Convertible Promissory Note Purchase Agreement Template for Australia

A Convertible Promissory Note Purchase Agreement is a sophisticated financial instrument that allows you to raise capital through debt securities that can later convert into company shares. Under Australian law, this agreement must comply with the Corporations Act 2001 and ASIC regulations, as convertible notes are classified as financial products requiring specific disclosure and compliance obligations.

When do you need this document?

You'll need this agreement when your company requires interim financing before a formal equity round, particularly during pre-Series A or bridge funding scenarios. Startups often use convertible notes when they need capital quickly but want to defer company valuation negotiations until a later priced round. This document is also essential when existing investors want to provide additional funding while maintaining their conversion rights, or when you're seeking to raise funds from sophisticated investors who understand the conversion mechanics and associated risks.

Key legal considerations

The agreement must clearly define conversion triggers, including automatic conversion upon qualifying financing events, optional conversion at maturity, or conversion upon specific corporate events like acquisition or IPO. Interest rate provisions must comply with Australian lending regulations, while discount rates and valuation caps require careful structuring to avoid unfair preferences under insolvency law. Investor protection clauses, including information rights, anti-dilution provisions, and board representation rights, must be balanced against company operational flexibility. The agreement should also address treatment of accrued interest upon conversion, pro-rata investment rights for future rounds, and transfer restrictions to maintain compliance with securities law exemptions.

Legal requirements in Australia

Under the Corporations Act 2001, convertible notes constitute financial products requiring either a Product Disclosure Statement or reliance on specific exemptions such as sophisticated investor or small-scale offering exemptions. ASIC's regulatory guidance mandates clear disclosure of conversion terms, risks, and the company's financial position. The agreement must comply with foreign investment review requirements under the Foreign Acquisitions and Takeovers Act if international investors are involved. Tax implications under the Income Tax Assessment Act 1997 must be considered, particularly regarding interest deductibility for the company and tax treatment of conversion gains for investors. Additionally, the agreement should address PPSA registration requirements if security interests are created, and ensure compliance with Australian Contract Law principles including unconscionable conduct provisions and unfair contract terms legislation.