In Re Krypton Nominees Pty Ltd [2013] VSC 446 Justice Robson of the Supreme Court of Victoria decided, in a claim by the plaintiff’s principal he was induced by false representations made by the defendant to enter into an agreement to purchase $1million of shares in his company, that the plaintiff was not given a PDS as required by the Corporations Act.
In issue was whether the “sophisticated investor” exemption from providing a PDS in section 708(8)(a) applied.
Section 708(8) states:
(8) An offer of a body’s securities does not need disclosure to investors under this Part if:
(a) the minimum amount payable for the securities on acceptance of the offer by the person to whom the offer is made is at least $500,000 …”
The issue was whether the phrase “amount payable for the securities on acceptance of the offer” refers to the initial instalment payable immediately upon acceptance of the offer. Because the first instalment required to be made on acceptance of the offer was $100,000, the plaintiff submitted that the transaction did not meet the $500,000 threshold and the section 708(8)(a) exception from providing the PDS did not apply.
The plaintiff submitted that the apparent purpose of section 708(8) is to limit the “automatic” exemption to those with substantial amounts of “ready money”; those who can only pay $500,000 with the benefit of instalment terms or finance terms from the offeror or their associates must satisfy other requirements (such as certification) before the disclosure requirements can be waived.
Justice Robson agreed and concluded:
” In my opinion, the minimum amount payable for the securities on the acceptance of the offer, refers to the amount payable on acceptance of the offer and not sums payable subsequently on the purchase. I do not consider that the balloon payment significant, as that payment was not made “on acceptance of the offer.” …
I find that (the defendant) was obliged to provide a disclosure document to (the plaintiff) in relation to the offer to sell the shares and that he breached the disclosure requirements of Part 6D.2 of the Corporations Act.
I find that had (the plaintiff) been provided with the appropriate disclosure document, he would not have purchased the … shares.”
