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LAW2460 NAME: OOI CHONG CHI STUDENT ID: S3772524 1) a) Eco Sustain Ltd needs to raise $15 million to upgrade its recycling factories and industrial warehouse. They are a public company that has raised funds from the IPO. Listed companies have to provide an annual report containing remunerations report S300A. It should include superannuation benefits cash incentives, termination benefits and share options to be reported annually and getting exposed to market volatility. The company should list the public company on the ASX as $15 million is a very high amount. By listing the company, they will access a large pool of capital growth, hence this will be easier for them to fund the amount of money. This will also improve valuation of the company and provide greater efficiency of the company. This will also increase consumer confidence if they list the company. Thus, by listing the company, it would be easier for the company to raise %15 million to upgrade the factories and warehouses. b) Fundraising is when a company invites the public to buy the shares or a debt in the company. In this case, Eco Sustain Ltd must provide disclosure documents. Under Chapter 6D of the Corporation Act, disclosure documents include prospectus, short form prospectus, profile statement and offer information statement under (S709 CA). It provides protection for investors wishing to subscribe for new securities (including shares) in a company by requiring all relevant documents to be disclosed to the investors before the investors can acquire shares in the company. These documents disclose all the information to investors and their advisors so that they are able to make decision (S710A). For prospectus, it is the standard disclosure document when issuing shares. It requires very broad disclosure in the section (s 709 CA). Next, short form prospectus(s712(1) CA). It refers to materials already lodged with ASIC, e.g. financial reports. These documents form part of the prospectus and copies must be made available. In addition, profile statements are needed as well. S709(2) CA applies to certain industries but prospectus still has to be lodged. The profile statement and not the full prospectus may be supplied to investors. Lastly, offer information statement is needed as well in the disclosure document. s709(4) CA deals with small fundraising scenarios. The company can raise the first $10 million making minimal disclosure by OIS; however, s715(1) CA requires the document to direct investors to obtain own professional advice prior to deciding whether to invest or not. Disclosure documents do not require excluded investments (S708 CA) such as personal offerings to 20 people, 12 months period with 2 million or less which is small scale. Breach of the law in Chapter 6D can give rise to criminal and civil law.

2) The statement is incorrect. There are 4 types of companies under public companies and 2 types under proprietary companies that ASIC can register. For proprietary companies, there are limited by shares and unlimited with share capital. For public companies, there are limited by shares, limited by guarantee, unlimited with share capital and no liability company. For company limited by shares, it’s the most common type of corporate structure in Australia. Under Sections 9 and 516 of the Corporations Act, a company limited by shares is a company formed on the basis that the liability of the members is limited to the amount of any unpaid amount on the shares held by them. They raise funds by issuing shares. For unlimited liability companies, members have no limit to place their liability to the company. In a winding up members are liable for the debts of the company without limit. Therefore, similar to a partnership. Examples are professional practices e.g. lawyers and accountants which under their professional rules prohibit them from running a practice with limited liability. For no liability company, This means shareholders can’t be forced to answer calls on shares can only operate in the mining sector. They must have share capital and have to state that its objects are mining. Next, calls on shares must be paid within 14 days otherwise shares are forfeited. For example, mining company can be a limited liability company. For companies limited by guarantee, members’ liability is limited to the amounts they have undertaken to contribute to the company in the event of a winding up. It has no share capital. They only contribute on winding up not during the operations. It is used for clubs, charities and non-trading activities. Capital comes from donations, subscriptions. However, there a difference between proprietary companies and public companies. For proprietary companies, they are small to medium business, they do not need public funding. The company must have no more than 50 non-employee shareholders (s113(1). They must not engage in activity which requires disclosure under Ch 6D by inviting the public to subscribe for shares s113(3). For directors requirement, proprietary company must have at least 1 director (s1201A(1). They do not need secretary (s204A(1). For the meetings, AGM is not required by law unless written in Constitution. They can pass resolution without a general meeting as long as all shareholders sign and agree. For, large proprietary, they must appoint independent auditor and small proprietary must only prepare audited financial reports if it is requested by ASIC, 5% of shareholders and auditor need not be independent(s324CH). For public company, they require public funding, more disclosure requirements from Corporation Act and ASX listing rules to protect investors, there are no restriction for numbers of shareholders and the company name must be Ltd (S148(2). Limited liability is to inform anybody doing business with the company,

that they can only sue the company not the shareholders and directors unless there is any way to lift corporation veil. They need Minimum of 3 directors, 2 must reside in Australia s201(A) and minimum age is 18 to be appointed as a director (s201b(1). Director must be appointed and removed by resolutions of members s203D not by other director s203E. They need minimum of one secretary, at least one residing in Australia. They must hold annual general meetings within 18 months after registration (s250N(1).

3) a) A managed investment scheme are also known as 'managed funds', 'pooled investments' or collective investments. Generally, under S9 CA defines that people are brought together to contribute money to get an interest in the scheme. The money is pooled together with other investors or used in a common enterprise. Responsible entity operates the scheme. Investors do not have day to day control over the operation of the scheme and it is a time sharing scheme (National Australian Bank v Norman). The operation of MIS is a financial service (s766A) while interests in MIS are financial products (s763A). b) From the facts, Rose is a financial adviser and she is giving advice to clients about invest in managed investment scheme, these products are considered to be a financial product under s763A CA. Wei Lee are giving $20,000 to Rose as he intends to make a financial return from the financial products (s763B CA) and they have no day to day control over the use of the money. Rose appears to be providing a financial service under s766A CA as financial product advice (s766A CA) – she made a recommendation and she intended to influence Wei Lee to buy managed investment scheme. The facts tell us that Rose is a financial adviser and she appears to be carrying on a financial business (s761C CA). c) The facts tell us Rose is giving personal financial advice as the amount invested by Wee Lee is just $20,000, which means she is likely taking into account Wei Lee’s personal circumstances. Personal advice is where Rose has considered one or more of the objectives, financial situation and needs of Wei Lee (s 766B(3)CA).The advice is given one to one and not to a group. The personal advice by Rose given to Wei Lee is more specific. Hence, Wei Lee is a retail client and it’s a personal advice. d) ISSUES: The legal issue in this question is whether Rose has breached his duties as a financial adviser under the Corporations Act giving financial advice to the plaintiffs Wei Lee. RULES: Corporations Act 2001 (Cth) (CA) AFSL License A financial adviser must have Australian Financial Services Licence under s911A if financial adviser is dealing with a financial product (s763A), providing financial services (s766A) and is carrying on a financial service business (s761C). Under s912a(1)(aa) a licensee must have in place adequate arrangements for the management of conflict of interest. Under s961B financial advisers must act in the best interests of the client in relation to the advice.

S961G Advice must only be given if it is reasonable to conclude that it is appropriate for the client. S961J A provider must give priority to the client’s interests if they know or reasonably ought to know of a conflict of interest. Section 766B defines financial product advice to mean a statement that could influence a person’s decision on financial products. If that financial advice is personal, the financial adviser must provide the customer with certain disclosure documentation: s 766B(3). Section 963A prohibits conflicted remuneration. This means that financial advisers are not allowed to accept any benefits (secret or non-secret) that could influence them to encourage a client to select a particular financial product. However, they are allowed to accept ‘soft dollar benefits’ which means a gift of less than $300. APPLY: AFSL Licence Rose is a financial adviser. Hence, Rose must have Australian Financial Services Licence under s911A CA if she is dealing with a financial product (s763A CA), and she is providing financial services (s766A CA) and is carrying financial service business (s761C CA). In this case, she has breached the law of s911A CA, as the fact did not mention that she holds any AFSL when providing financial advice. Conduct of FA – No conflict of interest Rose has also breached s 963A by receiving 12% commission for selling product. Any ‘soft dollar benefits’ over $300 that could influence the advice given by the adviser are prohibited under R.G 175 and constitute a conflict of interest. Where there is a conflict of interest there must be a disclosure in the statement of advice and financial services guide under S942B & 942C. Conduct of FA – disclosure documentation The facts tell us Rose is giving personal financial advice as the amount invested by Wee Lee is just $20,000, which means she is likely taking into account Wei Lee’s personal circumstances. The financial adviser must provide the customer with certain disclosure documentation if the financial advice is personal under s766B(3) CA. This means Rose has to provide Wei Lee with a Financial Services Guide, Statement of Advice and Product Disclosure Statement. A consequence of failing to provide these documents will cause Wei Lee to get out of the contracts and avoid paying Rose fees as well. In this case, Rose has breached the law by not providing the disclosure documentation. Conduct of FA – Best Interest Rules Rose is providing personal advice she has a duty to act in Wei Lee’s best interests under s961B. To demonstrate she is acting in the plaintiff’s best interest, Rose must have identified the objectives, financial situation and needs of Wei Lee. All advice given must be based on their relevant circumstances. In this case, Rose has failed to identify her client’s needs. Because she has failed to identify the objectives, financial situation and needs of the client that were disclosed to her by the client through instructions. The fact says that Wei Lee is looking for a

safe but profitable investment. Rose has breached the law by recommending him to borrow the margin loans which are highly risky. In addition, she has breached law under s961J, she did not prioritise Wei Lee interest. In the meetings, Rose did most of the talking and did not ask and question about Wei Lee’s personal circumstances. Conclusion Hence, Rose has breached the financial adviser law under the Corporation Act....