Liability for companies launching an Australian IPO or takeover changed significantly this year—with not so much as a murmur of protest from the market. Due diligence just got more important, but the reason may surprise you.
Liability Has Increased
Civil penalty liability now affects prospectuses and takeover documents. That means substantial fines, which are now:
It also means:
That's a big extension to liability.
It Gets Worse—Defences Are Eroded
The existing criminal and civil liability regimes for these documents have defences to liability:
Those do not apply to the new civil penalty liability.
It's not clear. The civil penalty liability regime deliberately excludes any element of fault, unless it is baked into the section that the contravention is based on.
Unfortunately, for prospectus and takeovers liability, the defences are in separate sections, and they apply specifically to criminal liability and civil liability only, not to any breach of the core section.
There is still a general defence for reasonable mistake of fact, and honesty can be a mitigating factor—but it is not a defence.
What Does that Mean?
The risk of ASIC action for companies, directors and others for serious deficiencies in disclosure is much higher. It does not mean you should give up on due diligence processes—if anything, they are more important and should be more intensive.
You can't afford to get something wrong.