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

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.

If the cleansing notice under s708A of the Corporations Act is not lodged within five business days of issue, the securities placed in your last capital raise cannot be on-sold by the recipient without a further disclosure document. Your placees - typically sophisticated investors who expect to trade freely - are stuck holding restricted shares. Neither you nor they intended that outcome.

The Federal Court can fix it. A curative order under s1322 of the Corporations Act is available and routinely granted. It also costs legal fees, court filing fees, and management time, and it tells your register and ASX that a routine compliance step was not managed.

The cleansing notice obligation is not complicated. The problem is structural: it consistently falls between two advisers, each of whom reasonably assumes the other has it covered.

What s708A requires - and when the clock starts

When an ASX-listed entity issues securities without a prospectus - relying on the s708 exemptions that make placements commercially attractive - s708A(5) permits those securities to be on-sold by the recipient without restriction, but only if the issuer lodges a cleansing notice with ASX within five business days after the day the securities were issued.

Two things about that deadline are routinely misunderstood.

First, the clock starts on issuance - not on the date the placement closed, not on the date the funds cleared. Second, five business days is not generous when the notice itself requires the entity to make a statement about its continuous disclosure compliance as at the date of the notice.

That is a legal judgement. It requires someone to assess whether there is any excluded information - information a reasonable person would expect to have a material effect on the price or value of the securities - sitting undisclosed at the time the notice is signed off. That assessment takes time, and it cannot be delegated to an administrative lodgement process.

If the notice is not lodged, or is lodged outside the window, the securities become restricted for on-sale purposes. The recipient cannot sell them on-market without a further disclosure document. Neither the issuer nor the subscriber intended that outcome.

Why the cleansing notice gets missed

The consistent failure pattern is structural, not accidental.

The external lawyer advises on the capital raise - the placement agreement, the Listing Rule 7.1 capacity, the terms of issue. The company secretary handles the ASX lodgements - the Appendix 2A, the application for quotation. The cleansing notice sits exactly between those two functions. The lawyer treats it as a lodgement task. The company secretary treats it as a legal task. It does not get done.

This is not a criticism of either adviser individually. It is a description of what happens when the person responsible for the legal analysis and the person responsible for the ASX lodgement are not the same team, working to the same deadline, with explicit ownership of this specific step.

What happens if the deadline is missed

Early in my career, I was brought in to help a corporate services firm whose company secretary had missed the cleansing notice window on a placement. The external lawyer had assumed the company secretary was across it. The company secretary had assumed the lawyer would flag it. By the time it surfaced, the window had closed. We were engaged within hours, briefed counsel inside 24 hours, and ran the s1322 application as quickly as the Court process allowed. The order was granted. But the suspension period, the legal costs, and the board's realisation that a routine step had fallen through the gap - none of that was recoverable.

That experience is not unusual. In Re Austpac Resources NL [2023] FCA 108, the Federal Court granted a curative order for a defective cleansing notice - one of a growing number of similar applications. These applications succeed. They also cost legal fees, court filing fees, and management time, and they send a signal to your register and to ASX that a routine compliance step was not managed.

A s1322 application is a failure recovery mechanism. It is not a risk management strategy.

How to make sure it doesn't fall through the gap

For boards of small-to-mid cap ASX entities, the question is not whether you understand the cleansing notice obligation. It is whether explicit ownership of that step is assigned in your current capital raise process.

If the lawyer advising on the placement is not also responsible for the cleansing notice - with the five-business-day clock on their compliance calendar, not assumed - the gap is open. The fix is straightforward: consolidate that responsibility, and confirm it is assigned before the placement closes, not after the securities are issued.

Julian Rockett is principal of JR3 Legal — external GC and company secretary to ASX-listed entities. Contact: julian@jr3legal.com. JR3 Legal acts on placements, cleansing notices, and ASX lodgements as an integrated service. Visit jr3legal.com or connect on on LinkedIn.