funds. It is worth mentioning in this context that corporate fundraising options available to a particular business depends on various factors including the size of the company which further signifies its certification as a public or a proprietary company as per the Corporations Act 2001 (Cth) (“A Practitioner’s Guide to Corporate Law”, 2007). To be noted, as per the Corporations Act 2001 (Cth) Section 45A, a proprietary company can be limited or unlimited with share capital. Another type of company identifies as per the Corporations Act 2001 (Cth) is the public company wherein the Section 195 of the Act specifies that “public company means a company other than a proprietary company” (“Corporations Act 2001” 2005). Also, the corporate name of a proprietary company is distinct to that of a public company, i.e. a limited proprietary company is denoted with the abbreviation “Pty. Ltd.” while an unlimited proprietary company is abbreviated as “Pty.” Contextually, the public limited companies are denoted as “Ltd.” at the end of the registered name of the entity (“Corporations Act 2001” 2005). With reference to this context, The Green Coffee Company Ltd can be identified as a public limited company which shall further determine its fundraising obligations when attempting to invest in an international expansion venture to Vietnam. One of the major differences and opportunities for The Green Coffee Company Ltd in fundraising, being a public limited company, is that it can issue equities or sell its debentures or shares to “more than 50 non-employee shareholders” through the obligatory issuing of prospectus where proprietary companies (either limited or unlimited) are exempted from such permits (“Corporate Law” 2011). From a managerial concern, fundraising activities performed by organisations such as The Green Coffee Company Ltd will quite essentially give rise to company liabilities and thus will seize the risk of affecting shareholders’ or investors’ interests. It is in this context that The Green Coffee Company Ltd must ensure its compliance with the norms prescribed in the Chapter 6D of the Corporations Act 2001 (Cth). It is worth mentioning in this regard that The Green Coffee Company Ltd is planning to offer shares to the public with the intention to obtain a capital of around $7 million and $15 million owing to which the company must ensure the disclosure of all the required and lodged documents prior to offering securities as per the provisions mentioned in Section 727 (1) of Chapter 6D in the Corporations Act 2001 (Cth) (“Corporations Act 2001, 2005”). It is mandatory on this note to lodge the disclosure document to the Australian Securities and Investments Commission (ASIC) as per Section 709 of the Corporations Act 2001 (Cth) (“Better prospectus disclosure” 2006). Contextually, any identification of forging in the disclosure document or the lodged prospectus by the company shall be cancelled by the ASIC and shall be legally binding as observed in the case Fraser v NRMA Holdings Ltd (1995) 13 ACLC 132 (Tomasic, Bottomley, and McQueen, 2002). The Section 727(3) further asserts that the lodged prospectus or the disclosed documents describing about the fundraising activities and clauses for issuing shares or securities to the public as planned by The Green Coffee Company Ltd, being subjective to the ASIC’s verification, should not accept any request of share or security transfer or purchase within 7 days of the lodging of the prospectus. If felt necessary, ASIC may extend the duration of accepting the lodged prospectus or documents to 14 days wherein the Section 727(3) renders complete responsibility of permitting the fundraising activities planned by the company as can be observed with reference to the case GIO Australia Holdings Ltd v AMP Insurance Investment Holdings Pty Ltd No NG 3172 of 1998 (Fong, Ramsay, and Boros 1999). Furthermore, any occurrence of misleading facts and the consequent losses incurred by the corporate body shall be deemed as the responsibility of each director of the entity if no person or otherwise liable entity names have been disclosed in the document or prospectus. Liabilities of the directors might also be deemed as secondary if a particular person or group is found guilty for the contravention. It is also worth suggesting to The Green Coffee Company Ltd that compliance with Sections 710 to 715 is mandatory when disclosing the document or prospectus for approval from the ASIC. Additionally, the company must restrain from opting for an advertisement or publication which refers to the fundraising offer irrespective of being direct or indirect which can be made only after obtaining an authorisation in compliance with subsections (4), (5), (6) or (7) of section 734 of the Act (“Corporations Act 2001” 2012). Question 2: Suggestions or Remedies Available to (a) Green Coffee Company Ltd, (b) The Directors of Green Coffee Company Ltd, (c) Leaping Lizard Coffee Pty Ltd Issue/ Area of Law As the case scenario presents an apparent indication of misleading facts disclosed through the lodged prospectus to ASIC along with the occurrence of uncertain risks which have led to a fall in the disclosed share value by The Green Coffee Company Ltd, this issue can be related with the Chapter 6D of the Corporations Act 2001 (Cth). In this regard, Sections 729, 730, 731, 732 and 733 can be referred as the relevant areas of law which can be used to advise the related parties in the case scenario. Rule/ Relevant Laws As mentioned in the above section, Chapter 6D of the Corporations Act 2001 (Cth) can be related with the case scenario (Gillies 2004). To be noted, the Sections729 of this particular chapter asserts certain conditions and provisions which shall be deemed as applicable in the situation faced by The Green Coffee Company Ltd. As stated under the Section 729(1), a sufferer of the contravention made in the disclosure document may demand for compensation from the person responsible for the misleading documentation of the prospectus by law, even if the person is not found to be guilty of directly committing or being involved in the contravention as per the Section 728(1). Under such circumstances mentioned in Section 729, the person who was responsible for making the offer (1), the directors of the corporate entity (if the offer was issued and forwarded to ASIC with the name of the body (2), the person whose name has been mentioned as per their consent in the disclosure document to be liable for such charges as their securities are being offered (3), the underwriter who had been responsible to verify the facts under a particular head of the disclosure document before its submission to ASIC (4), the person whose name has been mentioned in the document mentioned their liability for any such losses through the fundraising activities (5) and a person who is proved to be directly engaged with the contravention (6). The case example of Hurst v Vestcorp Ltd (1988) 12 NSWLR 394 also indicates the importance and by laws of the occurrence of contravention in the disclosure document by a public limited body when aiming at fundraising (“High Court of Australia” 2012). In the similar context, the Section 730 of the Act denotes that it is necessary for the person suffering the losses and the one who has identified the contravention in the disclosure document to inform the concerned person at the earliest. Accordingly, due diligence shall be provided by the concerned authority to search for the legality of such allegations and only under reasonable inquiries shall the person liable be held as responsible to compensate the charged losses as per Section 731 as was observed in the case Corporate Affairs Commission (SA) v Australian Central Credit Union (1985) 157 CLR 201 (“High Court of Australia” 2012). Contextually, the Section 732 of the Act denotes that if the person held liable as per the sections 728 and 730 is proved to be not aware of such legal implications and had limited knowledge of the consequences shall have the complete right to apply for general defenses under the Section 733 of the Corporations Act 2001 (Cth) (“Corporations Act 2001” 2012). Analysis/ Suggestions by Applying the Law As can be observed from the above discussion with reference to the case scenario where the company’s Chief Financial Officer (CFO) was found to be the concerned person liable to ensure the validity of the information disclosed which was again prepared by an external body. Therefore, the directors of the body can redirect the liabilities to compensate the losses incurred by The Green Coffee Company Ltd as the responsibility of the CFO, concerning the norms mentioned in the Section 729(1) of the Corporations Act 2001 (Cth). The CFO might also be held responsible as an underwriter of the disclosure document as per Section 729(4). Contextually, the directors of the body i.e. The Green Coffee Company Ltd can exempt themselves from the liability of compensating the losses incurred due to the contravention identified in the disclosure document. In the similar context, losses incurred in terms of fall in share prices due to uncertain market risks, shall be liable on the part of the corporate body as per the corporate duty affairs prescribed in the Corporations Act 2001 (Cth) (Robinson 2008). As Leaping Lizard Coffee Pty Ltd is stated to be reacting in response to the fall in share prices and not in response to the identification of contravention identified in the disclosure document, the body shall not be deemed as worthy to penalise or allege The Green Coffee Company Ltd. However, if the person who is identified to reveal the occurrence of the contravention in the disclosure document, attempts to bring the fact to the notice of the board of the company at the earliest through legal notification, the entity i.e. Leaping Lizard Coffee Pty Ltd shall be liable to obtain the compensation. Conclusion Apparently, the case discloses not only the negligence of CFO but also the board of the corporate entity i.e. The Green Coffee Company Ltd. which must be judged under the premises mentioned in the Fiduciary rules of the Corporations Act 2001 (Cth). However, as per the issue of fundraising is concerned, the liability on the part of the CFO of the company shall be deemed as considerable being the underwriter and also on the part of the external accounting firm. 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