Updating information in a PDS - beware the limits of Class Order 03/237

Introduction

PDS issuers frequently rely on ASIC class order [CO 03/237] (Class Order) to update information in a PDS, including a short-form PDS. This is more simple than using a supplementary¹ or replacement PDS.

ASIC expects issuers to update their PDSs for unlisted property schemes to include certain benchmark and disclosure principle information by 1 November 2012. ASIC has suggested that issuers may in some circumstances rely on the Class Order to do this.

A careful consideration, however, of the scope of the Class Order as well as the type of information likely to be updated means that issuers are unlikely to be able to rely on the Class Order in order to update the information in their PDSs. These issues are explored in this article.  

Background

Unlike a prospectus, a PDS does not have a fixed life. As circumstances change following the preparation of a PDS, the information in the PDS may become out of date. New developments over time may mean that a PDS will not contain information about these developments, and information included in a PDS at the time that its preparation was completed² may become misleading or deceptive.

Section 1012J of the Corporations Act 2001 (Act) provides that information included in a PDS must be up to date as at the time when the PDS is given.

In some cases, a PDS can be updated by withdrawing the PDS and replacing it with a new PDS, or by supplementing the PDS.³ Further, the ASIC exemption from s.1012J in the Class Order permits a PDS to be updated in respect of certain information that is not materially adverse information. In practice, the key requirements of the Class Order are usually met by:

• including a statement in the PDS about how information in the PDS can be updated and explaining where the updated information can be found out at any time; and
• making the information readily available, for example on a website.

Limits on the Class Order

There are significant limits on the scope of the Class Order relief. In summary, the Class Order does not assist a PDS issuer in updating information in the PDS in the following circumstances:

• the updated information is materially adverse information;
• the updated information is required to be included in the PDS by a provision of the Act other than s.1012J;
• the updated information was in existence but was not included in the PDS at the time that the preparation of the PDS was completed;
• the new information does not update information that is already in the PDS.

Materially Adverse Information

Materially adverse information means information of a kind the inclusion of which in, or the omission of which from, a PDS would render the PDS defectivewithin the meaning of section 1021B of the Act.⁴ To render a PDS defective under 1021B, a statement or omission must be:

• of a kind listed in s.1021B(1)(a) to (d), for example a statement that is misleading or deceptive, or an omission of certain material required under s.1013C to be included in a PDS; and
• materially adverse from the point of view of a reasonable person considering whether to proceed to acquire the financial product concerned.

Information required by the Act (other than s.1012J)

The Class Order provides for an exemption in respect of s.1012J of the Act. It does not provide any exemption in respect of other content provisions of Part 7.9 of the Act (as set out in s.1013C). Accordingly, if the PDS is required to include specific information, for example under s.1013D of the Act, this requirement cannot be met by including the information in another place, e.g. a website, in reliance on the Class Order. For example, if there is new information about significant benefits of the product that s.1013D(1)(b) of the Act requires to be disclosed in the PDS, this requirement would not be satisfied by including on the issuer's website updated information in reliance on the Class Order.⁵ Instead, a replacement or supplementary PDS would be required.  This will be the case even though the new information may not be materially adverse information.

Up to date information in existence when the PDS was prepared

The terms of the Class Order require that the PDS was up to date at the time that it was prepared. On that basis, to the extent that there was information in existence when the preparation of the PDS was completed and this information was not included in the PDS (but was more up to date than the information on the same subject that was included in the PDS when its preparation was completed), the issuer cannot rely on the Class Order. Only information that comes into existence after the date of the PDS can be used to update the PDS under the terms of the Class Order.

The Class Order does not appear to permit a PDS to be updated with information that was in existence at the date of the PDS, but unknown to the issuer or the other persons named in s.1013C(2).

Information that does not update the information in the PDS

The requirement under s.1012J is not that the PDS be up to date, but that the information in the PDSbe up to date. Section 1012J does not require that a PDS contain particular information. Nor does it address the currency of the PDS. It addresses the currency of information in the PDS.

Since the Class Order only provides relief from s.1012J (and not from s.1013C or another provision that requires a PDS to contain certain information), the Class Order does not permit a PDS to be "updated" with completely new information that is unrelated to any existing information in the PDS. In this case a replacement or supplementary PDS would be required. 

There may be some confusion on this point given the terms of the Class Order. It refers to relief from s.1012J to the extent that this section has the effect that a PDS must include information "in addition to or in substitution for any information the [PDS] contained at the time when it was given". Given that s.1012J refers to "information in the PDS" being up to date (and not the PDS itself being up to date), it is difficult to understand how s.1012J would ever have the effect of requiring a PDS to include additional information, for, as noted above, this provision of the Act merely addresses the currency of information in the PDS at the time the PDS is given to a person, not the content of the PDS at any time.

ASIC Policy

ASIC has released regulatory guides relating to disclosure of certain benchmark and disclosure principle information in PDSs, including for example RG 46: Unlisted Property Schemes: Improving Disclosure for Retail Investors.

ASIC expects that issuers will update their PDSs to include this information by 1 November 2012. ASIC states that it considers that if the omission of this information from an existing PDS is not materially adverse, the responsible entity will generally be able to rely on the Class Order to update the PDS for this information without the need for a replacement or supplementary PDS.⁶ However, given the limitations on the Class Order relief discussed above, many issuers may not be able to rely on the Class Order to update their PDSs to include this information. The benchmark and disclosure principle information primarily relates to product risks. For example ASIC says in relation to unlisted property schemes:

"We have developed six benchmarks and eight disclosure principles covering information that is key to analysing the risks associated with unlisted property schemes…Clear and prominent disclosure of the benchmark and disclosure principle information will allow retail investors to compare the relative risk and return of investments in unlisted property schemes." [RG 46.8]

If this product information is as significant as ASIC's statements indicate, it seems unlikely that an issuer can update a PDS to include it simply by relying on the Class Order. Firstly, it is difficult to see why the information, focusing as it does on key risks, would not be materially adverse. Secondly, if the information is required by s.1013D(1)(c) (which relates to disclosure of risks) to be included in a PDS, then this will need to be done by use of a supplementary or replacement PDS.

Conclusion

Although it may be easier to provide investors with additional information under the Class Order than by using a supplementary or replacement PDS, issuers of a PDS should carefully consider the requirements and limitations of this Class Order and be aware that the Class Order has a more narrow application than its wording suggests.