08 June 2016
Hello
If a company has a clause in its prospectus relating to the scaling back of shares 'in it's absolute discretion', is there any case law or guidance on the interpretation of 'absolute discretion'?
I know that sounds a bit vague.
Kind regards
Thanks for your question.
We assume the prospectus was issued to promote a capital raising exercise, for example, an ASX listing.
The prospectus will set out the level of capital sought to be raised. It will also set out a threshold. If the threshold is not met, the capital raising will not proceed.
The discretion to scale back the shares (capital raising) will enable the exercise to proceed if the threshold is reached but the target is not.
The promoter could scale back the share offer to any figure at or above the threshold. This may result in investors subscribing for shares even though the capital raising falls well short of the target.
The promoter's discretion is absolute and investors should be aware of this when subscribing.
Regards
Mentor
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