LAW2001 Trimester 3: Holistic Case Study - Debt Finance, Share Capital

This case study examines HealthPharm Pty Ltd, a start-up company seeking capital for expansion, and Infinity Venture Capital's investment. The analysis covers several key legal issues: Infinity's priority in the event of HealthPharm's insolvency concerning its circulating security interest under the Personal Properties Securities Act 2009 (Cth); the validity of HealthPharm's proposed resolution to divide existing shares into two classes, and HealthPharm's disclosure obligations when offering shares on the ASX, including the required standard of disclosure. The study references relevant legal provisions, case law, and the ASX Market Rules to provide comprehensive advice on these corporate finance and securities law matters. The case study explores the implications of security interests, share splits, and disclosure requirements for a company seeking to raise capital.

Holistic Case study: Debt Finance, Share Capital and Corporate Fundraising
Holistic Case study: Debt Finance, Share Capital and Corporate Fundraising
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Holistic Case study: Debt Finance, Share Capital and Corporate Fundraising
Table of Contents
1. Advise Infinity what priority, if any, Infinity would have in relation to its circulating security interest
in HealthPharm in the event of HealthPharm’s insolvency..........................................................................2
2. Advise HealthPharm Ltd on the validity or otherwise of the proposed resolution as a procedure to
effect the division of the existing shares into two classes............................................................................3
3. Advise HealthPharm Ltd what disclosure obligations it would have, if any, in relation to offering its
shares for issue on the ASX and advise it on the standard of disclosure required........................................3
References...................................................................................................................................................4
1. Advise Infinity what priority, if any, Infinity would have in relation to its circulating
security interest in HealthPharm in the event of HealthPharm’s insolvency.
According to the provisions of Personal Properties Securities Act 2009 (Cth) (PPSA) there have
been significant changes in case of circulation and non circulation of security interest which also
includes the creation of new rules and creation non circulation of the security interest in the
inventory as well as debtors1. For this various draft provisions has been made which are made
specifically for the creation of security interest non-circulating or circulating for debtors and
inventory as per the provision of Personal Properties Securities Act 2009 (Cth)2.
Analysis of the aforesaid case suggests that the company Infinity can also create the security
interest under the provision of Personal Properties Securities Act 2009 (Cth) for it circulating
interest for the insolvency of the company Health Pharma. One of the leading case laws similar
to the aforesaid matter is Commonwealth v Byrnes and Hewitt [2018] VSCA 413
.
1 Catchpoole M, Schinckel T. (2018, March 24). Australia: Is a non-circulating security interest really non-
circulating? Lessons from Re Amerind. Retrieved from
http://www.mondaq.com/australia/x/686036/Insolvency+Bankruptcy/Is+a+noncirculating+security+interest+really
+noncirculating+Lessons+from+Re+Amerind
2 Personal Properties Securities Act 2009 (Cth) (PPSA
3 Commonwealth v Byrnes and Hewitt [2018] VSCA 41
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Holistic Case study: Debt Finance, Share Capital and Corporate Fundraising
2. Advise HealthPharm Ltd on the validity or otherwise of the proposed resolution as a
procedure to effect the division of the existing shares into two classes.
Analysis of the aforesaid case suggests that the company can split the shares with the proposed
resolution and it will be considered as legally valid. According to the law, a when a company
decides to increase or decrease in the shares, a share split is done4. A share split is also known as
consolidation or subdivision. A company may chose to split the shares for various reasons
including the management of value of shares or increase or decrease the shares issued.
Generally, share split is often done for the purpose of additional investment5. The procedure for
the division of shares can be made by making a resolution in the board meeting of the company
in the presence of all the directors and shareholders of the company. The company Health
Pharma can also do so by passing a resolution for splitting of shares in the board meeting.
In the aforesaid case, the company has been splitting its shares to increase the value of its issued
shares by a proposed resolution in the board meeting which will be considered as legally valid.
The company Health Pharma can split the shares for the increase in the value of shares6
3. Advise HealthPharm Ltd what disclosure obligations it would have, if any, in
relation to offering its shares for issue on the ASX and advise it on the standard of
disclosure required.
According to the ASX Market Rules and the Corporations Act, every time a issuer issues a new
shares in the market, the terms and conditions of the same should also be disclosed in proper
document. The ASX Market Rules and the Corporations Act provides specific terms and
information that must be included in the disclosure document7
Disclosure documents are very essential as it contains all the relevant and important information
which can help a person to assess the risk, features, benefits, rights and obligations associated
with the issue of shares considering the capacity of the issuer to fulfill any such obligation.
4 What is a Share Split? (2016, March 8). Retrieved from https://legalvision.com.au/what-is-a-share-split/
5 What is a Share Split? (2016, March 8). Retrieved from https://legalvision.com.au/what-is-a-share-split/
6 What is a Share Split? (2016, March 8). Retrieved from https://legalvision.com.au/what-is-a-share-split/
7 Exchnage(ASX), A. S. (2019). Offering Circulars/Product Disclosure Statements. Retrieved from
https://www.asx.com.au/warrants-disclosure-documents.htm
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Holistic Case study: Debt Finance, Share Capital and Corporate Fundraising
A disclosure document contains the following information;
Obligation and rights of the issuer as well as holder
Underlying Instrument
Pricing of Warrant including charges, fees etc
Takeover agreement in case of an extraordinary event
How to subscribe in the primary market
Procedure of exercise
Analysis of the provided case shows that the company can issue the shares on the Australian
Stock Exchange but the aforesaid disclosure requirements must be fulfilled before the issuance
of shares. The disclosure of information relating to the shares is very important8
References
Catchpoole M, Schinckel T. (2018, March 24). Australia: Is a non-circulating security interest
really non-circulating? Lessons from Re Amerind. Retrieved from
http://www.mondaq.com/australia/x/686036/Insolvency+Bankruptcy/Is+a+noncirculating+securi
ty+interest+really+noncirculating+Lessons+from+Re+Amerind
Exchnage(ASX), A. S. (2019). Offering Circulars/Product Disclosure Statements. Retrieved
from https://www.asx.com.au/warrants-disclosure-documents.htm
What is a Share Split? (2016, March 8). Retrieved from https://legalvision.com.au/what-is-a-
share-split/
8 Exchnage(ASX), A. S. (2019). Offering Circulars/Product Disclosure Statements. Retrieved from
https://www.asx.com.au/warrants-disclosure-documents.htm
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