Authored by Amanda Isouard and Jo Ruitenberg.
On 28 November 2018 the Australian Securities Exchange (“ASX”) released a public consultation paper titled “Simplifying, clarifying and enhancing the integrity and efficiency of the ASX listing rules” (“Consultation Paper”).
The Consultation Paper sets out a broad range of proposed amendments to the ASX listing rules which affect entities seeking to list on ASX as well as those who are already listed.
As ASX notes, the last major update to the listing rules was in 2016. In our view, ASX’s proposed comprehensive reforms contain many good ideas and will go a long way to achieving their objectives of simplifying, clarifying and enhancing the integrity and efficiency of the ASX listing rules. Where changes are needed, these will likely be picked up in the consultation process which ends on 1 March 2019 – with a view to the reforms taking effect on 1 July 2019. It is important that entities and their advisers are aware of the proposed reforms so that they can be factored into planning for the year ahead.
If ASX implements the reforms as currently drafted, the key points to note are as follows (further details can be found in our initial client alert):
- Powers: ASX will have enhanced operational, monitoring and enforcement powers, which is not surprising in Australia’s current regulatory environment;
- Equity Capital Markets:
- escrow: changes clarify the circumstances when security holders will be subject to mandatory escrow and for how long. Mandatory escrow arrangements will differ based on how significant a securityholder is and will be streamlined so that an entity can include escrow provisions in its constitution for less significant securityholders rather than needing to enter into escrow deeds. This will be helpful to entities with a large number of minority shareholders;
- placement capacity: placement capacity (the 15% or 25% threshold) will be easier to calculate and more detail has been provided on the exceptions;
- mid to small caps: mid to small caps will be affected by changes to their issuance capacity requirements (e.g. revised disclosure requirements and changes to issue terms). Entities with a market capitalisation of less than A$300 million should note these changes;
- placement subscribers: subscribers in placements to 10 or less investors will need to be named where securityholder approval is required, rather than just the basis of selection;
- underwriting arrangements: entities will need to include specific disclosure regarding certain capital raising underwriting arrangements (e.g. summary of material circumstances where underwriter has right to avoid or change its obligations);
- assets test: entities seeking to list under the assets test will no longer be able to rely on budgeted revenue and budgeted administration costs to satisfy the A$1.5 million minimum working capital requirement;
- good fame and character: chief executive officers (“CEOs”) and proposed CEOs will be subject to the good fame and character tests in addition to directors and proposed directors;
- Related parties and persons in position of influence:
- waivers: waivers for transactions involving a person in a position of influence will be significantly harder to get;
- listed funds and REITs: ASX will no longer provide waivers to allow listed fund managers or REITs to transfer significant assets to other funds managed by the same responsible entity (or its subsidiaries). This is likely to have a significant impact on fund managers and listed trusts that also operate unlisted funds;
- Incentive schemes:
- incentive schemes for directors: entities will need to disclose a director’s total remuneration package when seeking securityholder approval for a grant of securities to that director;
- voting of undirected incentive scheme securities: ASX has followed ASIC’s lead in disentitling an employee incentive scheme trustee from voting undirected underlying securities on spin-outs and other corporate actions;
- Spin-outs: there is new guidance on when spin-outs of major assets require securityholder participation, broadening the current regime and setting a 25% threshold on all metrics for assessing applicable spin-outs (previously 20% on some, 15% on others);
- Investment entities: changes to the timing for disclosure of net tangible assets (“NTA”) by investment entities (i.e. listed investment companies and listed investment trusts);
- Corporate Actions:
- timetables: entities considering a corporate action will need to factor revised timetables into their transaction planning – this will have broad applicability to M&A, equity capital markets and capital management transactions;
- deferred settlement trading: it is likely that there will be changes made to deferred settlement trading;
- quarterly activity reports: more entities (in particular start-ups) will be required to prepare quarterly activity reports; and
- resources entities: mining and oil and gas exploration entities will have enhanced disclosure requirements.
- Delisting: ASX has thought through delisting to a greater level of sophistication than the past. The trigger period before entities will be automatically removed from ASX as a result of being suspended has been reduced from 3 years to 2 years in most cases. More guidance has been provided on requests for voluntary removal.