Question 3 [10 marks] Air Con Ltd (‘Air Con’) is a company specialising in environmentally friendly air-conditioning systems that are totally driven by solar power. The systems rely on new-generation battery cells that store the solar energy. Extensive trialling Air Con systems in the Northern Territory have proven that the new batteries are extremely effective.
Air Con is seeking to raise funds to expand into the Asian market, especially into the hotter, wealthier cities of south-eastern China. The company has just issued a short form prospectus and referred investors to further material lodged with ASIC. The prospectus is current and approximately $12.5 million has already been raised.
In late 2016 one of the Air Con batteries caught fire and exploded. No-one was injured, but had anyone been nearby at the time they could have been killed. Although this was a rare incident the board of directors of Air Con was informed of the incident immediately.
At the following board meeting, the Chairman of Air Con raised concern about the exploding battery: “We may have a problem here.” He pointed out that in the material lodged with ASIC, Air Con had stated that in all trialling of Air Con systems, no problems had been encountered and that the new battery systems were totally reliable. The Chairman explained to the board that investors may be concerned if they knew about the exploding battery incident. At the same time he acknowledged that the incident was very rare and questioned whether Air Con really needed to act further on this information, other than internally finding out more about what had happened in the exploding battery.
Taking into consideration the nature of the incident and the Chairman’s concerns and comments, discuss whether Air Con’s prospectus may be in breach of Chapter 6D of the Corporations Act 2001. Justify your answer with reference to the relevant legislation and/or case law.
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