What is securities hawking?

Section 736 of the Corporations Act 2001 (Cth) (Act) prohibits a person (Offeror) from securities hawking.  That is, offering shares for issue or sale in the course of, or because of, an unsolicited meeting or telephone call.

Please note that the provision is not applicable where the relevant offer is made to sophisticated or professional investors: section 736(2)(a) and (b) of the Act.

When is a meeting or telephone call “unsolicited”?

According to A2.1 of the Regulatory Guide 38 The Hawking Provisions (Regulatory Guide) by the Australian Securities and Investments Commission (ASIC), it considers a meeting or telephone call to be unsolicited, except if it occurs in response to a positive, clear and informed request from the consumer.

What is meant by “because of” in the securities hawking prohibitions?

As stipulated by A5.2 of the Regulatory Guide,ASIC considers that an offer:

• is made because of a meeting or telephone call, if the offer is caused by, or a result of, the meeting or telephone call; but
• will not be “because of” an unsolicited meeting or telephone call, where the connection between the offer and the meeting or telephone call is insignificant or trivial.

Is there a causal nexus with the offer and the unsolicited meeting or telephone call?

ASIC has suggested that in determining whether an offer has causal nexus with an unsolicited meeting or telephone call will be dependent on the facts and circumstances, such as:^[1]

• the nature of the first unsolicited contact;
• how much time has passed since the first unsolicited contact and the offer; and
• whether there are any overriding events that should be considered as breaking the causal nexus.

In addition, ASIC has suggested that the following are unlikely to, by themselves, break the causal nexus:^[2]

• the consumer getting general advice;
• the consumer receiving a prospectus or Product Disclosure Statement; or
• a declaration by the consumer or a disclaimer by the Offeror that states that the offer was not a result of the initial unsolicited contact.

What are the exemptions?

An unsolicited meeting or telephone call will not be considered securities hawking, if one (1) of the following is satisfied:

• the resulting offer is of listed securities and is made by telephone by a licensee; or
• the resulting offer is made by a licensee through whom the consumer has bought or sold securities in the previous twelve (12) months: sections 736(2) and 992AA(2) of the Act.

What are the consequences of breaching the securities hawking provisions?

A breach of the securities hawking provisions is a criminal offence.  The maximum penalties are:

• a fine of $2,750 for an individual or $13,750 for a body corporate;
• six (6) months gaol; or
• both.

In addition, a consumer may also have the right to:

• return the product: sections 738 and 992A(4) of the Act; or
• undertake civil proceedings against the Offeror: section 1324 of the Act.

Further information

Dundas Lawyers has advised various organisations on issues associated with securities hawking when raising capital.  To ascertain how Dundas Lawyers can assist you to comply with the law when raising capital, contact us for a confidential and obligation-free discussion:

Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

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