Fundraising: section 708 exceptions to the mandatory disclosure requirement

Australia's securities regulation has undergone dramatic changes in recent years. One significant part of that revamping has been an increased focus on the business and economic aspects of law, an aspect of which has examined the fundraising process. The legislature has made mandatory disclosure a mainstay of its securities regime. The idea behind disclosure is twofold: firstly, to ensure appropriate investor confidence, and secondly, to reduce information costs associated with making necessary inquiries. These two specific purposes support a broader economic philosophy, namely promoting the efficient allocation of resources in the market by ensuring that the better projects attract funding and that suboptimal projects do not attract more funding than they merit. Mandatory disclosure permits investors to distinguish more easily between investments, which results in the disclosure of flaws and a more appropriate allocation of funds. This, in turn, should promote greater investment activity and hence, economic growth. The legislature recognizes, however, that the disclosure regime may not be appropriate for all situations. Accordingly, the legislature has created 15 specific exceptions to mandatory disclosure in s 708 of the Corporations Act (Cth). In essence, these exceptions can be reduced to three broad exceptions to the mandatory disclosure regime: small scale offerings, sophisticated investors and related investors. This paper examines the appropriateness of these exceptions with respect to the Commonwealth Law Economic Reform Program ('CLERP') philosophy. This paper is not an effort to provide an analysis of the economic outcomes of the exemption; rather, it focuses attention on some of the critical policy considerations and in particular, the non-economic or balancing objectives of CLERP