-----------------Murdoch University Library Gopher----------------------

Title: "Jumping the Gun" An Examination of the Law Relating to Pre-prospectus 
Advertising of Securities Issues in Australia (Work in Progress)

Author: Robert McKenzie
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Table of Contents

ABSTRACT	  3

INTRODUCTION	  4
Structure of the Paper	  5

PART ONE:  DISCLOSURE THEORY	  6
1.1  Investor Protection and Deterrence of Fraud	  6
1.2  Market Efficiency	  9
1.3  Prospectus Disclosure	 11

PART TWO:  THE CURRENT LEGAL POSITION	 14
2.1  General Prospectus Provisions in the Corporations Law	 14
2.2  Pre-prospectus Advertising	 16
2.3  ASC Policy	 20
2.4  Remedies	 26

PART THREE:  EFFECTIVENESS OF THE PRESENT REGIME	 28
3.1  Legislation	 28
3.2  Policy	 32

PART FOUR:  SUGGESTIONS FOR IMPROVEMENT	 34
4.1  Issuing of Guidelines	 34
4.2  Introduction of New Procedures	 35
4.3  Legislative Amendment	 36

PART FIVE:  CONCLUSIONS	 38

BIBLIOGRAPHY	 40
Books	 40
Journal Articles	 41
Government Publications	 42
Regulatory Body Publications	 43
Other Publications	 44
Cases	 45
Interviews	 45


_ABSTRACT_
The author puts forward the thesis that the _Corporations Law_ fails to provide an adequate foundation for the effective regulation of "image" advertising, during the period prior to the registration of a prospectus, by corporations intending to issue securities.

The paper begins with an examination of the philosophy of disclosure and identifies three goals of mandatory disclosure regulation: investor protection from undisclosed risk; deterrence of fraud; and improved securities market efficiency. The current legal framework for the regulation of disclosure in initial public offerings is then described, with reference to both legislation and policy.

The third part of the paper asks whether the current regulatory regime is sufficient to achieve the goals of disclosure regulation and concludes that it is not. Part Four makes suggestions for improvement to the current regime by issuing guidelines, introducing new procedures and amending legislation.

The paper concludes that mandatory disclosure by prospectus is necessary in initial public offerings of securities and that strict control of advertising is needed to ensure the good work of disclosure is not undone. Lessons must be learned from the large privatisations and corporate floats of the early 1990s if capital markets are to continue to attract investors; particularly in light of the many privatisations pending. Amendment of existing legislation is necessary to clarify current uncertainty.

_INTRODUCTION_

In early 1992 the Commonwealth Bank of Australia (CBA) offered shares to 
the public. The public float of this government owned body was, by any yardstick, enormously successful: hundreds of thousands of investors, some of whom had never invested in shares before, rushed to pay the $5.40 per share subscription price. The success of the float was at least partly due to an extensive advertising campaign launched by CBA prior to the release of the prospectus.(1)

Encouraged by the success of the CBA float, the New South Wales (NSW) government pressed ahead with plans for the float of that State's publicly owned insurer, the Government Insurance Office, as GIO Australia Holdings Limited (GIO). This float was also a success in terms of the number of investors who applied to subscribe for shares in the company. However, the float differed markedly from that of the CBA inasmuch as many people were dissatisfied with the way that the GIO float had been conducted and the lacklustre performance of GIO securities after listing.(2)

Inevitably, the question arose of why there should have been such a difference in the perceived levels of success of the CBA and GIO floats. There were, undoubtedly, many factors which contributed to the variance between the results of the two floats, but perhaps none so crucial as the alternative advertising campaigns undertaken by the issuers. In particular, many of the complaints about the GIO float stemmed from the way in which the expectations of investors were raised  by pre-prospectus advertising. It is such pre-prospectus advertising which forms the focus for this work.  

The paper explores the thesis that a strong regulatory framework is necessary to protect investors in initial public offerings and that the current regime for regulation of pre-prospectus advertising is ineffective. 

At present the legal regime centres around ss.1025 and 1026 of the _Corporations Law_. Section 1025 prohibits, subject to s.1025(2) and s.1026(2), the publication of a "notice" which offers securities for subscription;(3) or issues invitations to subscribe for securities;(4) or "refers or calls attention, whether directly or indirectly, to: ...  [inter alia] an offer or intended offer for subscription of securities of a corporation ...".(5) Section 1026 is concerned with the publication of "reports" which are likely to induce applications for shares, where the person publishing the report is aware that a prospectus has been prepared or is being issued.
 
_Structure of the Paper_
Part One discusses the various rationales underpinning the _Corporations Law_ requirement for corporations to issue prospectuses. This is accomplished by looking at corporate disclosure generally and prospectus disclosure in particular. The three broad goals of disclosure regulation which emerge are investor protection, deterrence of fraud and improved market efficiency.

Part Two closely examines the current state of the law with respect to pre-prospectus publicity in Australia. This involves a detailed look at the governing legislation and Australian Securities Commission (ASC) policy in the area and the way in which they interact.

The current regime is then examined, in Part Three, to assess whether it is successfully promoting the underlying goals of disclosure regulation. The operation and scope of the law is considered using statutory interpretation techniques, in light of the very limited case law in the area. The unquestionable conclusion of this inquiry is that the ASC has reached the upper limit for the use of policy to restrict pre-prospectus advertising.(6) Further controls are necessary, it is suggested, and these can best be implemented by amending the Law.

Some such amendments are proposed in Part Four, along with suggested guidelines and procedural changes which may also assist in improving the current regime for regulating pre-prospectus advertising. 

I conclude, in Part Five, that mandatory disclosure by prospectus is necessary for the protection of investors, both from fraud and undisclosed risk, and for the long term viability of the capital markets. In order for disclosure to be effective there must be strict regulation of pre-prospectus advertising. Current legislation is adequate to deal with advertisements which overtly offer securities for subscription or issue invitations for subscription, but is not sufficient to prevent "image" advertising which may undermine the raison d'etre of the prospectus. Empirical research into the effects of image advertising upon investors is desirable to guide statutory change.

_PART ONE:  DISCLOSURE THEORY _
Before the effects of pre-prospectus advertising can properly be discussed, it is necessary to decide what purposes a prospectus should serve. Accordingly, the first part of this paper examines the issue of corporate disclosure generally and then inspects prospectus disclosure in light of the general discussion.

1.1  _Investor Protection and Deterrence of Fraud_
The ASC has stated that the "primary aim of the prospectus provisions of the Law, ... is to ensure that both the primary and secondary markets for securities are adequately informed."(7) Although the ASC speaks of "markets", it is implicit in this statement that the ASC's intention in ensuring information flow is to give investors a sound basis for making investment decisions. 

This interpretation of ASC policy direction was recently confirmed, `and extended, in an address by the Chairman of the ASC, Mr Alan Cameron. Mr Cameron expressed the view that the Commission had dual roles to play in investor protection:

"... the Commission is not a prudential regulator. We are there to ensure that people understand what the risk is and then make a decision. I am seeking to protect the investor from undisclosed risk, or the risk of the money being stolen, as opposed to the money being invested in something that does not turn out to be as successful as the investor would have liked."(8)

Forcing corporations to disclose and providing substantial sanctions for those who fall short of the required standard serves as a deterrent to those issuers of securities who may be tempted to act fraudulently in a public issue. It also compels honest promoters to investigate the viability of projects more fully before embarking upon capital raisings. That is, it is a discipline to discourage the lazy as well as the dishonest. Brandeis encapsulated this view when he wrote: "Sunlight is said to be the best of disinfectants; electric light the most efficient policeman."(9)

In addition to deterring fraud, the ASC aims to protect investors by ensuring the disclosure of  information by corporations, which will provide a basis for investment decision-making. However, this merely initiates the inquiry as to who will use a prospectus and what information those users will require.

In an attempt to answer this inquiry Ruth Hines, in 1981, examined six studies conducted in Australia and overseas, which investigated whether investors used annual reports in their decision making.(10) The studies found that most investors read the narrative portions of the reports thoroughly, but that most thought the Profit and Loss (Income) Statement and Balance Sheet were more important in deciding whether to invest.(11) Despite the wide recognition given to the importance of financial statements, only those respondents versed in accounting were able to state that they understood them.(12)

These findings were largely confirmed by a 1987 study undertaken in the United States by SRI International (SRI).(13) The SRI researchers divided the "individual" and "professional" investor groups into further sub-groups, based on results of their research.(14) They found that the professional and semi-professional investors concentrated on the financial statements in annual reports and tended to discount the narrative portions of reports as being "biased" and "unduly optimistic".(15) Professional investors preferred to make their own forecasts, based on the financial data and perceived quality of management, than to rely on forecasts by the Chief Executive Officer in the annual report.(16)

In addition, the SRI investigation found that all investor sub-groups expressed a desire for more information than was currently available in annual reports, but that professional and semi-professional investors expressed a preference for information with a greater degree of detail and analysis than did the individual investors.(17) Individual investors also sought more information and acknowledged the importance of the financial statements, even though they did not understand them. The SRI researchers postulated that individual investors believed in the importance of financial statements because numbers convey an impression of precision and accuracy which words lack.(18)

The evidence of Hines and SRI indicates that information in annual reports may be understood by professional investors but the information which all investor groups perceive as most important (financial reports) is not understood by the majority of individual investors. If the information currently provided is not comprehensible to untutored investors, then a choice must be made by regulators either to require information to be presented in a more understandable way, or to encourage investors to seek professional advice before investing.

The former approach has been adopted in the United States by the Securities and Exchange Commission (SEC), which takes the view that financial reports should be addressed to the "unsophisticated" investor and the professional adviser alike.(19) Consequently, it requires  issuers to include summaries for unsophisticated investors, in addition to the more complex and detailed information provided for professional investors and advisers.(20)

However, one vocal critic of the SEC approach, Professor Homer Kripke, argues persuasively that unsophisticated investors can only make truly informed investment decisions after consulting a professional adviser.(21) One reason for this view is that the complexity of financial accounting ensures meaningful information is beyond the understanding of most investors.(22)

Also, Kripke asserts that a meaningful investment decision involves a choice between alternative investment options, such as real estate, artworks, shares, debentures, futures and term deposits. Information about one of these options does not inform the investor of the merit of the investment compared to the other options available.(23) Only an investment adviser has the expertise necessary to make such a comparison. 

Further support for the argument against simplified summaries, and in favour of professional advisers, came from the UK Board of Trade when it said:

"In the Board's view the object of a prospectus is not primarily to enlighten the lay investor and to be readily readable and understood by him, but rather to enable his professional advisers and the financial press generally to assess the merits of the investment proposed in any prospectus and to offer their skilled advice."(24)

This view has also enjoyed support in Australia. In its _Exposure Draft ED42B25_ the Australian Accounting Research Foundation (AARF) expressed the view that financial statements should be "understandable" and "comparable". In answering the question "To whom should financial statements be understandable?" the AARF stated:

"General purpose financial reports can only be prepared with a view to the broad capabilities of the categories of users that can be expected to benefit from those financial reports. In making an assessment of those capabilities it should be borne in mind that professional advice can be obtained by the various categories of users of financial reports. It is also to be recognised that complex transactions and events cannot always be reported in simple or simplified terms without sacrificing relevance and/or reliability."(26)

"Financial reports ought to be constructed having regard to the interests of users who are prepared to exercise diligence in reviewing those reports and who possess the proficiency necessary to comprehend the significance of contemporary accounting practices. Relevant and  reliable financial information should not be omitted from financial reports because it is difficult to understand."(27)

One of the major categories of users of financial reports envisaged in _ED42B_ is investors.(28) Since all investors want as much relevant information as possible, and since only trained professionals have the necessary skills to interpret that information which is perceived to be most useful, the AARF approach represents a common-sense solution.

1.2  _Market Efficiency_
A further reason to mandate disclosure is to promote market efficiency. An enhanced flow of information in the markets is very important to the credibility of those markets.(29) Lack of disclosure requirements may suggest to potential investors that markets operate on the strength of "insider" information and this could deter potential investors who are not privy to such information. For a market to operate efficiently, its participants and potential participants must have confidence in its ability to function equitably.(30)

However, not all commentators agree that legislation to compel disclosure is necessary. One argument which is often raised in support of a system of voluntary disclosure is the Efficient Market Hypothesis (EMH).(31) This hypothesis is concerned with the "efficiency" of the market, where efficiency is used in a narrow sense to mean the ability of the market to quickly set new prices for securities based on all new information which has become available.(32) The main thrust of the EMH is that investors cannot consistently "out-perform" the market with their investments.(33) A corollary of this view is that corporations will make voluntary disclosure to investors in the absence of a mandatory disclsure regime.(34)

There are three forms of the EMH, for which empirical support exists. The "weak" form holds that the marketis efficient if share prices fully reflect the information implied by all prior price movements. The "strong" form deems that the market is efficient if share prices mirror all information, including information which has not been published ("insider" information).(35) The "semi-strong" form holds the market to be efficient if share prices adjust instantly and without bias to newly published information.(36)

That is, the effect of the "semi-strong" EMH is that share prices reflect publicly available information, so that it is not possible for investors to beat the market. As Keane puts it:

"One conclusion emerges beyond reasonable doubt from the empirical evidence relating to market efficiency: it is futile for the ordinary layman without access to privileged information to expect to gain anything from looking behind the market price of securities."(37)
 
However, some doubts have recently been raised about the validity of the EMH. The volume of trading on financial markets seems to be much greater than predicted by the EMH and there is a large body of statistical data that conflicts with the hypothesis.(38) In response to the perceived inability of the EMH, as presently defined, to clarify such anomalies, some economists have looked to the behavioural sciences to explain investment trends.(39)

This does not meant that the EMH should be cast aside in favour of a behavioural model, but rather that the behavioural literature demonstrates our understanding of securities pricing is still evolving.(40) That is, contrary to the views expressed by Keane(41) and Lorie(42) in the 1980s, the EMH is far from being accepted as doctrine. In any case, the prevailing view today is that adherence to the EMH does not necessarily dictate that mandatory disclosure has no benefit with respect to market efficiency.(43) 

1.3  _Prospectus Disclosure_
In addition to the arguments for and against mandatory disclosure, discussed in parts 1.1 and 1.2 above, prospectuses have been criticised in the past for including irrelevant information and failing to include relevant information. However, in view of the discarding of the "checklist" approach to prospectus preparation, in favour of the current s.1022, this criticism is less persuasive. Section 1022 requires prospectus preparers to disclose all information which investors and their advisers might reasonably require in order to make an informed investment decision.(44) This gives issuers the flexibility to include information which is relevant, while omitting inconsequential data.

Another criticism of mandatory prospectus disclosure is that the cost of compliance is prohibitively high, and this may discourage small corporations from participating in public capital floats.(45) 

However, in a recent paper presented to the Economic Planning AdvisoryCouncil (EPAC)(46) the ASC defended its disclosure policy. The Commission argued persuasively that small firms are precisely those which  should be subject to the most rigorous disclosure requirements. These small corporations are dependent on the capital markets because they cannot raise funds, or cannot raise them cheaply enough, from financial institutions. The risk which causes institutions to demand higher rates of interest is also the risk which demands more stringent disclosure, particularly because the marketing of these securities is directed to the "less sophisticated investor".(47)

In addition to the foregoing arguments, Coffee has identified four convincing justifications of mandatory prospectus disclosure.(48) He contends that voluntary disclosure will not provide an effective alternative to mandatory disclosure because information has many characteristics of a public good, which does not encourage diligent verification of the information;(49) lack of mandatory disclosure causes higher social costs as investors spend excess time pursuing trading gains;(50) voluntary disclosure assumes that the interests of managers are identical with the interests of shareholders, but this is rarely the case;(51) and even in an efficient capital market there is information which is best provided under a mandatory disclosure regime.(52) On balance, a statutory regime provides the most reliable mechanism for ensuring that corporations make adequate disclosure.


_PART TWO:  THE CURRENT LEGAL POSITION_
The prohibition against gun-jumping is a natural progression from the prospectus disclosure requirements of the _Corporations Law_. Investors are protected from the risks of investing without sufficient information by the prospectus, which the law requires a corporation to prepare.(53) They are further protected by having the application form attached to the prospectus, which ensures that each applicant for securities receives a prospectus.(54) Finally, investors are protected from those extraneous information sources which may undermine the information value of the prospectus, by legislation which restricts the advertising of securities issues.

For the purposes of such advertising control, the Law applies differently to the period before a prospectus is issued ("pre-prospectus") and the period after issue ("post-prospectus"). The basis for this different treatment lies in the ASC view that "... post-prospectus statements may be examined by individual investors and the market generally in light of the full prospectus information. Unsupported claims in post-prospectus advertisements may be relatively easily identified by the market."(55) It would be more difficult to assess the accuracy of statements where a prospectus had not yet been issued. According to the ASC there would also be an increased risk of issuers employing "pressure selling" techniques and "drip-feeding" information to the market.(56) The combination of these effects may lead to investors making investment decisions based on information contained in advertisements, rather than in prospectuses.(57)


2.1  _General Prospectus Provisions in the Corporations Law_
In order to appreciate the current position of the advertising regime, it is necessary to look briefly at the general prospectus requirements of the Corporations Law.

Section 1018(1) of the Law requires a prospectus to be lodged whenever offers or invitations to subscribe for securities are made. This general rule is qualified by exemptions which exist for:

(a)	an excluded issue of securities; or
(b)	an excluded offer of securities for subscription or purchase; or
(c)	an excluded invitation to subscribe for or buy securities.(58)

Section 66 defines what is meant by excluded issues, offers and invitations. Noteworthy paragraphs of subsection 66(2) include:(59)

"An issue or allotment of securities is an excluded issue if, and only if: 
(a)	the amount subscribed for the securities by each person to whom the securities are issued or allotted is at least $500,000; or
(b)	the securities are issued or allotted to an underwriter under an underwriting agreement; or
...
(e)	the securities are issued or allotted to:
(i)	an executive officer of the corporation by which the securities are issued or allotted or of a related body corporate; or 
(ii)	a person ... who is the spouse, or is a parent, brother, sister or child, of such an executive officer; or
... 
(n)	the issue or allotment of the securities is, or is of a kind that is, declared by the regulations to be an excluded issue.(60)

There are also exemptions for securities which were listed when the new s.1018 became law (that is, 1 January 1991)(61) and  for other listed securities for which a prospectus has  previously been issued.(62)

If a prospectus is required to be registered, both parts of the prospectus content provisions must be observed. The first part comprises specific items of information which are required to be in all prospectuses. These are detailed in s.1021 and include such things as the date of the prospectus, the nature and extent of directors' interests and the signatures of  directors.(63)

The second part of the content provisions is contained in s.1022 and is more controversial than the first. Subsection 1022(1) states:

"In addition to the information required by section 1021 to be included in a prospectus in relation to securities of a corporation, such a prospectus shall, subject to subsection (2), contain all such information as investors and their professional advisers would reasonably require, and reasonably expect to find in the prospectus, for the purpose of making an informed assessment of:
(a)	the assets and liabilities, financial position, profits and losses, and prospects(64)  of the corporation; and
(b)	the rights attaching to the securities."
						
Subsection 1022(2) provides that the information required in s.1022(1) above is that information which is known to the directors, professional advisers and others involved in the preparation of the prospectus.(65) Subsection 1022(3) gives some criteria for deciding what type of information would satisfy the requirements of 1022(1). These include the nature of the securities, the kinds of persons likely to subscribe for the securities  and the extent of information prospective investors may already have about the corporation, by virtue of being existing shareholders in the corporation.(66)

2.2  _Pre-prospectus Advertising_
Prior to the enactment of uniform companies legislation in the 1970s, each state had its own companies and securities legislation, based on the United Kingdom model. In each jurisdiction the topic of advertising was dealt with by "deeming" any advertisement to be a prospectus, and then requiring the advertiser to comply with the prospectus content provisions.(67) An Interstate Corporate Affairs Agreement ("the Agreement") was negotiated between the states and territories, which aimed to develop uniform companies and securities legislation throughout Australia. 

Under the Agreement the _Companies Act Amendment Act (No.2) 1975_ was passed in Western Australia to amend the principal Act (Companies Act 1961). A major part of the amending legislation was the change in approach to regulating the advertising of securities issues. The legislature adopted the recommendations of the Eggleston Committee(68) by introducing a new s.40 which dealt with "notices" and s.40A which dealt with "reports".(69)

The new provisions, which were drafted in similar terms to the Eggleston Committee proposals, were intended to achieve a balance between the  perceived desirable and undesirable effects of advertising.(70) The Committee saw bona fide press comment as performing the useful function of informing potential investors about forthcoming floats, but disdained "image" advertising. The Committee framed the problem thus:

"Under modern conditions in which a company that wishes to raise money by a public issue can promote its "image", it is possible for a publicity campaign to engender such interest in a company that it is unnecessary to do more than announce that a prospectus is available. ...By the time the prospectus is in circulation, prospective investors are already convinced that the investment is a desirable one, and neither misrepresentation nor puffing is necessary in the prospectus itself."(71)

In 1981 a co-operative scheme of companies and securities legislation was introduced in Australia. The _Companies Code_ re-enacted ss.40 and 40A as ss.99 and 100 of the Code respectively. In 1991 the _Corporations Law_ re-enacted ss.99 and 100 of the Code in essentially the same terms, with some relaxation of the provisions relating to post-prospectus advertising.(72) The relaxation of prohibitions in s.99 were made possible by the inclusion of ss.765 and 995, which provide increased scope for the prohibition of misleading and deceptive conduct in relation to securities.(73)

Sections 1025 and 1026 of the _Corporations Law_ now regulate the advertising of securities issues. Section 1025 deals with "notices".(74)

"Except as provided by subsection (2), a person shall not publish a notice that:
(a)	offers for subscription securities of a corporation or proposed corporation;
(b)	issues invitations to subscribe for securities of a corporation or proposed corporation; or
(c)	refers or calls attention, whether directly or indirectly, to:
(i)	a primary prospectus in relation to securities of a corporation;
(ii)	an offer or intended offer for subscription of securities of a corporation;
(iii)	an invitation or intended invitation to subscribe for securities of a corporation; or
(iv)	another notice that refers or calls attention, whether directly or indirectly, to a primary prospectus in relation to securities of a  corporation or such an offer, intended offer, invitation or intended invitation, not being a notice referred to in subsection (2)."(75)

An exception to the prohibitions is made in the case of notices which comply with s.1025(2). This subsection provides that a person may publish a notice, including a notice concerning the matters in s.1025(3), provided they also comply with all the conditions within s.1025(2). This subsection allows a notice to be published if it:

"(a)	is published by the person who issued the prospectus concerned, the holder of a dealer's licence, the holder of an investment adviser's licence or an exempt dealer;
(b)	states that a prospectus in relation to the securities of a body corporate or proposed body corporate has been lodged;
(c)	specifies the date of the prospectus;
(d)	states where a copy of the prospectus can be obtained;
(e)	states that allotments or issues of, or contracts for the subscription for, securities to which the prospectus relates will be made only on receipt of a form of application referred to in and:
(i)	if the securities are debentures - attached to, or accompanied by; or
(ii)	otherwise - attached to; a copy of the prospectus; and
(f)	specifies the interest (if any) that the person publishing the notice has in the success of the offer or invitation to which the prospectus relates, being an interest that the person has as underwriter or sub-underwriter to the issue of the securities to which the prospectus relates or a relevant interest in those securities."

As a matter of statutory interpretation the ASC has stated(76) that the net effect of s.1025 is to allow a corporation to advertise a securities issue, provided that:

1.	the published notice contains all the information specified in s.1025(2);
2.	the notice does not contravene any other section of the Law;(77)and
3.	the prospectus has already been issued.

In other words, in the absence of discretionary relief  granted by the ASC,there is no scope under s.1025 for a corporation to directly advertise its securities issue prior to the issue of a prospectus. However, once a prospectus has been issued, an advertisement can contain any statements (subject to compliance with other sections of the Law), provided the information specified in s.1025(2) is also included. The question which is of major interest is how  advertisements which promote the corporation, but which do not refer to a forthcoming issue, should be treated. This problem is investigated in Part Three, below.

Section 1026 relates to "reports".(78) Subsection 1026(2) states: "Nothing in this Part prohibits the publishing of:
(a)	a report that relates to affairs of a body corporate that is included in the official list of a securities exchange and:
(i)	is published only to that securities exchange or an officer of that securities exchange ...; or
(ii)	has been so published;
(b)	a report of ... the proceedings at a general meeting of a body corporate that is included in the official list of a securities exchange if the report does not contain any matter other than matters laid before that meeting;
(c)	a report that relates to a body corporate and is published by or on behalf of the body or by or on behalf of one or more of its directors and: 
(i)	does not contain matter that materially affects affairs of the body other than matter previously made available in a prospectus that has been lodged, an annual report or a report referred to in paragraph (a) or (b);
(ii)	does not contain a reference, whether directly or indirectly, to an offer of securities for subscription or to an invitation to subscribe for securities ... other than a reference to the principal business of the body where the principal business of the body is the borrowing of money and the provision of finance; and
(iii)	is not accompanied by a copy of a prospectus that has been lodged or a [s.1025(3) notice], and is a report that the body and its directors have taken all reasonable steps to ensure is not  published in a form or manner in which it might be associated with a notice described in s.1025(3);
(d)	a report published on behalf of a body corporate by or on behalf of its directors with the consent of the Commission; 
(e)	a report that is a news report ... or is genuine comment, published by a person in a newspaper or periodical or by broadcasting or televising relating to:
(i)	a prospectus that has been lodged or information contained in such a prospectus; or
(ii)	a report referred to in paragraph (a), (b), (c) or (d);
[on condition that the person publishing the report, and others associated with the publication, have not received, or become entitled to, any benefit in exchange for publishing the report] ..."

Subsection 1026(3) prohibits a person from making a report, except as allowed by subsection 1026(2) above, that is "reasonably likely to induce persons to apply for ... securities" if that person knows that a prospectus is in the process of being prepared or that the prospectus has been issued. In other words, s.1026 operates to control the making of reports both before and after the issue of a prospectus. In relation to the types of reports allowed by s.1026(2), a "rule of thumb"  is that reports required in the course of complying with regular disclosure requirements of the ASC and ASX, as well as bona fide news reports, are allowed to be published.

2.3  _ASC Policy_
ASC policy makers have avowed an intention to give effect to Parliamentary policy underlying the provisions of the Law.(79) In light of this intention it is perhaps surprising to note the extent to which ASC policy on the advertising of securities issues has altered between 1990 and 1993, although it may be argued that the legislature intended the ASC to exercise its discretion freely in this area.(80)

The main instrument of policy available to the ASC is s.1084, which gives the Commission powers to exempt persons or classes of persons from compliance with any or all of the provisions of Divisions 2, 3, 4, 5 and 6 of Part 7.12 of the _Corporations Law_ and from compliance with regulations made for the purposes of those Divisions. Such exemptions may be granted unconditionally or on whatever conditions the ASC considers appropriate.(81)

The ASC used this power to grant first CBA, and then GIO, conditional relief from the restrictions on pre-prospectus advertising. On 28 March 1991 the ASC issued five Instruments to grant relief to CBA from ss.1025, 1026 and 1078.

Instrument 164/91 allowed CBA to conduct limited market research (with a maximum sample size of 5,000 persons) by changing the definition of "notice" (as it applied to CBA) in s.1025(1) to exclude market research questionnaires. This was done under the authority of s.1084(6) of the Law (power to make a section of the Law apply to certain persons as if the wording of the section had been altered).

Instrument 165/91 gave CBA a conditional exemption from s.1025(3), to allow advertising by way of publication, television and radio broadcast, news releases and direct mail to employees and customers. The only statements which were allowed to be made in the notices were of the same nature as those allowed for post-prospectus advertising by s.1025.(82) That is, statements could be made relating to the proposal to lodge a prospectus; the expected date of lodgement; the means of obtaining a prospectus; and the fact that applications could only be made on the form attached to the prospectus. This and the following Instruments were issued by authority of s.1084(2) of the Law (power to exempt persons).

Instrument 166/91 gave CBA an exemption from ss.1025(3) and 1026(3) to allow it to conduct "roadshow"  presentations,(83) subject to conditions which specified that the presenter must inform the audience of the matters set forth in s.1025(2) and must secure an undertaking of confidentiality from the audience before the presentation began. The audience could only comprise investment advisers, dealers and securities representatives.

Instrument 167/91 gave relief from ss.1025(3) and 1026(3)  to allow CBA to publish "tombstone" advertisements.(84) The relief in this Instrument would seem to be from the post-prospectus advertising restrictions of ss.1025 and 1026, since the wording of Schedule B of the Instrument refers to information about the prospectus itself, rather than to a "forthcoming" prospectus. The key to the relief lies in not having to comply with all the requirements of s.1025(2), such as the necessity to state the date of the prospectus and the fact that an application must be made on the form attached to the prospectus.

Instrument 168/91 was issued "for the removal of doubt". Section 1078 prohibits a person going from place to place issuing invitations to subscribe or offers to buy securities. "Going from place to place" includes the use of telephone or facsimile machines, but does not include the use of television or other advertising.(85) The Instrument exempts CBA from the "share-hawking" provisions of s.1078, including the offer of shares "by means of televising". It seems that the CBA wanted to be sure that there was no doubt about the legality of its television advertising and that the ASC agreed to granting specific relief, even though "publish" is defined in s.9 to include broadcasting or televising.(86)

The contents of the CBA Instruments were recapitulated in Policy Statement Release (PSR) 15, with some additional relief.(87) It detailed the Commission's policy with respect to the granting of relief for pre-prospectus advertising in the context of privatisation floats only.
Paragraph 15(a) of PSR 15 was in similar terms to Instrument 165/91 (pre-prospectus tombstone advertising), with the additional requirement that any such advertising contain the statement:

"An investment decision should only be made after you have read the prospectus and if necessary obtained independent advice."(88)

Paragraph 15(b) was virtually identical to Instrument 164/91 (market research); paragraph 15(c) equated to 166/91 ("roadshows"); and paragraph 17 was equivalent to 168/91 (relief from s.1078 to allow television advertising). There was no equivalent for Instrument 167/91, but this was corrected in PSR 38.

As well as reciting the contents of the CBA  Instruments PSR 15 provided, in paragraph 15(d), for the registration of a "preliminary prospectus". Such a document had to comply with the content requirements of ss.1021 and 1022, except that it need not state an issue price and a "registration form" should be attached instead of an application form.

PSR 15 was issued nearly a year after the CBA float and one month before the granting of relief to GIO. The Statement explained why the ASC chose at that time to treat privatisations differently to other public share floats. Three reasons were proffered. The first of these reasons was that privatisation schemes commonly involve offers of extremely large numbers of securities over a relatively short period.

This implied that private businesses do not involve offers of equivalently large numbers of securities, which is generally true in comparison to the numbers involved in privatisations. However, there are notable exceptions, such as the float of Woolworths Ltd (Woolworths), which raised more than $2 billion. Note, however, that when Woolworths was previously preparing to make a public offering the ASC did agree to grant relief along the lines of that granted to CBA.(89)

The second reason advanced in PSR 15 was that governments usually wish to maximise the opportunity for the general public to participate. This is undoubtedly the case, but an implication that private businesses do not wish to maximise opportunities for the public to participate lacks intuitive appeal. Every corporation wants to sell the securities which it is offering. While some corporations may prefer to deal primarily with institutional investors (for example, to avoid costs of prospectus production) the primary aim is to sell the securities, and corporations will sell to any person who has the purchase price, subject to considerations of takeover exposure.

Thirdly PSR 15 stated that governments particularly want those members of the public who are not accustomed to investing in shares to participate.(90) Governments are susceptible to political considerations which may make widespread security ownership a priority, but it is questionable whether political factors should be taken into account by the ASC in this way. One would expect that advertising campaigns which specifically target unsophisticated investors would attract more strict regulation, rather than a relaxation of the rules.

There are a number of possible explanations for the ASC policy of limiting the relaxation of advertising restrictions to government businesses. One possibility is that the ASC had bowed to government pressure to allow advertising. Since the ASC is a government funded regulator, there is a possibility that political pressure could have been applied, notwithstanding its independent status.(91) On this point, it is germane to remember that before privatisation the NSW Government considered that, as vendor of GIO shares,  it was not subject to the _Corporations Law_. However, it agreed to act as if it was subject to the Law.(92) 

Another possibility is that the ASC believed that government business enterprises were more "trustworthy" or responsible than other businesses - that they would not abuse the privilege of being able to advertise prior to the release of a prospectus. However, as some commentators observed, there is no reason to believe that politicians will be more responsible in promoting securities than company directors.(93)

A third possibility is that the ASC wished to "test the water" for easing of the advertising provisions and this testing could most appropriately be conducted in relation to relatively low risk investments, such as privatisations. If the relaxation of the advertising restrictions was successful for privatisations, the ASC could consider extending relief in the future.(94)

GIO was granted similar relief to that given to CBA, and was also allowed to conduct a prospectus reservation scheme. This scheme required the ASC to issue an Instrument allowing GIO to send a notification acknowledging receipt of an applicant's prospectus reservation form.(95) However, the ASC declined to grant specific relief to allow GIO to set up an information and registration centre, preferring instead to insist that any such centre comply with the existing law.

When PSR 38 was subsequently issued in November 1992, it consolidated the policy shifts embodied in the exemptions granted previously to CBA, GIO and Woolworths. In PSR 38 the general relief granted from pre-prospectus advertising prohibitions was to allow tombstone advertising;(96) bona fide market research;(97) and roadshow presentations (on identical conditions to those contained in the CBA relief in ASC Instrument 166/91) for underwritten floats of $500 million or more (on identical conditions to those contained in the CBA relief in ASC Instrument 166/91).

Any other pre-prospectus advertising, including "image advertising", had to comply with the Law.(98) PSR 38 also retained the preliminary prospectus from PSR 15, but only for privatisation floats.(99) Unlike PSR 2 or 15, PSR 38 also considered the application of "pathfinder prospectuses".(100) A pathfinder is circulated to assist in the pricing of issues and to finalise prospectus content.(101) It may only be distributed to prospective underwriters, brokers and exempt offerees and relief is currently only  available where the issuing corporation is proposing to list the issued shares on the ASX.(102) The pathfinder must not contain an application form and no agreement to subscribe for securities may be entered into on the basis of the document.(103)

PSR 38 acknowledged the similarities between the float of large private entities and the privatisation of government business enterprises, by extending most of the relief given to privatisation issues to underwritten issues of $500 million and over. However, the most recent policy document, PSR 54, shifts the focus away from privatisations and large floats as criteria for relief. Instead, relief may be available for any corporation which is listed or intends to list.(104) This is because listed corporations are subject to a greater level of scrutiny than unlisted entities.(105)

PSR 54 re-states the concerns expressed in Media Release 92/243 that statements in advertisements preceding the release of a prospectus cannot be verified to the prospectus. The ASC fears this could result in issuers using pressure selling techniques; issuers "drip-feeding" the market with information; and investment decisions being made on the basis of information in the advertisements, rather than in the prospectus.(106)

The concern of the ASC is that, although s.995 is still available as a remedy for misleading statements made in pre-prospectus advertisements, the potential exists for investment decisions to be made on the basis of incomplete information, which may not be misleading in itself and hence will not fall within the scope of s.995.(107)

As a result of this concern, the ASC has decided to limit the relief available to tombstone advertising, roadshow presentations and market research. The terms for these exemptions are set forth in Class Orders 93/421, 93/422 and 93/423 respectively and are essentially in the same terms as the Instruments granted to CBA. The only general requirement now in place is that issuing corporations be listed or intending to list.

However, even listed corporations will not be accorded relief to facilitate their use of image advertising.(108) PSR 54 devotes considerable attention to image advertising and begins by defining it:

"Image advertising means advertising conducted by a body corporate which contains express or implied assertions about the nature, value or worth of the body corporate, but which does not contain any express reference to a forthcoming prospectus or issue of securities."(109)

PSR 54 canvasses two possible views of the legislation applying to image advertising. In the narrow view an image advertisement would not be unlawful if it did not of itself call attention to an issue of securities. That is, the context of the advertisement is not relevant to a decision of the legality of the advertisement.

The broad view of image advertising is the one preferred by the ASC. This view takes a contextual approach to deciding whether an advertisement calls attention to an offer of securities. This view is stated to be consistent with the approach to interpretation detailed  in s.109H of the Law.(110) In coming to the conclusion that a broad approach better fulfils the intended purpose of the legislation, the Statement refers to the origins of contemporary pre-prospectus advertising legislation, which can be traced back to the Eggleston Committee Report.(111) The ramifications of the broad view are explored in Part Three below.

2.4  _Remedies_
Section 995 of the Law prohibits persons engaging in misleading conduct in relation to the issue of securities.(112) If a notice or report is not misleading, but contravenes ss.1025 or 1026, an offence is committed and a maximum penalty of $2,500 or six months imprisonment, or both, may be applied.(113) In addition, civil liability may apply, pursuant to s.1005.

The Court may issue an injunction to enjoin advertising which is in breach, by virtue of s.1324.(114) This is an important remedy, which furthers the goal of investor protection particularly well by preventing the offending advertisement from influencing further potential investors. It appears that the process for the issue of an injunction increases the effectiveness of this remedy.(115) Also, the Court may grant an award of damages in  addition to, or in substitution for, an injunction.(116)

The usefulness of the injunction as a remedy is enhanced by s.1034(6), which waives the requirement of proving that imminent harm may flow to the plaintiff. This is crucial, because the crux of this area of law is that harm is hard to assess and even harder to prove. The real danger that is sought to be avoided is that the potential exists for investors to be disadvantaged in their investment decision making by being distracted from  the prospectus provided.

A further important remedy under the Law is s.1114, which allows the Court to make orders where a person contravenes any section in Chapter Seven of the Law.(117) For example, the Court may make an order restraining a person from disposing of securities(118) or an order declaring a contract relating to securities to be void or voidable.(119)


_PART THREE:  EFFECTIVENESS OF THE PRESENT REGIME_
Part One identified the three main rationales underpinning the prospectus disclosure provisions of the Law as being investor protection from undisclosed risk; deterrence of fraud; and efficiency of the capital markets. If these goals of mandatory disclosure are to be attained, it is essential that the legislation and policy regulating the publication of notices and reports effectively operates to prevent investors obtaining their investment information from advertisements, rather than from prospectuses. Consequently, this Part looks at whether the law is enforceable and hence whether the powerful remedies identified in Part Two can be brought to bear.

3.1  _Legislation_
The law is clearly adequate to deal with the situation in which an advertisement openly offers securities to the public, or overtly refers to matters such as an intended invitation to subscribe for securities. In such cases s.1025 is breached and s.1324 can be invoked to enjoin the publishing of the offending advertisement. Penalties will apply to the party in breach and civil action can be taken by the injured party, pursuant to s.1005.

The difficult cases are those in which no direct reference is made to the forthcoming float, but where the issuing corporation embarks on an advertising campaign to promote its public image. In such cases, the ASC has refused to grant relief(120) and has adopted a "wait and see" approach. If the advertisement shows evidence of "drip feeding" information to the public, or of using pressure selling techniques, the Commission will intervene.(121)

Just how effective such intervention will be depends on how the Court interprets the Law. In particular, it depends on whether the Court is persuaded to take the broad, purposive view espoused by the ASC, or some narrower, literal interpretation. Unfortunately there has been no judicial consideration of ss.1025 or 1026 and an extensive search has revealed only one case which has considered the gun-jumping provisions.(122) However, even this case is of little assistance in determining judicial attitudes, since it concerned a breach of the old "deeming" provisions of the Companies Act (s.40) and throws little light on the present inquiry. Consequently, recourse to statutory interpretation techniques is necessary to predict the likelihood of enforcing the advertising provisions.

The ASC, in PSR 54, states its belief that s.109H of the Law requires the Court to adopt a purposive approach to interpreting the Law. Section 109H provides :

"In the interpretation of this Law, a construction that would promote the purpose or object underlying the Law (whether that purpose or object is expressly stated in the Law or not) is to be preferred to a construction that would not promote that purpose or object."

This provision of the Law is (apart from the substitution of "Law" for the more general term "Act") in exactly the same terms as s.15AA of the Acts Interpretation Act 1901 (Cth). Accordingly, although the effect of s.109H on statutory interpretation has not been extensively considered by the courts, it should be possible to appraise the probable influence of this section by reference to past judicial consideration of s.15AA. Similar reasoning applies to an assessment of s.109J, which is in essentially the same terms as s.15AB of the Acts Interpretation Act.(123)

Section 15AA purports to extend the common law approach to statutory interpretation. At common law it is still generally accepted that a purposive approach should only be employed to clear up an ambiguity or doubt on the face of an Act.(124) Section 15AA seems to require that a purposive approach be used even when the meaning of the words in the statute is clear. An interpretation arrived at by reference to this purposive approach may differ from an interpretation flowing from the literal meaning of the words and s.15AA requires the courts to adopt the former, purpose-oriented interpretation.(125)

However, it is unclear whether this is being implemented by the courts. Pearce and Geddes(126) suggest it is likely that courts have reached conclusions which have been based on s.15AA, or which have been influenced by that section, but that this has not been explicitly acknowledged by them. It seems therefore, that the best that can be said with any certainty is that the courts will use a purposive approach when there are alternate interpretations flowing from the literal meaning of the words of a statute, but that it remains open whether they will take the opportunity to use this approach as a primary method of interpreting the Law.

This hypothesis is supported by the recent High Court decision in _Mills v Meeking_.(127) In that case Mason CJ and Toohey J, with whom Brennan J concurred, delivered the majority judgement. Their Honours declined to use extrinsic material to determine the purpose of the _Road Safety Act 1986_ (Vic.) because they considered that the relevant section of the Act was not ambiguous.(128) Instead the "ordinary and grammatical meaning" of the words was discerned from a reading of the whole statute.

McHugh J, in dissent, employed a purposive approach in interpreting the section, but appeared not to do this on the basis of s.35 of the _Interpretation of Legislation Act 1984 (Vic.)_.(129) His Honour did not clearly articulate whether he considered the section of the Road  Safety Act to be ambiguous, but he did appear to be justifying his approach on common law principles.

Only Dawson J, also in dissent, determined that s.35 allowed the Court to consider the purpose of a statute as a primary aid to construction. He felt that: "The approach required by s.35 needs no ambiguity or inconsistency; it allows a court to consider the purposes of an Act in determining whether there is more than one possible construction."(130)

The fact that a majority of the Court required an ambiguity to exist before invoking s.35 indicates that the ASC may have been overly optimistic in its interpretation of the scope of ss.1025 and 1026.(131) Given the uncertainty about the Court's willingness to invoke a purposive approach as an initial tool of interpretation, it seems the only circumstances in which the Court could be relied upon to invoke a purposive approach is in the case of an ambiguity in s.1025 or s.1026.

However, it seems unlikely that a court would find either section ambiguous. There may be a degree of uncertainty about the intended scope of the sections, but it is probable that this could be resolved without recourse to extrinsic materials. On any reading of ss.1025 and 1026 it is clear that certain conduct is allowed (s.1025(2) notices and s.1026(2) reports) and other conduct is prohibited if it refers or calls attention, directly or indirectly, to a public float or if it is reasonably likely to induce persons to subscribe for securities.

The fact that the Law does not ban all advertising, other than that allowed by subsections 1025(2) and 1026(2), is indicative of the intention of Parliament. If we turn first to s.1025 and ask the question "What advertising did the Parliament intend should be allowed in spite of this provision?", the answer might be "Any advertising which does not, even indirectly, call attention to a public float." Undoubtedly this includes the advertising which a corporation undertakes to promote its products or services.

But it is much more than this: if product advertising was the only advertising to be excluded from the operation of s.1025, it could have been specifically exempted by the legislative draftsperson.(132) This suggests that Parliament intended to allow image advertising, provided it did not call attention to an impending float. If this is the case, then the broad view of s.1025, as espoused in PSR 54, appears inappropriate.

PSR 54 takes the position that an image advertisement is unlawful if "read in conjunction with the surrounding circumstances, the advertising campaign and all other publicity, it would call the securities issue to the attention of the average person in possession of common knowledge ...". To take this view would be to ban image advertising in virtually all instances, since one expects at least some publicity to surround the float of any corporation.

Although the foregoing argues for a narrow reading of s.1025, when the section is read in conjunction with s.1026 the effect is to further narrow the range of permissible advertising. The result is that image advertising which does not call attention to a float may nevertheless by disallowed because it is reasonably likely to induce persons to subscribe for securities. 

The scope of s.1026 was considered in Policy Statement Releases 2, 15 and 38, where the ASC stated its belief that the test (for deciding what constitutes a report which is reasonably likely to induce persons to subscribe) should be an objective one. In so stating, the Commission drew a distinction between an advertisement which was likely to induce a person to subscribe and one which merely prompted a person to make further inquiries.(133) Importantly, the Commission declined to repeat this analysis in the draft policy statement (Media Release 92/243) and PSR 54.

In spite of the ASC's change of heart, the above approach seems consistent with a literal interpretation of s.1026. If potential investors are only likely to make further inquiries, they would not be induced by the advertisement to invest. However, if investors make such inquiries and receive further information in reply, which induces them to invest, the Court may take a different view. In Mutual Home Loans(134) the majority held that documents sent in response to a request inspired by an advertisement formed part of the advertisement. Evidence of pressure selling techniques and drip feeding of information in advertisements may constitute, in the eyes of the Court, activity likely to induce persons to subscribe for securities.

From the foregoing discussion, it is apparent that the ASC faces a difficult task if the Court takes a literal approach to interpreting the advertising provisions. However, if the Court decides to pursue a purposive approach to interpreting the Law, one must ask what extrinsic materials it is likely to use, and what relative weight will likely be assigned to each, in determining the  definitive "purpose" underlying ss.1025 and 1026. Section 109J of the Law assists by listing some of the sources which the court may consider, while stipulating that the list is not exhaustive.

Given the preference for documents which are widely circulated,(135) it is probable that the Eggleston Committee Report would be favourably received. This is particularly so because it contained the antecedent of ss.1025 and 1026 in draft form.(136) If the Court did act in accordance with the intentions evinced in the Report, it is likely that the PSR 54 criteria for unacceptable image advertising (that is content; timing; frequency of publication; and mode of publication) would also be applied.(137) If a broad purposive approach was adopted, ASC policy would assume greater importance than otherwise.

3.2  _Policy_
ASC policy tacitly acknowledges the difficulty the Commission faces in successfully prosecuting a corporation for a breach of either s.1025 or s.1026. Despite declaring confidence in a broad view of the provisions, the Commission resiles from a truly broad interpretation by requiring evidence of "drip feeding" or  "pressure selling" before acting. This is despite the claim, in paragraph 35, that any grant of relief to facilitate image advertising would compromise policy objectives.

By insisting on evidence of drip feeding and pressure selling before proceeding, the ASC has chosen to ignore the effect which image advertising has, and is intended to have, on investors. The whole purpose of image advertising, in the context of an impending float, is to encourage investors to subscribe for the securities when they become available. In combination with press reports, such advertisements can create an atmosphere of near hysteria, as investors rush to send their applications in and secure an allocation.(138)

Investors are more likely to make ill-informed investment decisions in such a highly charged atmosphere. They are more likely to invest without seeking professional advice and without reading the prospectus if they believe that the securities are highly sought after. Such reactions to image advertising are not dependent on pressure selling techniques or drip feeding being employed. Instead, they flow as a natural consequence from the existing investment environment, which may be at an already "pressurised" level because of news reports or other factors.(139)

3.3  _Enforcement_
It seems the most optimistic view of the current regime is that there is uncertainty about the circumstances in which the ASC could successfully prosecute a corporation for engaging in unacceptable image advertising prior to the release of a prospectus. My less optimistic view is that the law, as drafted, is inadequate to protect investors from the threat posed to them by image advertising. The ASC has used its latest policy statement (PSR 54) in an attempt to shore up the legislation, but has been forced to a compromise position from which it is virtually powerless to prevent any but the most flagrant breaches of the gun-jumping provisions.

The pre-prospectus advertising provisions of the Law, and its predecessors, have been generally effective in protecting investors and ensuring the efficiency of the securities markets by promoting the credibility of those markets. However, this has not occurred as a result of successful prosecutions. In the past, issuers have been content to proceed with floats  without challenging the law, but this may be set to change. The use of image advertising, without the grant of relief by the ASC, in the recent Woolworths float indicates a changing mood in the securities industry. Even the fact that issuers are now prepared to test the limits of the present regime reduces its effectiveness. A full challenge may reveal that the pre-prospectus advertising regime is a "paper tiger".
 

_PART FOUR:  SUGGESTIONS FOR IMPROVEMENT_
Part Three identified a number of shortcomings of the current legal regime for regulating pre-prospectus advertising. Of note is the doubt about the efficacy of ss.1025 and 1026 as mechanisms to control image advertising. An allied problem is the obscurity of the message being sent to issuers by the latest ASC policy document (PSR 54), which indicates a tough enforcement approach by the ASC to image advertising, but then insists on evidence of drip feeding or pressure selling before proceeding. The result is uncertainty about what is, and what is not, allowed. 

Suggested improvements have been divided into three categories, termed "issuing of guidelines"; "introduction of new procedures"; and "legislative amendments". Guidelines would be the easiest changes to implement and the least cost alternative, however they provide, at best, a stop-gap remedy. Procedural changes would be more expensive and time consuming to implement than guidelines, but may be more effective as a medium term solution to the problem. The preferred solution to the perceived problems of pre-prospectus advertising is to amend the legislation.

4.1  _Issuing of Guidelines_
Guidelines may take the form of published lists of acceptable and unacceptable advertising practices, including such things as the timing and frequency of advertisements. The ASC is encouraging the development of guidelines in relation to prospectus preparation and this may be extended to include pre-prospectus advertising guidelines.(140)

An alternative is the introduction of a system of "no action" letters, based on the SEC  procedure in the United States.(141) By publishing ASC rulings in this way, issuers and their advisers can form a view of what advertising material is acceptable. Such a system has clear benefits in the current situation where the scope of the law has not been judicially defined. When deciding on the content and amount of image advertising which they intend to employ prior to a securities float, issuers may be content to limit any campaign to one which the ASC will accept, rather than one which would maximise subscriptions. In this way, issuers get some benefit from their advertising without risking the wrath of the ASC.

A possible impediment to the implementation of a full "no action" program in relation to pre-prospectus advertising is the memory which some people have of the National Companies and Securities Commission (NCSC) approach to corporate regulation. Perhaps this could best be summarised as a fear of returning to the "bad old days", where deals were sometimes done as an alternative to enforcement. However, an official "no action" system is preferable to any de facto system, in which newspapers report the ASC's attitude to various advertising campaigns.(142)

4.2  _Introduction of New Procedures_
Of necessity, any system of "no action" reports would rely on the "pre-vetting" of  advertisements, which is an easily implemented procedural step. The NCSC adopted a "pre-vetting" procedure in relation to prospectuses but the ASC abandoned the practice because it felt this was not an effective use of resources.(143) The cost of administration is a major disadvantage of pre-vetting, but costs may be reduced by limiting the vetting procedure to image advertising. The results of pre-vetting exercises should ideally be incorporated in published guidelines or "no action" reports, as discussed at 4.1 above.

A second procedural step which may be effective in achieving greater investor protection, is the inclusion of strongly worded warnings in all image advertising which is undertaken by corporations within a certain time prior to an issue of securities.(144) Professor Tom Valentine(145) participated in a national radio interview recently and expressed the view that warnings to investors should be in strong terms, which he likened to the health warnings in cigarette advertisements.(146) As Professor Valentine also indicated in that interview, the problem may not be with the corporation which is issuing securities, but with the way that an investor perceives those securities as a result of the advertising. For example, an investor may invest solely in a particular security, rather than opting for a range of investments, on the basis of image advertising. Any downturn in that investment will affect the investor severely, if there are no other investments to offset the loss. Risk may be significantly reduced by investing in a spread of different investment products.

A further procedural step to promote informed investment decision making is the distribution of a preliminary prospectus, which contains all the information required to be in a full prospectus, except the issue price.(147) The contents of the preliminary document could be incorporated, by reference, into the final prospectus. The point of such a document is to give investors time to study the disclosed information in detail, or to seek professional advice about its contents, without the pressure of making an investment decision within a limited period. This is particularly necessary in the situation where there is excessive demand for a security, whether due to advertising and press comment or because the market is "hot". In such a situation a float may be open for only a few days.(148)

4.3  _Legislative Amendment_ 
The final suggested category for improvement is legislative reform. This long term solution will take time to implement and should be supplemented in the interim by procedural reforms. There is support in government and the business community for widespread reform of the _Corporations Law_.(149) Amendment of ss.1025 and 1026 should be a priority of any revision of the Law.

The existing provisions are adequate to deal with situations in which advertisers make express references  to securities issues, but difficulties exist in attempting to regulate image advertising. Part Three of this paper illustrated that the state of the law is inconclusive in its effect on image advertising because of the difficulties of defining what is meant by "calls attention, whether directly or indirectly" to an issue of securities. Two possible solutions are proposed in this paper.

One option is to add a subsection to s.1025 to prohibit image advertising by a corporation for three months prior to a planned float. Image advertising should be defined in the subsection and should include consideration of content, timing and frequency of advertisements.(150)

A second option is the redrafting of ss.1025 and 1026 using "fuzzy law".(151) In essence, this process involves replacing "black letter law", with law which clearly sets out the aims of the legislation with simple requirements and exceptions. The idea is to guide the courts in their decision making, rather than binding them with prescriptive provisions.(152) The inclusion of purposive statements within the confines of the statute should ameliorate uncertainties associated with judicial reluctance to use extrinsic materials.(153)
 
Legislative amendment was also the approach favoured by the _Prospectus Law Reform Sub-Committee of CSAC in the Lonergan Report_.(154) The major recommendation of the Sub-Committee was that ss.1025 and 1026 be amended to apply only to unlisted securities, on the basis that s.995 of the Law and s.52 of the Trade Practices Act together provide sufficient recourse to persons suffering loss as a result of misleading or dishonest advertising by issuers of listed, or listing, securities.(155)

This approach fails to recognise the impact which image advertising has on investors. The Sub-Committee has taken the narrow view that advertising is only harmful if it is, in itself, misleading. It does not take into account the detriment that flows from being inadequately informed, which is a natural consequence of making investment judgements based on advertisements, rather than on a prospectus or professional advice.

Recognising that not all would agree with its major recommendation, the Sub-Committee made several further recommendations. Most of these are minor changes to ss.1025 and 1026, but one significant proposal is the amendment of legislation "to relax pre-publicity restrictions".(156) The reason advanced for this reform is to allow investors to learn in advance about pending floats. Provided publicity is limited to "tombstone" advertisements and genuine press comment, this reform  would not appear to undermine goals of investor protection and market efficiency.


_PART FIVE:  CONCLUSIONS_
There is no dispute that corporate disclosure is necessary as a basis for investment decision making. Studies have shown that both professional and unsophisticated investors seek as much information as possible about a corporation when making investment decisions.(157) What is debated is whether disclosure should be compulsory; what information should be disclosed; and to whom disclosure should be addressed.

In this debate one argument which is often raised against mandatory disclosure is that it is not necessary in an efficient market. The basis for this claim is the EMH. However, the scope of the EMH has been called into doubt recently, so that it is fair to say that it is not certain that all corporations would adequately disclose unless compelled to do so. Prospectus disclosure has been made increasingly relevant by the requirement, in s.1022, for a corporation to provide information which investors might reasonably require to make an investment decision about that corporation. Depending on the circumstances, this may increase or decrease the amount of information disclosed, but in all cases it should improve the relevance of disclosed information.

Advertising controls are necessary to complement the prospectus; to ensure the primacy of the prospectus as the information source relied upon by investors. Without such controls the prospectus would be ineffective, with unsophisticated investors possibly preferring the simple messages of advertisements to the more complex information which is contained in the prospectus.

Parliament recognised this when it legislated to amend the _Uniform Companies Act_ in terms of the proposals of the Eggleston Committee.(158) These amendments sought to preserve the prospectus as the instrument of disclosure in a public offering of securities, but accepted the desirability of investors having access to other sources of information, such as press reports, which could improve investment decisions.

The Eggleston Committee expressly refers to the undesirable result of corporations promoting their "images".(159) It is ironic, therefore, that the current legislation, which evolved from the Eggleston Committee recommendations, appears to be less than equal to the task of regulating such image advertising.(160) ASC policy declares an intention on the part of the Commission to protect investors and appears confident of being able to achieve that aim, in relation to advertising, through a wide judicial interpretation of ss.1025 and  1026.

However, the avowed confidence of the ASC to use the existing legislation to curtail image advertising appears misplaced. Successful prosecution of an issuer for using image advertising is dependent on the courts adopting a broad purposive approach to interpreting ss.1025 and 1026. It appears, from the High Court decision in Mills v Meeking,(161) that there is still considerable judicial reluctance to adopt such an approach in the absence of an ambiguity in the legislation. Since ss.1025 and 1026 do not appear to be ambiguous, it seems that they would be interpreted  according to the natural meaning of the Law as a whole.

Consequently, amendment to the legislation is necessary to clarify the position and give the ASC a strong legislative foundation from which to regulate. It is particularly important that the legislation be amended in the near future, in view of the large number of privatisations which are likely to occur within the next two years.(162)

It seems likely that a major re-drafting of the Law will occur within the next few years, and that the emphasis will be on a simplified statute.(163) This provides an opportunity for extensive research to be done in the interim, to guide the drafting process. However, amendment should be undertaken before then if image advertising is to be successfully regulated until that time.

To guide proposed legislative reform the ASC should undertake a study of the effects of image advertising on investors to determine what level of image advertising, if any, is compatible with the goal of investor protection. Such research should consider factors such as the state of the economy at different times and the attitude of the press to speculative reports about such things as "stag" profits to be made. Empirical research would be conducted before, during and after major public floats in which the issuers are engaged in image advertising. If empirical research is impractical, further consultation with industry and consumer groups would be beneficial.


_BIBLIOGRAPHY_

_Books_

Brandeis, L.D., Other People's Money and How the Bankers Use It, (edited by Richard 
Abrams), Harper & Row, New York, 1967.

Ford, H.A.J. and Austin, R.P., Principles of Corporations Law, (6th ed.), Butterworths, Sydney, 1992.

Griffin, P., Usefulness to Investors and Creditors of Information Provided by Financial Reporting, (2nd ed.), Financial Accounting Standards Board, Stamford (Conn.), 1987.

Jennings, R., Marsh, H. and Coffee, J., Securities Regulation: Cases and Materials, (7th ed.), The Foundation Press Inc., Westbury (N.Y.), 1992.

Keane, S., Stock Market Efficiency: Theory, Evidence, Implications, Phillip Allan Publishers Limited, Oxford, 1983.

Lorie, J., Dodd, P. and Kimpton, M., The Stock Market: Theories and Evidence, (2nd ed.), Dow Jones-Irwin, Homewood (Ill.), 1985.

Loss, L., Fundamentals of Securities Regulation, (2nd ed.), Little, Brown and Company, Boston, 1988.

Loss, L. and Seligman, J., Securities Regulation, (3rd ed.), Little, Brown and Company, Boston, 1989.

Paterson, W., Ednie, H. and Ford, H.A.J., Australian Company Law, (3rd ed.), Butterworths, Sydney, 1987.

Pearce, D.C. and Geddes, R.S., Statutory Interpretation in Australia, (3rd ed.), Butterworths, Sydney, 1988.

Ratner, D., Securities Regulation: Materials for a Basic Course, West Publishing Co., St. Paul (Minn.),1975.

Ratner, D. and Hazen, T., Securities Regulation: Cases and Materials, (4th ed), West Publishing Co., St. Paul (Minn.), 1991.

Redmond, P., Companies and Securities Law [:] Commentary and Materials, (2nd ed.), Law Book Company, Sydney, 1992.

SRI International, Investor Information Needs and the Annual Report, Financial Executives Research Foundation, Morristown (N.J.), 1987.


_Journal Articles_

Anderson, A.G., "The Disclosure Process in Federal Securities Regulation: A Brief Review", 25 Hastings Law Journal 311, 1974.

Anderson, A.G., "Conflicts of Interest: Efficiency, Fairness and Corporate Structure",
UCLA Law Review, v.25, 1977-78, 738-795.

Austin, R., "The New Prospectus Provisions in Operation: A Review", Corporate & Business Law Journal, v.4(2), March 1992, 1-26.

Azzi, J., "Disclosure in Prospectuses", Company and Securities Law Journal, v9, August 1991, 205-234.

Blair, M., "The Debate over Mandatory Corporate Disclosure Rules", UNSW Law Journal, v15(1), 1992, 177-195.

Bryson, Justice, "Statutory Interpretation", Australian Bar Review, v8(3), 1992, 185-204.

Chiappinelli, E.A., "Gun Jumping: The Problem of Extraneous Offers of Securities", 50 U.Pitt.Law Review 457, 1989.

Coffee, J., "Market Failure and the Economic Case for a Mandatory Disclosure System", 70 Virginia Law Review 717, 1984.

Easterbrook, H. and Fischel, D., "Mandatory Disclosure and the Protection of Investors", 70 Virginia Law Review 669, 1984.

Goodkind, C.G., "Blue Sky Law: Is There Merit in the Merit Requirements?", Wisconsin Law Review, 79, 1976.

Green, J.M., "'Fuzzy Law' - A Better Way to Stop 'Snouts in the Trough'", Company and Securities Law Journal, v.9(3), June 1991, 144-157.

Hart, G.E., "The Deterrent Effect of Civil Liability in Investor Protection", Company and Securities Law Journal, v.5(3), August 1987, 162-181.

Hines, R., "Are Annual Reports Used by Shareholders?", The Chartered Accountant in Australia, March 1981, 48-52.

Kerr, J., "Suitability Standards: A New Look at Economic Theory and Current SEC Disclosure Policy", Pacific Law Journal, 16(3), April 1985, 805-832.

Kripke, H., "The SEC, Accountants, Some Myths and Some Realities", 45 New York University Law Review 1151, 1970.

Langevoort, D.C., "Theories, Assumptions, and Securities Regulation: Market Efficiency Revisited", 140 U.Penn. Law Review 851, 1992.

O'Bryan, N. and Austin, L.R., "Capital Raising Under the Corporations Act", Law Institute Journal, v.64, No.1&2, 1990, 61-69.

Simmonds, R., "Of Prospectuses and Closed Systems: An Analysis of Some Present and Proposed Legislation in Canada and the United States", Osgoode Hall Law Journal, v19, No.1, March, 1981, 28-99.


_Government Publications_

Australian Parliament, "Companies Bill 1980 Explanatory Memorandum", Australia Parliament House of Representatives and Senate Bills and Explanatory Memoranda, Vol.3, 1978-80.

Australian Parliament, "Corporations Bill 1988 Explanatory Memorandum", Australia Parliament House of Representatives and Senate Bills and Explanatory Memoranda, Vol.12, 1987-89.

Committee of Inquiry into the Australian Financial System, Australian Financial System Final Report, Australian Government Printing Service, Canberra, 1981.

Parliamentary Standing Committee on Legal and Constitutional Affairs, Corporate Practices and the Rights of Shareholders, Australian Government Printing Service, Canberra, 1991.

Parliament of the Commonwealth of Australia, "On the Control of Fund Raising, Share Capital and Debentures - Fifth Interim Report", Company Law Advisory Committee to the Standing Committee of Attorneys-General, October 1970.

Parliament of the Commonwealth of Australia, Corporate Law Reform Bill (No.2) 1992 Explanatory Memorandum, circulated by the Authority of the Attorney-General, Hon. Michael Duffy MP.

Senate Select Committee on Securities and Exchange, Australian Securities Markets and Their Regulation, Australian Government Printing Service, Canberra, 1974.


_Regulatory Body Publications_

Australian Accounting Research Foundation, "Objective of Financial Reporting", Proposed Statement of Accounting Concepts ED 42A, Australian Accounting Research Foundation, Caulfield (Vic.), 1987.

Australian Accounting Research Foundation, "Qualitative Characteristics of Financial Information", Proposed Statement of Accounting Concepts ED 42B, Australian Accounting Research Foundation, Caulfield (Vic.), 1987.

Australian Securities Commission, ASC Digest, Centre for Professional Development, Sydney, 1993.

Australian Securities Commission, ASC Releases, CCH Publications, Sydney, 1991.

Australian Securities Commission, "The Prospectus Provisions of the Corporations Law: The First Three Months", Policy Statement Release 2, Issue 1, effective 26 April 1991.

Australian Securities Commission, "Incorporation by Reference into Prospectuses: Relief from s.1020", Policy Statement Release 6, issued 7 August 1991.

Australian Securities Commission, "Pathfinders: Relief from Compliance with the Provisions of the Corporations Law Relating to Notices and Reports", Policy Statement Release 8, issued 20 August 1991.

Australian Securities Commission, "Relief from the Advertising Restrictions in the Context of Privatisation Floats", Policy Statement Release 15, effective 14 February 1992.

Australian Securities Commission, "The Prospectus Provisions of the Corporations Law", Policy Statement Release 38, issued 9 November 1992 and updated 30 November 1992.

Australian Securities Commission, "Streamlining of Applications for Relief", Policy Statement Release 51, issued 7 April 1993. 

Australian Securities Commission, "Pre-prospectus Advertising", Policy Statement Release 54, issued 11 May 1993.

Australian Securities Commission, "Draft Policy Statement: Incorporation by Reference into Prospectuses", Media Release 93/91, issued 27 April 1993.

Australian Securities Commission, "Woolworths Ltd", Media Release 92/174, issued 17 September 1992.


_Regulatory Body Publications_

Australian Securities Commission, "Draft Policy Statement: Relief from the Advertising Provisions of the Corporations Law Applying Prior to the Lodgement of a Prospectus", Media Release 92/243, issued 21 September 1992.

Australian Securities Commission, "Companies and Securities Regulation in Australia: The Regulator's Perspective", Prudential Regulation in Australia: Recent Developments, Papers presented to Economic Planning Advisory Council, Australian Government Printing Service, Canberra, 1991.

Companies and Securities Advisory Committee, Report on an Enhanced Statutory Disclosure System, September 1991.

Companies and Securities Advisory Committee, Report of the Prospectus Law Reform Sub-Committee of the Companies and Securities Advisory Committee, March 1992.


_Other Publications_

Blue, D., "Prospectuses - Some Practical Problems", An Update on the Corporations Law, Seminar conducted by the Law Society of Western Australia in Perth on 26 May 1992.

Company Law Committee, Minutes of Evidence: Twentieth Day, 24 March 1961, Her Majesty's Stationery Office, London.

Coopers & Lybrand, GIO Australia Public Share Offer: Stockbroker Procedures Manual, issued to stockbrokers prior to 22 June 1992.

GIO Australia Limited, Prospectus: Offer by the State of New South Wales of All the  Shares in GIO Australia, lodged with the Australian Securities Commission and dated 22 June 1992.

Lonergan, W. and Moore, S., "Prospectus Law Reform: An Examination of the Report of the Prospectus Law Reform Sub-Committee of the Companies and Securities Advisory Committee", Prospectus Law Reform: Papers Delivered at a BLEC Forum Held in May 1992, Business Law Education Centre, Melbourne, 1992.


_Cases_

Mills v Meeking (1990) 169 CLR 214

Mutual Home Loans Fund of Australia Ltd and NSW Mortgage and Discounting Co Ltd v Attorney-General of New South Wales (1973) 130 CLR 103


_Interviews_

Bird, B., Senior Manager Finance  Town & Country Bank	07-03-93

Butler, R., General Manager WA, GIO Australia Holdings Ltd, 07-05-93

Connolly, P,. Dealer's Representative, Morgans Stockbroking Ltd, 02-03-93

Cutri, J., Legal Officer, Australian Securities Commission, 11-04-93, 04-05-93, 12-05-93


_Endnotes_

1  The CBA had special dispensation from the Australian Securities Commission (ASC) to conduct the advertising campaign. Advertising prior to the issue of a prospectus is generally contrary to law and is given the name "gun jumping" by United States regulators: see generally Chiappinelli, E.A., "Gun Jumping: The Problem of Extraneous Offers of Securities", 50 U.Pitt L. Rev. 457, 1989.  
2  Those dissatisfied with the GIO float included brokers; applicants who failed to receive shares, or had their applications scaled back; and successful applicants who did not receive the expected early profits from the float. 
3  Paragraph 1025(3)(a).
4  Paragraph 1025(3)(b).
5  Paragraph 1025(3)(c). Note that ss.1025 and 1026 are concerned only with primary prospectuses, since they apply to offers to subscribe for securities, not offers to purchase securities.
6  Note, however, that significant scope remains for the easing of advertising restrictions, using s.1084 of the Law. 
7  Australian Securities Commission, "The Prospectus Provisions of the Corporations Law: The First Three Months", Policy Statement Release 2, Issue 1, effective 26 April 1991, at para.4. This aim was repeated in Australian Securities Commission, The Prospectus Provisions of the Corporations Law", Policy Statement Release 38, (issued 9 November 1992 and updated 30 November 1992), also at para.4.
8  Reported in The Australian Financial Review, 23 April 1993, at p.15.
9  Brandeis, L.D., Other People's Money and How the Bankers Use It, (edited by Richard Abrams), Harper & Row, New York, 1967, at p.62.
10  Hines, R., "Are Annual Reports Used by Shareholders?", The Chartered Accountant in Australia, March 1981, 48-52.
11  Ibid., at pp.49-50.
12  Ibid., at p.50.
13  SRI International, Investor Information Needs and the Annual Report, Financial Executives Research Foundation, Morristown (N.J.), 1987.
14  Ibid., at pp.18-22. "Buy-and-hold" investors are those who typically trade an average of only one parcel of securities per year and look at the long term prospects; "opportunity-driven" investors make more transactions per year and are more intuitive in their decision making; "semi-professional" investors generate an average of twenty nine transactions per year, have a greater understanding of financial statements  and are more like the true professional investors in their approach. 
15  Ibid., at p.53, but note that professional investors take natural optimism into account in coming to their own, less optimistic, views. 
16  Ibid., at p.32.
17  Ibid., at p.3.
18  Ibid., at p.53.
19  Azzi, J., "Disclosure in Prospectuses", Company and Securities Law Journal, v9, August 1991, 205-234 at p.207. 
20  Loss, L., Fundamentals of Securities Regulation, (2nd ed.), Little, Brown and Company, Boston, 1988, at pp.126-128.
21  Kripke, H., "The SEC, Accountants, Some Myths and Some Realities", 45 New York University Law Review 1151, 1970.
22  Ibid., at p.1167.
23  Ibid., at p.1169.
24  Company Law Committee, Minutes of Evidence: Twentieth Day, 24 March 1981, Her Majesty's Stationery Office, London, at p.1578, para.93.
25  Australian Accounting Research Foundation, "Qualitative Characteristics of Financial Information", Proposed Statement of Accounting Concepts ED42B, Australian Accounting Research Foundation, Caulfield (Vic.), 1987.
26  Ibid., at para. 35.
27  Ibid., at para. 36.
28  Australian Accounting Research Foundation, "Objective of Financial Reporting", Proposed Statement of Accounting Concepts ED42A, Australian Accounting Research Foundation, Caulfield (Vic.), 1987 at para. 15.
29  Australian Securities Commission, "Companies and Securities Regulation in Australia: The Regulator's Perspective", Prudential Regulation in Australia: Recent Developments, Papers presented to Economic Planning Advisory Council, Australian Government Printing Service, Canberra, 1991, at p.22.
30  Committee of Inquiry into the Australian Financial System, Australian Financial System Final Report, Australian Government Printing Service, Canberra, 1981 (the "Campbell Committee Report"), at para.1.32. 
31  For example, see generally Keane, S., Stock Market Efficiency: Theory, Evidence, Implications, Phillip Allan Publishers Limited, Oxford, 1983. The EMH is also sometimes referred to, particularly in the US literature, as the Efficient Capital Market Hypothesis (ECMH). This is perhaps a more accurate designation because it limits the discussion of the hypothesis to its operation in the capital markets. Keane, at p.7, approves the distinction on  the basis that capital markets are more nearly "perfectly competitive" markets than other markets and the EMH is therefore more likely to hold valid for capital markets. 
32  Ibid., at p.9.
33  Ibid.
34  Langevoort, D.C., "Theories, Assumptions, and Securities Regulation: Market Efficiency Revisited", 140 U.Penn. Law Review 851, 1992, at p.874. 
35  Keane supra note 31, at p.10. Keane notes (at p.12) that the strong  form of the EMH relates to the efficiency of information markets, rather than capital markets. In this sense the strong form of the hypothesis is irrelevant to the present discussion. Lorie infra, note 42 at p.76, does not draw the distinction between markets, but states that the strong form of the hypothesis is in any case flawed because insiders can trade before information is published.
36  Ibid., at p.10.
37  Ibid., at p.135.
38  Langevoort supra note 34, at p.863.
39  Ibid., at p.866 et seq.
40  Ibid., at p.871.
41  Keane supra note 31.
42  Lorie, J., Dodd, P. and Kimpton, M., The Stock Market: Theories and Evidence, (2nd ed.), Dow Jones-Irwin, Homewood (Ill.), 1985.
43  Langevoort supra note 34, at 874.
44  This is in addition to the specific information required by s.1021.
45  The costs are undoubtedly high. In the GIO Australia float $15.9 million in fees was paid to experts in preparing the prospectus (Australian Financial Review, 23 June 1992,  p.5).
46  EPAC supra note 29.
47  Ibid., at p.21. 
48  Coffee, J., "Market Failure and the Economic Case for a Mandatory Disclosure System", 70 Virginia Law Review 717, 1984, at p.722.
49  Ibid. In other words, a small number of people pay for the information which a large number of people utilise: SRI supra note 13, at p.36 and Hines supra note 10, at p.51. Note that the cost of producing an annual report passes indirectly to the shareholders through reduced profits, but that professional investors obtain the information at no cost. Prospectuses are distributed to many people who do not use them, but the cost is ultimately born by those who do invest.  
50  Ibid.
51  Ibid. A whole body of literature exists on this topic, concerned with reducing the "agency costs" associated with the disparity between the aims of management and owners. For example, see generally Anderson, A.G., "Conflicts of Interest: Efficiency, Fairness and Corporate Structure", UCLA Law Review, v.25, 1977-78, 738-795 for a discussion of the tension between the efficiency  and "fairness" of corporate structures.
52  Ibid. Also discussed in Langevoort supra note 34.
53  Section 1018.
54  Section 1020.
55  Australian Securities Commission, "Draft Policy Statement: Relief from the Advertising Provisions of the Corporations Law Applying Prior to the Lodgement of a Prospectus", Media Release 92/243, issued 21 September 1992, at para.16.
56  Ibid., at para.17.
57  Ibid.
58  Section 1017.
59  Subsection 66(3) is in similar terms for excluded invitations and excluded offers.
60  There are several exceptions listed in the regulations, one of which is the case of the investor who has more than $10 million of funds under management: Reg 7.12.05(e). 
61  Subsection 1018(2). 
62  Subsection 1018(5).
63  Subsections 1021(4), (6) and (13) respectively.
64   The requirement to give estimates of the financial future of the corporation is one of the most contentious parts of the new prospectus content provisions. Lonergan, W. and Moore, S., "Prospectus Law Reform: An Examination of the Report of the Prospectus Law Reform Sub-Committee of the Companies and Securities Advisory Committee", Prospectus Law Reform: Papers Delivered at a BLEC Forum Held in May 1992, Business Law Education Centre, Melbourne, 1992, at p.21, point to the inherent uncertainty of forecasts and argue that the "reverse onus of proof" in s.765, coupled with the liability provisions in s.1005, places an unreasonable burden on prospectus preparers. They claim this results in most contemporary prospectuses being issued without consideration of "prospects".
65  Subsection 1022(2), in conjunction with s.1006(2)(b) to (h) inclusive.
66  Paragraphs (a), (b) and (d), respectively, of subsection 1022(3).
67  For example, see s.40 Companies Act 1961 (WA).
68  Parliament of the Commonwealth of Australia, "On the Control of Fund Raising, Share Capital and Debentures - Fifth Interim Report", Company Law  Advisory Committee to the Standing Committee of Attorneys-General, October 1970 (the "Eggleston Committee Report").
69  For the full text of the amendments proposed by the Eggleston Committee, see Appendix A of the Report: Ibid., at pp.38,39.
70  Ibid., at para.21.
71  Ibid., at para.18.
72  Australian Parliament, "Corporations Bill 1988 Explanatory Memorandum", Australia Parliament House of Representatives and Senate Bills and Explanatory Memoranda, Vol.12, 1987-89, at para.3069-3074. Sections 1025 and 1026 of the Law apply only to primary prospectuses, whereas ss.99 and 100 of the Code apply to both primary and secondary prospectuses. Section 1027A of the Law allows extension of the advertising provisions to secondary transactions, but this has not been exercised. Section 99 of the Code exhaustively lists the information which may be included in post-prospectus advertisements, whereas s.1025 of the Law states the minimum content and allows any other information to also be included, subject to compliance with other sections of the Law. Section 1026 of the Law differs from s.100 of the Code only in minor differences of phraseology.
73  Ibid., at p.750.
74  Notice" is defined in negative terms by s.1025(1): "... does not iinclude a prospectus that has been lodged or a report, statement or notice the publication of which is permitted under section 1026." It is also defined in s.9: "...includes a circular and an advertisement;...".
75  These prohibitions are detailed in s.1025(3).
76  PSR 2 supra note 7, at para.45(a).
77  In particular, s.995 of the Law prohibits misleading or deceptive conduct in relation to, inter alia, any notice published in relation to securities.
78  A "report" is defined in s.1026(1):  "... includes a statement or notice, whether or not in writing, but does not include a notice the publication of which is permitted under section 1025."  This definition is stated to hold "unless the contrary intention appears". 
79  PSR 38 supra note 7, at para.2.
80  As evidenced by the wide discretionary powers to grant relief, contained in s.1084.
81  Subsection 1084(2). Note that Part 7.12, Division 2 includes sections 1017 to 1034 of the Corporations Law. 
82  That is, the exemption exclusively allowed "tombstone" advertisements, whereas s.1025 is inclusive of the tombstone information. 
83  "Roadshow" presentations are demonstrations to members of the securities industry, which commonly involve a combination of informative statement, audio-visual presentation and promotional and technical literature. Instrument 166/91 forbade audience members from publishing any of the information obtained at the roadshow (which was not also available publicly) until after the prospectus was issued.
84  Tombstone advertisements are of a type which provide a limited amount of purely factual information. Instrument 167/91 allowed CBA to publish notices containing statements of the following facts: that the shares to which the prospectus relates are CBA shares; the means of obtaining a prospectus; and the period for which the offer or invitation is open, provided no promotional material was included.
85  PSR 2 supra note 7, at para.45(g).
86  The relevant paragraph of s.9 reads:
"'publish' (a) in relation to a notice - means, in  Chapter 7, publish by any means, including in a newspaper or periodical, by broadcasting or televising or in a cinematograph film;
(b) in any case - includes issue;"
87  Australian Securities Commission, "Relief from the Advertising Restrictions in the Context of Privatisation Floats", Policy Statement Release 15, effective 14 February 1992.
88  Note that later Policy Statement Releases did not retain the requirement for this statement to be included in any pre-prospectus advertising.
89  Australian Securities Commission, "Woolworths Ltd", Media Release 92/174, issued 17 September 1992. 
90  PSR 15 supra note 87, at para.2.
91  Australian Financial Review, 23 July 1992, at p.12. In this article it was implied that the ASC was pressured by the NSW Government into giving relief from the advertising prohibitions: "... the Government was able to use taxpayers' money on an advertising campaign that was little short of an extravaganza as well as using its political power to gain an exemption from the Australian Securities Commission's advertising regulations [sic].
92  Memo to the ASC from the Premier of NSW, dated 11 June 1992 (see CCH, Australian Securities Commission Releases, Sydney, 1991, at p.91-049). It is possible that the NSW Government was able to negotiate a more amenable advertising regime with the ASC as a result of its actions in treating itself as subject to the Law. 
93  For example, see Australian Financial Review on 6 August 1992, at p.14.
94  The available evidence appears to support this last possibility as the most likely scenario, since there have been two further Policy Statement Releases issued, which have built on the lessons learned from the GIO float: PSR 38 supra note 7 and PSR 54 infra note 104.
95  ASC Instrument 92/295, issued 31 March 1992.
96  The information allowed to be given in a pre-prospectus tombstone advertisement was confined to a reference to the future availability of a prospectus and a telephone number or coupon for the registration of an interest in obtaining the prospectus. The limiting of general relief left it open for the ASC to grant more generous exemptions from the Law on a case by case basis. Note that there was no requirement in PSR 38 for pre-prospectus advertising to contain a statement recommending the prospectus be read or professional advice sought. This was a significant easing from PSR 15 - see text accompanying note 88 supra.
97  PSR 38 supra note 7, at para.60(c). In line with the relief given previously to CBA and GIO, PSR 38 restricted the number of respondents in any market research to a maximum of 5,000 and prohibited the disclosure of any information to the respondents which may have stimulated interest in the issue. The use of respondents' names and addresses to identify individuals who may have been interested in subscribing for the securities was also forbidden. 
98  Image advertising is advertising that does not directly promote an issue of securities, but which leaves the viewer or listener with an enhanced image of the business itself: PSR 38 supra note 7, at para.60(a). 
99  PSR 15 supra note 87, at para.15(d) and PSR 38 supra note 7, at para.60(e).
100  See Australian Securities Commission, "Pathfinders: Relief from Compliance with the Provisions of the Corporations Law Relating to Notices and Reports", Policy Statement Release 8, issued 20 August 1991. The currency of this PSR was confirmed in PSR 54  infra note 104, at para.59.
101  PSR 38 supra note 7, at para.60(f)
102  Note that the use of pathfinders to price issues may diminish if the use of "open pricing" becomes widespread. 
103  Australian Securities Commission, Media Release 91/99, issued 6 August 1991.
104  Australian Securities Commission, "Pre-prospectus Advertising", Policy Statement Release 54, issued 11 May 1993, at paras. 22 and 23.
105  Ibid., at para.23. A corporation which proposes to list, but is unable to do so for some reason, would not be subject to ASX Listing Rules. However, section 1031 provides that if a corporation proposes to list securities on a stock exchange but fails to do so, the allotment or issue is void and applicants' money must be returned.
106  PSR 54 supra note 104, at para.18.
107  Ibid., at para.19.
108  Ibid., at para.34.
109  Ibid., at para.25.
110  Ibid., at para.32. Section 109H urges a "purposive" approach to interpreting the Law where more than one possible interpretation exists. 
111  See text accompanying note 68 et seq.
112  The provisions of this section are similar to s.52 of the Trade Practices Act. Civil liability may apply by virtue of s.1005.
113  Schedule 3 Corporations Law.
114  An application for injunction can be brought by the ASC or any person whose interests have been affected by the conduct: s.1324(1).
115  Subsection 1324(8) provides that, where the Commission applies for an injunction, the Court "shall not require ... an undertaking as to damages." In addition, s.1324(6) gives the Court power to grant an injunction restraining a person from engaging in conduct regardless of (inter alia) whether or not there is an imminent danger of substantial damage to any
person if the first-mentioned person engages in the conduct. The Court has power to grant an interim injunction, pending a final resolution of the matter, by virtue of s.1324(4).
116  Subsection 1324(10).
117  The orders may only be made subsequent to an application by the Commission, or by a securities exchange, in the case of a contravention of listing or business rules of the exchange: s.1114(1)(a) and (b). 
118  Paragraph 1114(1)(d).
119  Paragraph 1114(1)(f).
120  PSR 54 supra note 104, at paras. 34-36.
121  Ibid., at para.38.
122  Mutual Home Loans Fund of Australia Ltd and NSW Mortgage and Discounting Co Ltd v Attorney-General of New South Wales (1973) 130 CLR 103.
123  Both sections indicate the circumstances in which extrinsic aids to interpretation may be used.
124  Pearce, D.C. and Geddes, R.S., Statutory Interpretation in Australia, (3rd ed.), Butterworths, Sydney, 1988.
125  Ibid., at p.30.
126  Ibid., at p.32.
127  (1990) 169 CLR 214.
128  Ibid., at 223.
129  Section 35 of the Victorian Act is in similar terms to s.15AA of the Commonwealth Act and s.109H of the Law.
130  Mills supra note 127, at 235.
131  Perhaps the attitude of the courts can best be summarised by the words of Justice Bryson from his lecture (reprinted as "Statutory Interpretation", Australian Bar Review, v.8(3), 1992, 185-204) at p.187:
"These [purposive interpretation sections] have not signalled any large new turn in the construction of statutes. The response to these provisions thus far appears to be appropriate to treating them as declaratory, and in my suggestion that is what they are."
132  PSR 54 supra note 104, at para.29, identifies s.1026(2)(c) as providing an exception to the advertising provisions which allows a corporation to continue its regular advertising. This suggests that the advertising intended to be allowed by s.1025 is something more than mere
product advertising.
133  PSR 2 supra note 7, at para.45(b); PSR 15 supra note 87, at para.7; and PSR 38 supra note 7, at para.59(b).
134  Supra note 122.
135  Pearce and Geddes supra note 124, at p.42, acknowledge that an "ordinary citizen" would be disadvantaged if an Act was interpreted by reference to unpublished material. The principle can be extrapolated to say that 
136  See Eggleston supra note 68, at Appendix A - pp.38,39, for the full text of the draft sections.
137  Since they promote assessment of the extent of probable effects of the image advertising. For example, infrequent image advertising which ceases a month prior to prospectus lodgement is unlikely to influence as many investors as frequent advertising continuing up to and after the issue date, and would be less likely to be found in breach.
138  For example, GIO was flooded with applications from the time the prospectus first became available.
139  For example, brokers speak of "hot" markets, where investor confidence is at a general high level. In such markets, a small amount of image advertising may have a much greater effect than would normally be the case.
140  Australian Financial Review, 21 April 1993, at p.10. The Deputy Chairman of the ASC, Mr Charles Williams, reportedly called for the formulation of an industry "codes of best practice", which he was careful to distinguish from a return to the checklist approach of prospectus drafting. Advertising guidelines could also be drafted in association with an industry body. For example, the ASX could build on its existing links with the ASC to develop acceptable guidelines. 
141  Members of the securities bar inquire how the SEC will react to a given set of facts. Commission staff reply with a letter stating either that they will or will not recommend to the Commission that action be taken. Letters which state that no action will be recommended are published and are conditional upon the facts being as stated in the inquiry. However,
the SEC is not bound by the decisions of its staff. See Ratner, D. and Hazen, T., Securities Regulation: Cases and Materials, (4th ed), West Publishing Co., St. Paul (Minn.), 1991, at p.17; Jennings, R., Marsh, H. and Coffee, J., Securities Regulation: Cases and Materials, (7th ed.), The Foundation Press Inc., Westbury (N.Y.), 1992, at p.101.
142  For example, in the Australian Financial Review, 12 May 1993, at p.22, Mr Andrew Serpell of the ASC was reported as commenting, in relation to Woolworths' advertising: "The ASC has not to date seen evidence of pressure selling or significant drip feeding (of prospectus information)... It doesn't believe there are any investor protection concerns."
143  PSR 38 supra note 7, at para.5(b) and PSR 15 supra note 87, at para.11.
144  PSR 15 included a requirement for tombstone advertisements to carry a warning that investors read the prospectus and/or seek professional advice before investing (see text accompanying note 88 supra), but this was omitted from subsequent policy statements. The warnings suggested here would be more strongly worded than the PSR 15 statement.
145  Professor of Economics at University of Technology in Sydney and adviser to the Law Reform Commission investigating image advertising. 
146  "The Business Program", Radio National, 26 May 1993.
147  In the United States the issue process is substantially different to Australia. The SEC faced the problem that investors only received a prospectus when actually purchasing securities, so they did not have a reasonable opportunity to become informed before deciding to invest. To overcome this problem the SEC encouraged the distribution of a "red
herring" prospectus prior to issue. See Loss supra note 20, at p.121-122 for a discussion of the rationale underlying the issue of red herring prospectuses.
148  For example, the GIO float was only open for 32 hours - Australian Financial Review, 1 July 1992, at p.19.
149  Australian Financial Review, 23 April 1993, at p.15. The Attorney-General, Mr Michael Lavarch, was reported in The Australian Financial Review, 18 June 1993, at p.1, as favouring a complete revision of the Law.
150  As does PSR 54 supra note 104, at para.38(a).
151  See generally Green, J.M., "'Fuzzy Law' - A Better Way to Stop 'Snouts in the Trough'", Company and Securities Law Journal, v.9(3), June 1991, 144-157.
152  Ibid. Green supra note 167, at p.147. Note that The Australian Financial Review reported on 18 June 1993, at p.1, that the Attorney-General, Mr Michael Lavarch, plans to have the Law rewritten and that he favours a move away from the traditional "black letter law" approach to legal drafting.
153  See text accompanying note 127 et seq.
154  Companies and Securities Advisory Committee, Report of the Prospectus Law Reform Sub-Committee of the Companies and Securities Advisory Committee, March 1992.
155  Ibid ., at p.115.
156  Ibid. 
157  See the discussion in the text accompanying Hines supra note 10 and SRI supra note 13.
158  Eggleston supra note 68.
159  For example, see the quotation in the text accompanying note 71 supra, which expressly refers to the use of advertising to promote corporate image.
160  As evidenced by the Woolworths advertising campaign, which is a clear illustration of the way in which advertising can condition the public to believe in the worth of an investment in securities of a corporation prior to the release of a prospectus.
161  Supra note 127.
162  Qantas and SGIO are two privatisations which are imminent and CBA intends to raise more funds from the public.
163  The Australian Financial Review, 18 June 1993, at p.1, reports that the Attorney-General favours such a revision.