What an Information Memorandum Should Tell You — and What to Check

An Information Memorandum, or IM, is the document a promoter gives you when they want your money. It describes the opportunity, the structure, the fees and the projected returns.

It is a sales document. That does not make it dishonest, but it does mean it is written by the party with the most to gain, and it should be read the way you would read any other document written by someone on the other side of a transaction.

The sections that matter most

Most IMs run to thirty or forty pages and most of those pages are context: market commentary, location analysis, photographs. The commercially significant content is usually concentrated in a handful of sections.

Fees

Find every fee. They are rarely in one place. Look for:

• Management or project fees — how much, calculated how, and capped at what
• Acquisition and disposal fees — often a percentage of purchase or sale price
• Performance or promote fees — the promoter’s share of profit above a hurdle
• Reimbursable costs — the category that quietly expands

For each fee, establish three things: the amount, the trigger, and the cap. A fee described as an entitlement “for the life of the project” is a total, not a rate. If the IM says the manager is entitled to a fixed sum across the project, drawings above that sum are not fees — they are something else, and you should know what the documents say happens then.

Funding

The IM should state plainly how the project is to be funded. The distinction that matters is equity versus debt.

If the IM represents that the project will be funded from investor equity progressively, without borrowing, then that is a representation about risk. Debt introduces a lender who ranks ahead of you, interest that accrues whether or not the project progresses, and covenants that can force decisions.

Ask directly: can the manager borrow against the project assets, and does that require investor consent? Then find the clause in the actual agreement that answers it. If borrowing requires consent, know who gives it and what happens if it is given without them.

Your information rights

This is the section most investors negotiate least and need most. What are you entitled to see, and when?

Strong positions include:

• Read access to the project’s accounting system
• Read access to project bank accounts
• Defined reporting at defined intervals
• The right to inspect books and records on notice

Weak positions are anything phrased as the manager providing reports “as it considers appropriate.”

Two questions matter beyond the grant itself. Can the access be revoked, and by whom? Access granted as a courtesy can be withdrawn as a courtesy. Access written into the agreement as a right cannot be, and if it disappears anyway you have a clear and documentable breach rather than an argument.

Approvals and timing

Development projections rest on an assumed approval timeline. Establish what the IM assumes and what it is based on.

In Queensland, the distinction between code assessable and impact assessable development drives the timeline. Code assessable applications are assessed against established criteria and cannot be refused on broad discretionary grounds. Impact assessable applications require public notification, attract submissions, and carry appeal rights for submitters.

An IM relying on a town planning report that describes a project as code assessable is relying on that report being right. Ask when it was prepared, who prepared it, whether the planning scheme has changed since, and what the timeline becomes if the assessment turns out differently.

The IM is not the contract

This is the single most important thing to understand about an IM.

The IM describes the deal. The subscription agreement, shareholders agreement, unitholders deed or joint venture agreement creates it. Where the two differ, the executed agreement governs.

So the exercise is not to read the IM and decide. It is to read the IM, list every representation that matters to you, and then find each one in the binding documents. Representations that appear in the IM and nowhere else are, at best, harder to enforce.

Any promise made verbally by a promoter is worth exactly as much as its written counterpart, which is usually nothing.

Questions worth asking in writing

Ask these by email, so the answers exist in a form you can point to later:

1. What is the total the manager can draw across the life of the project, and where is that cap in the binding documents?
2. What happens to fees if the project does not progress on schedule?
3. Can the project borrow? Whose consent is required?
4. What information am I entitled to, at what intervals, and can that access be withdrawn?
5. What is the assessment pathway, who advised on it, and when?
6. Who are the other investors, and what are their rights relative to mine?
7. What has the promoter done before, and what happened to those projects?

Question seven should be verified rather than accepted. An ASIC extract and a bankruptcy search will confirm or contradict most track-record claims in about an hour.

If the answers are vague

Vagueness in response to specific written questions is itself information. A promoter who cannot say what their fee cap is, or who answers a direct question about borrowing with reassurance rather than a clause reference, has told you something useful.

The time to discover that is while you are still deciding.