Member Offers – Debentures

Insert the co-operative’s registered office address in the text box.

Guidance

The disclosure statement is your primary document to attract investment. Use this page to summarise the importance of the project to the co-operative’s purpose of creating member value and how investment in the project by members contributes to the project.

The following is an example of a Message from the Board:

Welcome to this opportunity to support your co-operative by investing in its future.

FarmTech Co-op is a farm tech development co-operative working on projects to make managing your farm easier.

As a co-operative, FarmTech is focussed on creating value for our farmer members, by providing business and practical farming solutions so you can do what you do best and also have time to be with your family.

We began in 2010 by developing easy to use accounting software for farmers followed by developing online sales information systems for farm products. Since 2018, the co-operative has been researching the development of remote control robots that monitor soil temperature, moisture and chemical contaminants.

It is now time to take this project from the research phase to implementation and production. This will require funding.

Farm Tech could seek funding from external sources, but the board has determined that our members should benefit from both the project technology and from the financial reward of providing the funding themselves.

Your co-operative is offering debentures as an investment for members to fund the next phase of this project that, will deliver more value to you and all members.

The board commends this Offer to so that  together we will continue to grow.

Belinda Smith

Chair

XYZ Co-operative

Instruction

Insert a Message from the Board in the Text box below. When you complete this and download your disclosure statement, please insert a signature from the Chair at the end of your message.

The co-operative is raising funds by offering debentures.

[Insert short summary here]

More detail about the purpose of the Offer can be found in Section 2.

Instruction

Insert a short summary of the purpose of the Offer in the text box.  Refer to the purpose set out in the fundraising business case.

Guidance

If the debentures have a fixed interest rate, insert the interest payable and the payment frequency.

If the debentures have a variable interest rate, insert the method for determining the variations to interest payable and the payment frequency.

If the debentures do not carry a right to interest over their term, but have a discounted purchase price, you can describe the distribution rights by inserting the following or similar words:

“The debenture is priced at $ (Issue Price) for subscription being a discount to Face Value. The full Face Value is redeemable at the end of the term.”

Instruction

Insert the interest rate and payment frequency to describe the offered return on the investment.

Instruction

Provide a summary of the co-operative’s operating history.

The summary should outline how long the co-operative has been operating and key developments over its history.

Include information about the sector or industry in which the co-operative operates, such as

• the industry maturity, size and growth;
• the co-operative’s market share and main competitors; and
• any threats and opportunities.

Instruction

Provide a high level description of the co-operative’s business objectives and strategy. It is useful to include a time frame for achieving objectives, particularly if the co-operative is new, or if the debenture offer is to fund an activity that may not generate income in the short term.

Instruction

Describe the purpose of raising funds linking it to the co-operative’s business strategy and objectives.

Guidance

The co-operative’s business model is a description of how the co-operative generates income and provides value to its members and their community.

Instruction

Provide a description of the co-operative’s business model in the text box.

Include a description of the co-operative’s main suppliers and customers and whether they are members or external parties.

Other relevant information could include:

• major assets owned or leased by the co-operative, including any intellectual property; and
• the value the co-operative brings to members and their community.

Instruction

Provide a brief description of the co-operative’s organisational structure.

This should include information about the size of the board and the numbers of member directors and independent directors.

If the co-operative has a management structure, then briefly outline the key roles and reporting lines.

Include the number and skills of employees, and whether they are full-time, part-time or volunteers.

Guidance

Capital structure is how the co-operative finances its business. This could be through such things as share capital, subscriptions, debt finance, retained earnings and grant funding.

Instruction

Provide the following information in the text box:

• the number of shares on issue and whether there are any unpaid amounts on issued shares;
• the amount of annual subscriptions and levies payable by members;
• a list of the securities on issue, such as other debentures or CCUs; and
• any retained earnings.

If the co-operative relies on debt funding from financial institutions or director loans, you should provide key information such as:

• the amount outstanding;
• the interest rate;
• whether the co-operative is able to meet the repayments from earnings; and
• the debt term and any renewal requirements.

If the co-operative relies on grant or other government funding, you should include:

• the amount and term of the funding; and
• any key terms or conditions of the funding, such as repayment terms or the achievement of milestones.

Finally, provide a summary of any changes to the capital structure that will occur as a result of the debentures funding. If there is an increase in debt obligations, this will change the ratio of member capital to debt. On the other hand, if the debentures are replacing existing debt, then there will be no change.

The interest rate is already inserted.

Specify the payment frequency for any interest payments – for example, quarterly or half-yearly intervals.

If the debenture is to be issued at a discount to Face Value, state that the difference between the Issue Price and Face Value will be paid at the end of the debenture term.

Guidance

Debentures can include an option for the co-operative to redeem them early. There can also be an option for an investor to redeem the debentures early.

Instruction

If the debenture can be redeemed before the maturity date, this should be specified here. State whether the option to redeem is subject to any conditions.

If there are no early redemption options, then say that the debentures can only be redeemed at maturity.

Guidance

Debentures may be unsecured or secured against assets of the co-operative.

Instruction

If the debentures are unsecured, state that they are unsecured.

If the debentures are secured, list or describe the assets against which the debentures are secured. State that once the Offer closes, documents identifying the assets against which the debentures will be secured, will be lodged on the Personal Property Securities Register.

Guidance

Debentures acquired under an offer made to members can only be transferred to other members.  Debentures acquired under an offer to members and employees can only be transferred to other members or employees.

Transfers must be in accordance with the co-operative’s rules.

Instruction

Set out the rules governing the transfer of debentures, including any fee for transfers.

Guidance

Debenture holders have no voting rights other than in a meeting of debenture holders.

A meeting of debenture holders is required if the co-operative seeks to alter the Terms of Issue. Voting rights for debenture holders may be either one vote for each debenture held or one vote per debenture holder. The majority vote required to change the Terms of Issue is at least 75%.

Instruction

Specify the voting rights of debenture holders and the majority vote required to change the Terms of Issue.

Guidance

In the event of the co-operative winding up, secured debentures have repayment priority over unsecured debts. Unsecured debentures have the same ranking as other unsecured debts of the co-operative, unless there is a provision subordinating their repayment to other unsecured debts.

Instruction

Specify the priority of the debentures.

Guidance

Debenture Terms of Issue can include covenants related to financial or other performance indicators.

For example, the co-operative may commit under the Terms of Issue to maintain a specified earnings rate or a gearing ratio between member shares and debt. A breach of a covenant to maintain the specified gearing ratio, if breached may result in an obligation to report to debenture holders and take action to address the breach.

Alternatively, depending on its seriousness, the breach may be classed as a default event and trigger early repayment of the debentures.

Instruction

If there are covenants related to performance, they are to be specified as well as the consequences of a breach of the covenant. If there are no covenants, it is sufficient to state that there are no specific covenants relating to performance.

Guidance

The Terms of Issue can set out the events that may give rise to a default and the consequences if a default event occurs.

For example, non-payment of interest may be a default event and trigger accelerated repayment of the Face Value.

Instruction

Specify if there are any events of default and the consequences of a default event occurring.

Guidance

Debenture holders who are members, have the right to attend general meetings of the co-operative as members. Debenture holders who are Employees who hold debentures may be granted a right to attend general meetings of the co-operative under the Terms of Issue.

Instruction

Specify the rights to receive notices of and attend general meetings for all debenture holders who are employees. If the offer is a member only offer then it is sufficient to say that the offer is only to members who have rights to attend all general meetings in their capacity as members.

Guidance

Debenture holders, who are members, receive annual financial information as members. Employees do not have this entitlement.

If the Offer is made to members and employees, then you must as a minimum provide the same financial information to all debenture holders.

Where the project being funded aims to achieve non-financial impacts, such as environmental or social benefits, the co-operative should report on those impacts and how they are measured.

Instruction

Describe briefly the financial reporting and any other non-financial reporting that will be provided to all debenture holders. Note that reporting is covered in more detail in Section 4 of the disclosure statement.

The board meets [………….].

Instruction
Insert the frequency of board meetings in the text space.

Instruction

Provide the names of the board committees in the text box and state how frequently the committee(s) meet.

If there are no committees, provide information about how the board manages particular issues.

An example statement might be:

There are no specific board committees. The full board deals with all issues relating to the management of its business.

Guidance

Provide the following information about each director.

• Full name
• Role: Is the person the Chair, a managing director, are they on a board committee? Is the person a member or an independent director?
• Skills and experience: How long has the person been a director of the co-operative? What other skills or experience does the person have in relation to managing a co-operative or in the industry?
• Any legal or disciplinary actions against the person must be disclosed. Has the person been disqualified from managing a company or co-operative? Has the person been convicted of any criminal offence? Has the person been involved with an enterprise that has become insolvent?

Instruction
Insert information about each director in the text box.

Guidance

Senior management personnel of the co-operative should be identified in a similar way that directors are identified. Smaller or new co-operatives may only have one management employee.

The name(s) and role(s) of each seniors management person should be provided, along with an outline of their experience and qualifications.

Instruction

Insert information about senior management personnel in the text box.

Guidance

This part of the document is an opportunity to describe board policies about the management of the co-operative. For example, the board may have adopted the Co-operative and Mutual Enterprise Governance Principles or other policies that promote inclusiveness and diversity in employment.

Policies do not need to be either summarised or described in detail, but can be linked or referenced.

Instruction

Insert in the text box information about relevant board policies and where they can be accessed.

Guidance

Small co-operative are required to provide members with annual financial statements. These statements do not have to be audited, unless the rules of the co-operative require an audit.

Large co-operatives are required to provide members with an annual report, which must include a directors’ report and audited financial statements.

All co-operatives can determine what other reporting would be relevant to debenture holders. For example, if the debentures are to fund a project to deliver social or environmental impacts, or the United Nations Sustainable Development Goals, then this could be included in reporting to members.

If the debenture offer is open to employees, then the co-operative should specify what reporting will be provided to employees in their capacity as debenture holders.

The Terms of Issue include any reporting to debenture holders. An outline of the reporting to debenture holders should be provided in this section of the disclosure statement.

Instruction

Insert in the text box a brief outline of what reporting will be provided to debenture holders. Check that the outline is consistent with the reporting described in the Terms of Issue in Section 3.

Guidance

Directors and managers may have an interest in the Offer, if the project being funded has the potential to deliver a benefit to them. For example, if the purpose is to acquire property from a director or manager, then this is a direct interest. If a person or entity that will benefit from the fundraising has a connection with a director or manager, such as a family connection or through other shareholdings, then this would be an indirect interest.

Interests of this nature must be disclosed, along with the measures put in place by the co-operative to remove or manage any conflict of interest. For example, if the fundraising is to be used to buy property from a director, then a due diligence investigation to determine whether the acquisition and valuation are appropriate should have been done and must be disclosed.

If there are no direct or indirect interests, then it is sufficient to state:

The directors do not have any direct or indirect interest in the Offer, or issue of the debentures, other than whatever interest is created as a result of any director applying to subscribe for the debentures on the same terms as all other members.

Instruction

Insert a statement disclosing any interests in the Offer by directors or managers.

Guidance

If any directors or managers have received any commission or payments for providing services or an advisory role in the development or preparation of the fundraising, this should be disclosed.

For example, a director or manager may have expertise in the preparation or implementation of a marketing plan for the Offer and be paid a fee for these services outside their normal remuneration arrangements. Unless this has already been disclosed in relation to director and manager interests, it should be disclosed here.

If there are no commissions or fees, it is sufficient to state:

No compensation, consideration or fee related to the fundraising process has been or will be paid to any director or manager of the co-operative.

Instruction

Insert information regarding any commissions or fees related to the fundraising paid to directors or managers of the co-operative.

Guidance

During the preparation of the business case and this disclosure statement, the co-operative may have received external professional services.

For example, accountants and financial advisers may have prepared financial statements and related information. This should be disclosed.

Where information in the disclosure statement includes an opinion or advice about any aspect of the Offer, then the co-operative must have obtained the written consent from that professional adviser for the advice or opinion to be published, as part of the disclosure statement. In these instances, the name of the person who provided the opinion or advice should be disclosed, along with the fact that their written consent to include their opinion or advice has been obtained and not withdrawn.

Instruction

Include in the text box information about professional advisory services and list the names of those who have provided opinions or advices and that they have consented to their inclusion.

If no external assistance was obtained, you should insert information about how the fundraising proposal was developed. In this case, it is sufficient to say that the proposal to offer debentures was developed by the board and management of the co-operative.

Guidance The disclosure statement already contains a general risk warning to investors. However, it is important to identify the main risks facing the co-operative and how these risks are relevant to the investor. You do not need to include general risks applying to all businesses, such as risks arising from general economic conditions. The main risks will have been identified in the fundraising business case. They may be risks associated with the co-operative’s business operations, internal risks or other funding risks. Common risks of relevance to investors are:

• Market or competition risks – for example the co-operative may be operating in or entering a market dominated by large successful businesses.
• Internal risks – for example, the co-operative may lose a key manager or be unable to employ a suitable manager.
• Loss of suppliers or customers – for example, if the co-operative’s suppliers are its members the risk is that members may no longer support the co-operative and instead supply their product to another buyer.
• Project risks – for example, if the cost of the project to be funded may exceed the amount being raised thereby reducing capacity to proceed.

Instruction Describe the key risks facing the co-operative and explain how these risks may impact debenture holders. You can describe the risks in a summary form and attach a risk analysis showing the likelihood of the risk arising and the risk management strategies being implemented. A risk analysis can be attached at Attachment B at the end of the disclosure statement.

Warning: Past financial statements may not be an indicator of future performance. Guidance There are specific requirements for the type and extent of financial statements required for offer information statements and prospectuses. Financial statements required for an offer information statements are specified in s715 Corporations Act and further explained in Section D of Regulatory Guide 254. Financial statements for prospectuses are explained in Section F of Regulatory Guide 228. Instruction In the text box, outline the financial statements being attached, and state:

• the time period they cover, specifically whether they are for a full year or for a part year up to a certain date; and

• whether they include comparative figures, that is, data comparing one period with another.

When you finish your disclosure document, you need to attach the financial statements to your downloaded document.