Public Offers – Debentures

Guidance

The disclosure document is your primary tool to attract investment. Use this page to summarise the importance of the project to the co-operative’s purpose and how investment in the co-operative brings broader benefits.

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

Welcome to this opportunity to investing in the future of Australian farming.

FarmTech Co-op is a farm technology development co-operative working on projects to improve regenerative farming techniques. Regenerative farming is about better environmental outcomes for farmers and for all Australians. 

As a co-operative, FarmTech is focussed on creating value for farmers by providing business and practical farming solutions that contribute to better food quality and transparency about food provenance. FarmTech is committed to the co-operative principles, ensuring that it looks after its farmers and the community in which it operates. 

FarmTech seeks funding from investors to help bring its projects to fruition. As investors you can share in both the financial reward from investing in projects that support Australian farming and the environmental benefit of developing regenerative farming technology. 

Belinda Smith

Chair

FarmTech Co-operative Ltd

Instruction

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

The co-operative is raising funds by offering [type of debt instruments] called […name of instrument…] to members and any other person.

Guidance

An offer of debt instruments must have a unique issue number or name, which distinguishes it from other offers. The name can describe the purpose of the instruments on offer.

There are restrictions on the names that can be given to public offers of debt instruments by co-operatives. In brief, a debt instrument may not be described as or called a debenture unless it is backed by assets. Assets must be either real property or other physical assets. Their dollar value must meet benchmarks set by s283BH of the Corporations Act.  Debt instruments that do not have the required asset backing must be described as notes. Notes may be secured or unsecured.

Information about the type of assets and the required value of asset backing is in Section G of Regulatory Guide 69.

If the debt instruments do not have a name, then they must have a unique number. In this case, a co-operative’s first note offer in 2020 could be called “Series 1 Notes 2020”. Subsequent offers could then be called “Series 2 Notes 2020” and so on.

The name or issue number will be recorded in the register of security holders, maintained as part of the co-operative’s records.

Instruction
Insert the name or unique number of the debt instrument in the space provided.

[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 as set out in the fundraising business case.

Guidance

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

If the interest rate is variable, state how the interest rate will be calculated and the payment frequency.

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

“The debenture/note 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 or other text to describe the offered return on the investment and any payment frequency.

Instruction

Briefly describe the assets which constitute the security for repayment of the debt instruments. If the instruments are unsecured, then state that they are unsecured notes.

Guidance

Detailed guidance is available by accessing:

• Regulatory Guide 228 for how to presenting information in a clear, concise and effective manner, as required by s715A of the Corporations Act; and
• Regulatory Guide 254 about the information required in prospectuses and offer information statements.

Instruction

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

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 offer is to fund an activity that may not generate income in the short term.

Instruction

Insert 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;
• how the project being funded will generate income; and
• the value the co-operative brings to the sector in which it operates and the industry in which it operates.

Instruction

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

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

The co-operative’s management structure should be briefly described, by outlining the key staff roles and reporting lines.

Include the number and skills of employees, including whether they are full-time or part-time. If there are volunteers, how their work contributes to the co-operative’s operations.

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 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.

Provide a summary of any changes to the capital structure that will occur as a result of the new funding. For example, an increase in debt obligations will change the ratio of member capital to debt. On the other hand if the debt instruments are replacing existing debt, then there will be no change.

Finally, the nature of co-operatives and their capital is not well understood in finance markets. You should consider including a brief explanation of the nature of co-operative capital, particularly member share capital.

[Text box]

Financial statements for the co-operative are in Attachment A.

Guidance

Regulatory Guide 69 provides information about performance benchmarks that co-operatives should consider including in their disclosure document. Debt instruments issued by co-operatives are unlikely to be listed on a stock market. Accordingly, there is no public information available for retail investors to assess and understand the risks associated with an investment in a co-operative.  Regulatory Guide 69 recommends the inclusion of financial performance benchmarks in the disclosure document for debt instruments.

If you decide to include financial benchmarks in the disclosure document, then the prescribed quarterly reports to the trustee for debenture holders will need to address performance in relation to the benchmarks.

Instruction

Insert information in the text box about the co-operative’s past financial performance and identify any benchmarks the co-operative undertakes to meet over the term of the debt instrument.

You will attach financial statements at Attachment A, once you have downloaded your final document.

Separate guidance is provided at Attachment A about what financial statements should be included.

Guidance

The co-operative can limit the amount of investment from external investors. A limit on external investors provides comfort for members that the interests of non-members will not overwhelm their interests.

If there is a limit, it must be stated in the Terms of Issue. The limit may be expressed as a percentage of the total offer, a dollar limit or a limit on the number of instruments that may be held by non-members.

If there is no limit on investment by external investors then this should be stated.

Instruction

Specify any limit on the total holdings of debt instruments under this Offer for non-members.

Instruction

Identify any early redemption options and whether they are subject to any conditions.

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

Instruction

Describe the assets which constitute the security for repayment of the debt instruments. If the instruments are unsecured, state that they are unsecured notes.

Instruction

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

Guidance

Holders of debt instruments 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 could be either one vote for each debenture held or one vote for each debenture holder.  The majority vote required to change the Terms of Issue is at least 75%.

Instruction

Specify the voting rights in a meeting for investors and also state the majority vote required to change the Terms of Issue.

Guidance

Debentures or notes that are secured will have priority over unsecured debts to the extent of the value of their asset backing.

Unsecured notes will have the same priority as other unsecured debts. If there are other debt instruments on issue, then the priority of these debentures may need to be explained in relation to priority for other debt instruments.

Instruction

Specify the priority of the debt instruments.

Guidance

Terms of Issue for debt instruments can include covenants related to financial performance. For example, the co-operative may commit to maintaining a specified earnings rate or gearing ratio between member shares and debt. If the covenant or commitment is not met then the Terms of Issue can specify what consequences flow, such as reporting to the trustee or taking action to address the breach.

Instruction

If there are covenants related to performance, they are to be specified here. The consequences of breaching a covenant must also be specified. If there are no covenants, state that there are no covenants relating to performance.

Guidance

The Terms of Issue can specify 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 which gives rise to an accelerated repayment of the Face Value of the debt instrument.

Instruction

Specify if there are any default events and the consequences of a breach by the co-operative. If there are no default events, then say this.

Guidance

Section 283BF of the Corporations Act requires co-operatives to provide quarterly reports to the trustee covering specified matters. Refer to Section D of Regulatory Guide 69 to learn more about quarterly and other reporting to the trustee as required by legislation and also reporting against benchmarks.

Instruction

Full detail about reporting is to be provided in Section 4. Briefly summarise the reporting obligations to the trustee for debenture holders and any non-financial reporting that will be provided to debenture holders.

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.

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

Include 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 senior management person should be provided, along with an outline of their experience and qualifications.

Instruction

Insert information about key 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 board policies and where they can be accessed.

Guidance

Co-operatives that have securities on issue to the public must prepare an annual report, which, includes a director’s report and audited financial statements. The annual report must be lodged on the public register maintained by the Registrar.

Co-operatives must also provide quarterly financial reports to the trustee for debenture holders, which comply with s283BF of the Corporations Act. Quarterly reports provided to the trustee must also be lodged with the Registrar.

Co-operatives can determine what other reporting would be relevant to investors. For example, if the instruments are to fund a project to deliver social or environmental outcomes, or the United Nations Sustainable Development Goals, then this could be included in reports to the trustee.

Instruction

Insert in the text box a summary of the obligations to provide the trustee with quarterly reports and whether those reports will include reporting against financial performance benchmarks or other non-financial matters or goals. Check that the information is consistent with the reporting outlined 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 undertaken and must be disclosed.

Please refer to Section G of Regulatory Guide 228 for further information about what interests should 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 securities, other than whatever interest is created as a result of any director or manager applying to subscribe for the securities on the same terms as other investors.”

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. 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 have been 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 Offer was developed by the board and management personnel.

Guidance

The disclosure document 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, the cost of the project to be funded may exceed the amount being raised thereby reducing capacity to proceed.

Further guidance about disclosing risks is available in Section D of Regulatory Guide 228.

Instruction

Describe the key risks facing the co-operative and explain how these risks may impact investors.

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.

Guidance

It is not imperative to provide detailed risk management strategies. However, for significant risks, it is useful to outline the co-operative’s risk management measures.

These measures may include strategies to offset the risk, such as

• insurance to cover the possibility of an event;
• reducing the likelihood of the risk or its consequence through due diligence processes and planning; and
• monitoring risks and having measures at hand to address risks if they eventuate.

Instruction

Briefly describe the risk management strategies that the co-operative has in place to address or mitigate the identified risks.

If you have decided to attach a risk analysis report at Attachment B that includes risk management strategies, then it is sufficient to state that risk management strategies are set out in Attachment B.