Some particular points of note are:
- Best practice involves establishing a due diligence committee (to meet on a regular basis), allocating responsibilities to appropriate committee members for preparation of the prospectus, and undertaking verification of all material statements in the prospectus. It is also important to ensure a continuation of the due diligence process throughout the offer period.
- ASIC’s main concern related to the quality of due diligence conducted by small to mid-sized issuers, which showed a trend for adopting fewer due diligence processes (e.g. convening a due diligence committee but nothing more) and with ‘less effort’ in consideration of the process.
- ASIC also indicated some instances of a ‘box ticking’ approach to the due diligence, rather than focusing on the disclosure in the prospectus and, in some instances, with little involvement by directors in the preparation of the prospectus.
- A number of concerns were raised in respect of emerging market issuers. For example, where prospectuses and other important documents are not being translated for directors that cannot read English, and poor oversight in respect of due diligence processes and inquiries conducted by foreign legal and other advisers.
- ASIC notes that a low-cost due diligence process may often lead to delays, further work and ultimately become more costly. ASIC goes further to note that even a more extensive due diligence cannot guarantee the quality of the process unless the directors are thoroughly engaged in the process.
- The report also sets out some good practice recommendations from ASIC, which reflect ASIC’s observations on due diligence processes and, in particular, the points noted above.
Due diligence is an important process to get right and we are happy to discuss the ASIC Report in further detail with interested parties (as part of an IPO process or more broadly).