The On-Sale Restriction and Cleansing Notices – A Refresher and Key Considerations

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The On Sale Restriction – A Quick Refresher

Certain offers of securities are exempt from the requirement under the Corporations Act that such offers be accompanied by appropriate disclosure. However, where that is the case, sections 707(3)-(4) of the Corporations Act provide that the securities issued without disclosure can’t be traded or on-sold within 12-months after their issue unless the offer is accompanied by appropriate disclosure (On-Sale Restriction).

One key exception to the On-Sale Restriction is where a Cleansing Notice is issued under section 708A(5) of the Corporations Act within 5 days after the initial issue of the securities.  

Cleansing Notices

A Cleansing Notice “cleanses” the market, either by disclosing market sensitive information that previously had not been disclosed or by confirming that no such information exists. This ensures that potential buyers of securities the subject of a Cleansing Notice are fully informed of all relevant market sensitive information.


To be able to issue a Cleansing Notice under section 708A(5) of the Corporations Act, a number of preconditions must be met. These include that the securities issued are in a class of securities that were quoted at all times in the 3 months before the day on which they were issued, and that the class of securities has not been suspended for more than 5 days during the shorter of the period during which the class of securities were quoted or 12 months before the day on which the securities were issued.

Excluded information

The Cleansing Notice must set out any information that is “excluded information”, being information that has been excluded from a continuous disclosure notice in accordance with the continuous disclosure requirements (eg. under ASX Listing Rule 3.1A). For example, this includes information regarding an incomplete proposal or negotiation.

“Excluded information” also includes information that investors and their professional advisers would reasonably require to allow them to make an informed investment assessment in respect of the securities. The Cleansing Notice must also include a statement that the company has complied with the financial reporting and continuous disclosure provisions of the Corporations Act.

Key Considerations

Given the requirements under the Corporations Act, companies need to be careful when issuing a Cleansing Notice.

Companies should also be careful if contractually agreeing to issue a Cleansing Notice as part of a written agreement the securities are issued under (eg. under a subscription agreement for a placement).

Below sets out some key matters to be mindful of in this respect.

[1] For example, the issue of securities may be deferred under an M&A deal (including as part of an earn-out payment in any sale agreement). Also, options will be exercisable at a future date (meaning the issue of the shares on conversion and the issue of any Cleansing Notice will be at a future date).  

[2] The issuer may also be contractually required to lodge a cleansing prospectus (eg. in circumstances where a Cleansing Notice cannot be issued). However, although this note does not consider cleansing prospectuses, an assessment of whether an obligation to lodge a cleansing prospectus is acceptable should be undertaken before it is agreed (given the requirements under the Corporations Act in respect of lodging a cleansing prospectus).

[3] This will ensure the board exercises due diligence and fulfills its duties in doing so (which is relevant if a complaint is made or ASIC were to investigate).

Please get in touch with Gary Thomas or Harry Donovan if you have any queries regarding this note, including in particular if you require any guidance in respect of the appropriate assessment and due diligence process that should be undertaken when issuing a Cleansing Notice.

Phone: (08) 6500 4300

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