Anatomy of an information memorandum disclaimer

You have a draft information memorandum (IM) on your desk and a capital raise to run. The disclaimer at the front is the part most founders skim past, yet it is the part an investor's lawyer will read first, and the part that has to survive scrutiny if the raise goes wrong. Before you circulate anything, it is worth knowing what the disclaimer can do, what it cannot do, and where the drafting usually goes off track.

An IM disclaimer is a set of boundary statements, not a binding contract with your investors. It tells a reasonable reader what the document is, who it is addressed to, what they may do with it, and who they may rely on. It supplements the disclosure rules in the Corporations Act 2001 (Cth) (the Act) that the offer relies on, and it sits alongside the term sheet and subscription documents that actually create the investment. Get the boundaries right and the disclaimer protects everyone; get them wrong and it is the first thing a dispute targets.

Why an information memorandum carries a disclaimer

An IM is the document a company uses to present its business and an offer to investors in a private raise, where the offer is structured to fall within a disclosure exemption under Part 6D.2 of the Corporations Act 2001 (Cth). Section 706 of the Act says an offer of securities for issue needs disclosure unless section 708 says otherwise, and most private raises run through one of the section 708 pathways:

• Small scale offers: up to 20 investors and no more than $2 million raised in any 12 month period, made by way of personal offers (s 708(1)).
• Sophisticated investors: a minimum of $500,000 payable on acceptance, or a certificate from a qualified accountant dated no more than 6 months before the offer confirming net assets of at least $2.5 million or gross income of at least $250,000 in each of the last 2 financial years (s 708(8) and reg 6D.2.03).
• Professional investors: persons covered by the definition in s 9 of the Act, other than paragraph (e) of that definition, or persons who have or control gross assets of at least $10 million (s 708(11)).

The disclaimer records which pathway the offer is using and keeps the document honest about its own limits. It also shapes how the offer will be judged later. In Butcher v Lachlan Elder Realty [2004] HCA 60, the High Court held that whether conduct is misleading is assessed by looking at the whole of the conduct, including any disclaimers, from the standpoint of a reasonable reader of the whole document. A disclaimer is part of that picture, but it is never the whole picture.

The clauses that do the work

The clauses below are the ones that appear in a well-drafted IM disclaimer. Order them to suit your document, but do not leave any of them out and, above all, do not copy them from a template built for a different offer.

What the document is, and is not

This is usually the first clause. It states that the IM is provided for information only, that it is not a prospectus or a product disclosure statement, and that it is not personal financial, legal or tax advice. It should also say that the IM does not purport to be comprehensive and that, unlike a prospectus, it is not lodged with ASIC.

The drafting choice that matters most is naming the exemption. A clause that says the offer is made in reliance on an exemption under s 708 of the Act, and is only open to recipients who qualify, does more work than a generic statement that the document is not an offer. It tells the reader, and any later court or regulator, exactly what the company says it is doing.

Three statements do most of the work:

• Not a prospectus: the IM is not a disclosure document lodged with ASIC under Part 6D.2, and should say so.
• Not advice: state that the document is not personal advice to any recipient, and that recipients should not act on it without their own advice.
• Basis of the offer: name the exemption pathway, for example small scale under s 708(1) or sophisticated investors under s 708(8).

Who may receive it

The distribution clause sets the boundaries of the offer. It should say that the IM may only be distributed in Australia to persons who qualify for the offer, that it must not be forwarded or reproduced without consent, and that accepting the IM constitutes an acknowledgment of those restrictions.

The trap here is advertising. Section 734(1) of the Act makes it an offence to advertise, or to publish a statement that directly or indirectly refers to, an offer that relies on the small scale exemption in s 708(1), and the offence is one of strict liability. A social media post about the raise, a press release, or a public pitch event can all breach it. The other trap is counting. The 20 investor and $2 million ceilings in s 708(1) are measured over any 12 month period, so an IM that gets forwarded beyond the intended list can quietly push the raise over the limit. The disclaimer should say who may receive the document, and the process should enforce it.

Reliance, due diligence and independent advice

The reliance clause makes clear that the IM is a starting point, not the whole record. It should say that recipients must make their own enquiries, conduct their own due diligence, and obtain independent legal, tax and financial advice, and that the company makes no representation that the IM is complete or that it covers everything a recipient needs to know.

This is also where the disclaimer states that the company does not accept responsibility for loss arising from reliance on the IM, to the extent permitted by law. That qualification is there for a reason: the general law position is that a disclaimer cannot excuse conduct that is actually misleading.

How projections and forward-looking statements are treated

Many IMs contain projections, forecasts and statements about the future. The disclaimer should say that forward-looking statements are based on assumptions that are stated in the document and are subject to risks, uncertainties and change.

The reason this clause matters is s 769C of the Act. For financial products and services, a representation about a future matter is taken to be misleading if the person making it had no reasonable grounds for it, and the equivalent rule for trade or commerce generally sits in s 4 of the Australian Consumer Law. No disclaimer creates reasonable grounds. The assumptions behind each projection must actually exist, be written down, and be attached or summarised in the IM.

Currency, updates and the right to withdraw

This clause states that the information in the IM is current as at the date of the document, may change without notice, and that the company reserves the right to update, amend or withdraw the offer at any time.

It is worth being careful here. A no duty to correct clause records that the IM speaks as at a date, but conduct is judged as a whole, and an investor who acts on stale information after the company knows it is wrong can still raise the misleading conduct arguments. The practical answer is version control: date stamp every draft, track changes in the data room index, and issue a revised IM when something material changes.

Liability, no-reliance and adviser disclaimers

The liability clause is the qualified no-reliance statement: no representation or warranty is given as to accuracy or completeness, and no liability is accepted for loss arising from reliance, in each case to the maximum extent permitted by law. If advisers such as lawyers, accountants or financial advisers are named in the IM, the clause should say they owe no duty to recipients and make no representation.

Two limits are worth knowing. First, the misleading or deceptive conduct prohibitions, s 1041H of the Act for financial products and services and s 18 of the Australian Consumer Law for trade or commerce, cannot be contracted out of. A disclaimer can shape how a document is read, but it cannot authorise or excuse conduct that breaches them. Second, the disclaimer does nothing to limit directors' duties under Part 2D.1 of the Act, including the care and diligence duty in s 180. A disclaimer is not a substitute for a board that has actually checked the content.

Confidentiality and permitted use

Mark the IM as confidential and state that it must not be reproduced, copied or shared without the company's consent. Where the raise involves detailed operational or financial information, condition access on confidentiality, usually through a non-disclosure agreement signed before the data room is opened, and use a data room with access logs and watermarks so the company knows who saw what.

Privacy and personal information

Raises collect personal information: names, email addresses, expressions of interest, identity documents and bank details. If you collect it, the disclaimer should reference your privacy policy and state how the information will be handled under the Privacy Act 1988 (Cth) and the Australian Privacy Principles, which are set out in Schedule 1 of that Act. In practice this means restricting access to the people who need it and using secure channels for application forms and payments.

How the offer actually happens

The final clause in the core set deals with the relationship between the IM and the transaction documents. The IM is an overview; it is not an offer capable of acceptance. Any investment will be governed by the term sheet and the subscription or investment documents, and the IM should say so, and say that it must be read together with them.

The trap is inconsistency. If the IM says the minimum investment is $50,000 and the subscription agreement says $100,000, or the IM describes investor caps that the application form does not reflect, the raise generates confusion and disputes. The disclaimer cannot fix that; the documents have to tell the same story.

Situational clauses worth adding

Add the clauses below when the raise calls for them:

• Foreign distribution carve-outs: add when investors may be offshore; state that the offer is not made in jurisdictions where it would be unlawful, and that distribution may be restricted for categories such as US persons.
• Forward-looking statements annexure: add when the raise is projection-driven; attach the assumptions and methodology behind the numbers so the statements in the body have documented support.
• Verification and records: add in diligence-heavy raises; confirm that management has verified the information in the IM and that supporting records are available in the data room.
• Governing law and jurisdiction: add when the company or its investors span states or countries; state the law that governs the IM and the offer, usually the law of an Australian jurisdiction.

How an Artificer Legal review tightens the disclaimer

The value of a legal review here is not in the wording alone; it is in checking the disclaimer against the offer it describes. An Artificer Legal practitioner would review the disclaimer as part of the whole raise, and would typically:

• Confirm the exemption: check that the offer genuinely fits the pathway named in the disclaimer, including the eligibility tests, the 12 month counting rules and any certificates required under s 708(8).
• Check the advertising position: review the marketing plan against the restrictions in s 734, including the strict liability ban on advertising small scale offers.
• Test the projections: go through the forward-looking statements and the assumptions behind them, because s 769C and the Australian Consumer Law treat unsupported future statements as misleading.
• Align the documents: compare the IM, the term sheet and the subscription documents so the eligibility, pricing and process statements match.
• Review the process: look at how investors are approached, how eligibility is verified, how documents are shared and how personal information is handled, because a disclaimer only works when the process matches it.

The real test: does the offer match the disclaimer?

The clause that most often decides whether a disclaimer holds up is the eligibility clause, because it is the point where the document meets the process. A disclaimer that says the offer is open only to sophisticated investors under s 708(8) protects nothing if the raise is marketed to people who do not meet the tests, or if the certificates are not obtained within the six month window. The High Court's approach in Butcher v Lachlan Elder Realty [2004] HCA 60 is the reason: the disclaimer is read as part of the whole conduct, and the whole conduct includes who you approached, what you said outside the document, and what you knew at the time. Draft the eligibility clause first, then build a process that proves it.

Beyond that, the essentials are straightforward. The disclaimer should state what the IM is and is not, who may receive it, what reliance is permitted, how projections are treated, and how the offer will actually happen. It cannot cure misleading or deceptive conduct, it cannot give reasonable grounds to projections that have none, and it cannot repair a raise that has outrun its exemption. A disclaimer drafted to the specific offer, and matched by the process around it, is one of the cheapest pieces of protection in the raise.