Cleansing Notices: What Markets and Regulators Read

Written for chairs, directors and CFOs of ASX-listed entities. If you want to understand your board's exposure on this issue, contact JR3 Legal.

A s708A cleansing notice is the four-paragraph statement an ASX-listed entity lodges after a placement to enable placees to on-sell their securities without further disclosure. Read carefully, the notice tells the market and the regulators what kind of capital raising you ran, what you traded off to run it, and how confident your board was in the disclosure record at signing.

Most boards do see the notice. It is bundled with the documents the circular resolution approves for the issue. They sign off on the continuous disclosure assertion in it before reading what it says.

What the notice signals, and what it deliberately leaves out – depends entirely on whether anyone asked the right questions before signing.

What a cleansing notice contains

A s708A cleansing notice has four elements. It states that the securities were issued without a prospectus, that the on-sale relief in s708A(5) is being relied on, and that the entity has complied with its continuous and periodic disclosure obligations under the Corporations Act 2001 (Cth) and LR 3.1. It then either sets out the excluded information as at the date of the notice, or states that there is none.

The continuous disclosure assertion and the excluded-information statement are the load-bearing elements. They are categorical, not qualified, and they are dated. As at the date of the notice, the entity is asserting on the record that there is nothing it has held back from the market that a reasonable investor would want to know.

The notice typically runs four to five paragraphs. The legal substance is in the last two.

What the notice signals – and to whom

Three audiences read the notice. They take three different signals from it.

The capital-structure election signal. The choice between a placement with cleansing notice, a pro-rata rights issue with a s708AA cleansing notice, and a transaction documented through a short-form prospectus signals what the entity prioritised when it raised capital.

• A placement-and-cleansing-notice tells the market that speed, discount and a defined set of investors mattered more than retail participation.

• A rights issue tells the market that pro-rata fairness mattered more than execution speed.

• A prospectus, used in a market where it is rarely required by law, tells the market that the entity could not – or chose not to – make the categorical statements that s708A(6) requires.

None of those is bad. Each signals something. The investor reading the notice sees the election before they read the disclosure compliance statement.

The disclosure-confidence signal. The s708A(6) compliance statement and the excluded-information assertion are read by sophisticated investors as a positive disclosure record. A clean cleansing notice is a public statement that the entity has nothing held back at the date of signing. That carries weight, particularly where the entity has been close to the line on a continuous disclosure judgement in the preceding weeks.

The notice silently certifies the call. Where the call is wrong, the notice carries s1041H and s1308 risk along with it.

The board signs off on a categorical statement; the categorical statement does work in the market that the board may not have specifically authorised.

The administrative-lag signal. A notice lodged on day one signals an entity that treats the cleansing notice as the closing step of a coordinated capital-raise process.

A notice lodged on day five, the practical outer limit, signals an entity treating it as an administrative tail. The lodgement timestamp is on every notice.

The market and ASX Compliance both see it. Repeat lodgements at the outer limit, particularly where the entity has been on the receiving end of price queries or aware letters in the preceding twelve months, accumulate into a disclosure-governance pattern that ASX has expressly flagged in the Close Review Procedure.

Why the document gets seen but not read

The cleansing notice obligation falls between three advisers and a board, and the document moves through the bundle without ever being read on its own terms.

The corporate adviser runs the placement mechanics. By the time the notice is being drafted, the placement has closed, the funds are in, and the corporate adviser has moved to the next mandate. The lawyer drafts the notice on instructions, working from a template that was last reviewed at a different point in the entity's disclosure cycle. The company secretary lodges the document because the company secretary handles ASX lodgements. The board approves the issue at a circular resolution that includes the notice as one attachment in the bundle, and moves on.

The four sentences that bind the company under s708A(6), and that read as a categorical continuous disclosure statement on the day of signing, are signed off as part of a bundle.

They are not deliberated as a continuous disclosure statement in their own right.

This is not a lawyer problem or a cosec problem in isolation. It is what happens when the legal analysis behind the compliance statement and the excluded-information judgement is owned by a different person from the one running the lodgement, working to a different deadline, with no single point of accountability for what the notice actually says when it goes out under the entity's ASX code.

What your board should ask before lodging

The fix is simple: the board reads the four sentences before they go out, and asks five questions about them.

1. Is there any excluded information sitting undisclosed at the date of this notice? Not “are we up to date with continuous disclosure” in general terms. Is there a specific item the board has agreed to hold back under LR 3.1A that would, on a fresh read, fail the reasonable-investor test in s708A(11)?

2. Why a cleansing notice rather than a cleansing prospectus or a rights issue? The election is visible on the notice itself. A placement-and-cleansing-notice is the fastest path and produces the deepest discount, but it excludes retail. A pro-rata rights issue with a s708AA cleansing notice extends to retail and is more equitable, but takes longer and is harder to underwrite. A short-form prospectus is required where the entity cannot make the categorical s708A(6) compliance statements – typically because it has been late on continuous disclosure, or because it is sitting on excluded information that cannot be set out without prejudicing the placement. The board should know, on the record, which constraint drove the election and what was traded off.

3. Why is the notice lodging on day [X] of the five-business-day window? If the answer is “that is when the lawyer got it back to us”, the disclosure-governance system is the issue, not the timing.

4. Has someone read the final lodged version of the notice – not the draft? Final wording is what binds the company. The categorical statements are in the final wording, not the draft.

5. Does the s708A(6) compliance statement reflect what the board would say if asked, separately and on the record, in a regulator interview? If not, that is the answer to whether the notice should be lodged as drafted. The pre-lodgement fix is straightforward: identify the excluded information and set it out in the notice under s708A(6)(d), or make a continuous disclosure announcement under LR 3.1 before signing the notice in its categorical form. The post-lodgement fix is the s1322 curative jurisdiction, with the legal cost and disclosure-governance signal that comes with it.

Closing

For boards of small-to-mid cap ASX entities, the question is not whether you understand what a cleansing notice is. It is whether four sentences that bind the company under s708A(6), that contain a categorical continuous disclosure statement on the day of signing, and that go out under your ASX code, reach the boardroom before they reach the market.

Related reading: s708A Cleansing Notices: What ASX-Listed Companies Need to Know

Julian Rockett is principal of JR3 Legal – external general counsel and company secretary to ASX-listed entities, primarily in resources, energy, and technology. JR3 Legal acts on placements, cleansing notices, and ASX lodgements as an integrated service. Contact julian@jr3legal.com or visit jr3legal.com or connect on LinkedIn.