Understanding the due diligence process required to list a company on the ASX
Listing is the process of transforming a privately-owned organisation into a publicly-owned entity, the shares of which may be traded on the stock exchange. Joining the ASX provides your company with the opportunity to benefit from improved access to capital, increased global profile and access to liquidity.
Whether to float your company on the stock market is an important decision. The ASX lists many conditions including a Profits/Assets analysis; shareholder spread; corporate governance; compliant securities trading policy; lodgement of a prospectus; minimum issue price per share; director’s character evidence etc.
Due diligence is a part of the listing process by which stakeholders involved in the listing of a company can access and confirm information about the company such as its business model, assets and liabilities.
Once the prospectus is prepared, the Corporations Act requires the company to make all reasonable enquiries in relation to the offer. The due diligence process must be documented in the prospectus for the benefit of potential investors as well as to provide board members some defence against liability.
A number of different professionals may sit on a due diligence committee (DDC). The following should be represented:
- A chairperson
- Company directors or senior management
- Underwriter (if any)
- Other corporate advisers
The committee is expected to provide the following reports:
- A legal due diligence report.
- A legal opinion letter stating that the prospectus meets the applicable disclosure requirements and provides an accurate statement of the company’s due diligence process.
- An accounting and tax due diligence report prepared by the accountant providing an independent overview of internal controls in line with audit and governance issues.
- Other disclosure documents prepared by other experts as required.
A well-co-ordinated and effective due diligence process will highlight critical material matters that should be included in the prospectus, thereby, protecting stakeholders from liability.
Following completion of the due diligence process it will need to be a signed-off by each member of the DDC. The DDC may then provide a final report to the board, effectively confirming that the completed due diligence investigations demonstrate that the prospectus meets the requirements of the Corporations Act.
Following lodgement of the prospectus with ASIC, there should be an ongoing due diligence process ensuring that the DDC is made aware of any developments that may impact on the accuracy of the information in the prospectus. It is for the board to determine whether or not a supplementary or replacement prospectus should be issued.
Do you need help with the due diligence process?
A natural starting point is to consult your existing advisers, usually accountants and solicitors. If they do not possess the experience to act for you, they might recommend advisers with greater expertise.
It is important that you agree a realistic timetable with your professional advisers and that you obtain clear indications of who is responsible for each aspect of the work.
Selecting good quality advisers is the most important step in the listing process. Their expertise is often invaluable.
Source: ASX Listing Rules