1) Fresh Ltd (Fresh) needs to raise finance for the expansion of its fresh food business. It is considering two options: (a) a public issue of redeemable preference shares: and (b) a loan from Strategic Finance Ltd (Strategic).
If it proceeds with option (b), Strategic requires Fresh to provide security for the loan. Fresh owns land, buildings, plant and equipment and trading stock (food for resale).
Compare the advantages and disadvantages of both options.
2) Larry Large started a business in early 2001 involving direct marketing of a range of garden products. He operated through a proprietary company, Large Larry Pty Ltd. The business was quite successful, aided apparently by a media campaign featuring Larry himself. In 2011 he decided to dramatically expand the business and to change the operation from direct marketing to distribution of products through various retail outlets. In that year he converted the proprietary company into a public company (Large Larry Ltd). He now wants to raise $15 million in additional funds to assist with the expansion and also to retire some debt. One option that is being considered is to offer shares in Large Larry Ltd to a number of large institutional investors. An alternative option is to float the business, that is offer the shares to the public and apply for listing on the Australian Stock Exchange (ASX). Larry is very upbeat about the company's prospects. He believes that with favourable economic conditions the company will double in size within a year. He approaches you and asks you to advise him on the following matters:
a) What are the implications under Chapter 6D of the Corporations Act of the two fundraising options being considered?
b) If a decision is made to carry out a float, what type of disclosure document will be required and what type of information must it contain?
c) If the offer document includes forecasts consistent with Larry's view concerning the prospects of the company, what consequences could follow if the forecasts are not met?