On 24 October 2022, ASIC placed an interim stop order on offers from Neldner Road Vintners Limited (Neldner) in response to deficiencies in the issuers’ target market determinations (TMD). The order has now been revoked.
The orders stopped Neldner from issuing interests in, giving a prospectus for or providing financial advice to retail clients under the existing TMDs. ASIC made the interim stop order to protect retail investors from potentially investing in offers that may not be suitable for their financial objectives, situation or needs.
Neldner is an unlisted public company seeking to raise $10 million through the issue of Class A shares under an offer information statement (OIS). Neldner was seeking working capital, and funds for the acquisition of vineyards as well as the construction of a cellar door, winery and accommodation facilities.
Amongst other concerns, ASIC considered that the distribution conditions contained in the TMD were not appropriate to ensure the Class A shares would likely be distributed to the consumers in the target market.
Neldner had intended to rely on investor self-certification that they were in the target market. Under the design and distribution obligations (DDO), the onus is on the product issuer to ensure that consumers who acquire the product are in the target market, rather than relying on investors’ self-determining that they fall within the target market.
Further, ASIC could not locate a publicly available version of the TMD.
After the interim stop order was placed on the offer, Neldner proposed amendments to its TMD that addressed ASIC’s concerns. As a result, ASIC revoked the stop order on 7 November, and no final stop order was made.
Background
DDO requires firms to design financial products that meet the needs of consumers, and to distribute those products in a more targeted manner. A TMD is an important requirement under DDO. It is a mandatory public document that sets out the class of consumers a financial product is likely to be appropriate for (target market) and matters relevant to the product’s distribution and review.
ASIC has targeted surveillances underway to check whether product issuers and distributors are complying with DDO. Where firms are not doing the right thing, ASIC can take quick action under DDO to disrupt poor conduct and prevent potential consumer harm. ASIC recently issued its first DDO stop orders to prevent the offer of financial products to consumers (). ASIC also placed interim stop orders on the Australian Residential Property Fund, the Private Property Trust No. 20 (), the APIL Essential Retail Income Fund (), three funds operated by Holon Investments (22-278MR, and the Westlawn Income Fund () in response to deficiencies in their TMDs.
To date, ASIC has issued 13 DDO interim stop orders, including the order for Neldner, and seven remain in place. Six interim stop orders have been lifted following actions taken by the entities to address ASIC’s concerns.
