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JV documentation imperative if not compulsory

Joint venture projects such as property developments involving several SMSFs that subsequently attract additional investors may not require documents like a product disclosure statement (PDS), but may still need other commercial papers to protect the original participants, according to a specialist SMSF law firm.

“A PDS is a regulatory document, that is, it’s a document that ASIC (Australian Securities and Investments Commission) and the Corporations Act want you to issue,” Townsends Business and Corporate Lawyers principal Peter Townsend told the SuperCentral Bacon, Super and Eggs seminar in Sydney last week.

“But it’s not a commercial document. A commercial document is all about covering your tail and making sure that there is risk management.”

Townsend emphasised the importance of having a risk management strategy in place because a joint venture project such as a property development involving several different parties would involve a material amount of money.

“If this investment goes badly, the investors will look for somebody to blame and that will be whoever it was who brought them in,” he warned.

“So in terms of risk management you still need, in my view, a PDS-like document.

“It may not have completely all of the bells and whistles of a PDS and it may be in a slightly less strict format, but it will still have a lot of the PDS content in it.

“And the purpose of that is to ensure the investors coming in, the non-original investors, can’t then turn around and say ‘you misrepresented the position and I now want my money back’.”

To this end, he recommended the trustee, if the joint venture was operated under a unit trust structure, and the initial unitholders issue the secondary investors an information memorandum that served that purpose.

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