The background on Brisconnect

The saga of Brisconnect has been a shambles that hopefully will never be repeated in Australia's investing community again. It all boils down to the partly-paid nature of Brisconnect's units (basically shares in Brisconnect). Investors purchased units for $1 each at the float, but also agreed to pay an additional $2 per unit at some point down the line. This is quite normal, and is how the recent Telstra share sales were done by the government.

Until two things happened. First, the business tanked, and the unit price went down with it. Down to one tenth of a cent. Some keen investors saw this and thought it looked like a bargain. Which led to the second problem - they were not told of the $2 liability attached to each unit. Unlike the buyers at the float, there was no prospectus to warn them, nor do online brokers give you a little warning when it flashes the brokerage costs and transaction details before making a bid. The result was mum and dad investors buying $1,000 in Brisconnect and taking on a $2 million liability with it.

Two things would have prevented this. The first is to make all partly-paid shares operate like Telstra did, if you don't pay the next instalment, you lose your stake. The second is to require all buyers to be warned of how much additional liability is attached to their purchase. The good news: ASIC and the ASX have introduced the latter. The bad news: this won't save the many Brisconnect investors who were caught unawares.