Cleansing notices under s708A and s708AA: when you cannot cleanse, and what to do about it

Shares issued without a disclosure document cannot generally be on-sold to retail investors within 12 months without disclosure. For listed companies, cleansing notices switch that restriction off: a notice under section 708A(5) of the Corporations Act 2001 (Cth) after a placement, or under section 708AA for a pro rata offer made without a prospectus. Both are conditional, the conditions are tested mechanically, and a defective or unavailable notice leaves investors holding stock they cannot legally sell. Every raising timetable should begin with the question: can this company cleanse?

How the placement notice works

Section 708A(5) applies where a listed company issues quoted securities without disclosure. If the conditions are met and the company lodges a cleansing notice with ASX within five business days of issue, on-sales of those securities do not require a disclosure document. The core conditions:

• the securities are in a class quoted on ASX;
• trading in that class was not suspended for more than a total of five days during the shorter of the period the class was quoted and the 12 months before the issue;
• no exemption or relief determination excludes the company; and
• the notice states that the company has complied with its continuous disclosure and reporting obligations, and sets out any excluded information: information withheld from the market under the Listing Rule 3.1A carve-outs that investors and their advisers would reasonably require to assess the company, together with its effect.

The two traps

• The suspension trap. The five-day count includes voluntary suspensions. A company that sat suspended for two weeks during a deal negotiation cannot give a cleansing notice for the next 12 months. Trading halts of up to two days are not suspensions and do not count, which is one reason disciplined boards manage sensitive periods with halts rather than suspensions wherever possible.
• The excluded information trap. A cleansing notice must disclose what the market does not know. A company sitting on undisclosed material information, for example an incomplete negotiation relied on under Listing Rule 3.1A, faces a choice: put the information in the notice (making it public), delay the raising, or accept it cannot validly cleanse. Lodging a clean notice while withholding excluded information is not a technicality; a defective notice means the on-sale relief was never available, and it exposes the company and its officers to liability.

Rights issues and s708AA

Section 708AA provides parallel relief for pro rata entitlement offers made without a prospectus, with the cleansing notice given before offers are made. The same suspension condition applies, so a company suspended for more than five days in the previous 12 months cannot run a prospectus-free rights issue and must prepare a transaction-specific prospectus instead. The structural benefits of a pro rata offer survive either way: it does not consume Listing Rule 7.1 placement capacity and follows the Appendix 7A timetable. Our Entitlement Offer modeller and capital raising pathway selector in the Tools section can be used to frame the structure while the disclosure pathway is being settled.

When you cannot cleanse

• Cleansing prospectus. Section 708A(11) allows a prospectus to be lodged to free securities for on-sale. For a company with current disclosure, this is typically a short-form document, but it is still a prospectus with prospectus liability, due diligence and directors’ consents.
• Hold period. Sophisticated investors can hold for 12 months, but few will price a placement generously on that basis.
• ASIC relief. ASIC has power to grant case-by-case relief, including where the suspension condition fails for reasons that do not undermine the policy of the provision. Relief takes time and is not assured; treat it as an option to explore, not a plan.
• Fix the disclosure first. Where the obstacle is excluded information, the cleanest path is often to announce the information, or complete the negotiation, and raise afterwards.

Board checklist before announcing a raising

• Confirm the suspension history of the class over the previous 12 months, counting every voluntary suspension day.
• Confirm there is no undisclosed market sensitive information, and minute that confirmation.
• Diarise the five-business-day lodgement deadline from the issue date, not the announcement date.
• If cleansing is unavailable, settle the prospectus pathway and its timetable before the raising is announced, and tell the lead manager early.

How Luma Legal can help

We prepare cleansing notices and cleansing prospectuses, advise on excluded information judgements, and structure raisings for companies whose suspension history complicates the standard pathway. The five-day and five-business-day rules leave no room for after-the-fact fixes, so the analysis belongs at the front of the timetable.