Holistic Case Study
Debt Finance, Share Capital and Corporate Fundraising
HealthPharm Pty Ltd (‘HealthPharm’) is a start-up company which provides pharmacy services to both public and private hospitals. It is expanding due to increased automation, but it needs further capital to invest in research and development in the areas of robotics and automated systems. Infinity Venture Capital (‘Infinity’) is a firm which provides early expansion capital to Australian companies which have the potential to become high-growth companies, are competitive in their industries, have transformative technologies and sound management teams. In return for 30% of the shares in HealthPharm, Infinity has agreed to provide HealthPharm with a loan of $20 million with a circulating security interest over all of the property owned and leased by HealthPharm. HealthPharm signs a loan agreement with Infinity providing for the circulating security interest and also signs a separate security agreement covering the collateral. Infinity registers a financing statement within 5 days after entering into the security agreement with HealthPharm.
HealthPharm is very successful, rapidly expands even further, and converts to a public company HealthPharm Limited (‘HealthPharm Ltd’). After the conversion, the founders of HealthPharm Ltd, who are the directors and majority shareholders of the company, propose to pass an ordinary resolution to split the existing shares (which are ordinary shares) into two classes: Class A shares with voting rights attached and Class B shares with a dividend entitlement but no voting rights. Shortly thereafter, HealthPharm Ltd lists on the Australian Securities Exchange (‘ASX’) and intends to raise further capital by issuing shares and debentures to the public on the ASX.
Provide the following advice, giving reasons for the advice provided in each instance:
1. Advise Infinity what priority, if any, Infinity would have in relation to its circulating security interest in HealthPharm in the event of HealthPharm’s insolvency.
2. Advise HealthPharm Ltd on the validity or otherwise of the proposed resolution as a procedure to effect the division of the existing shares into two classes.
3. Advise HealthPharm Ltd what disclosure obligations it would have, if any, in relation to offering its shares for issue on the ASX and advise it on the standard of disclosure required.