Upcoming Mallesons seminarsAll ASX-listed entities and their advisors, including the acquisition finance and equity capital markets teams of investment banks. Custodians will also be affected by the changes.
What do you need to do?Consider the implications of the new Class Order for security purchase plans as highlighted in this alert. We are happy to discuss any subsequent issues as and when they arise.
Adrian Slack
Legal Adviser (Not Australia qualified)
Scott Phillips
Solicitor
Brian Murphy
Partner
T +61 2 9296 2262
David Eliakim
Partner
T +61 2 9296 2061
Sydney
Evie Bruce
ASIC has today announced major changes to the rules relating to share and interest purchase plans (SPPs), extending the ability of ASX-listed entities to raise capital by offering shares or interests, including stapled securities (securities), to existing members without a prospectus or product disclosure statement.
The three most significant changes are:
- the maximum value of securities that can be issued to an individual investor under SPPs in any 12 month period has been increased from $5,000 to $15,000;
- where custodians hold securities on behalf of individual investors, each of the underlying beneficiaries can participate in an SPP, even if they are not expressly noted on the register of members; and
- issuers must now lodge a cleansing notice on ASX as part of an SPP offer.
ASIC Class Order
Generally, a retail offer of securities requires the issuer to produce a prospectus or product disclosure statement to ensure that investors have access to all the information required to make an informed investment decision. Various exemptions apply, including certain exemptions relating to SPPs.
Since 1991 ASIC has granted relief in relation to SPPs to allow ASX-listed entities to offer shares or interests to existing members without a prospectus or product disclosure statement. ASIC today extended the exemptions offered in relation to SPPs, publishing a new Class Order (CO 09/425) (new Class Order). Existing class orders 02/831 and 02/832 are revoked from 1 September 2009.
Main changes
1. Threshold increase
The current ASIC class orders permit ASX-listed entities to offer securities to existing investors under an SPP without a prospectus or product disclosure statement where the total amount issued to each securityholder under SPPs in 12 months was no more than $5,000. Since November 2008, ASIC has been granting case by case relief to allow SPP offers to be made up to $10,000 then $15,000. The new Class Order has set this monetary limit at $15,000.
We expect that the ASX will amend the terms of Listing Rule 7.2 exception 15 and Listing Rule 10.12 exception 8 to reflect the new maximum monetary limit of $15,000. In recent submissions to ASIC, the ASX confirmed that they supported the proposal to increase the limit to $15,000 and would work with ASIC to coordinate the introduction of ASX’s proposed Listing Rule changes.
2. Participation by clients of custodians
Under the previous regime (set out in Class Orders 02/831 and 02/832), where securities were held on behalf of investors by a custodian, such as a trustee or nominee, and only the name of the custodian was on the register of members at the record date for the offer, new securities could only be offered under an SPP to the custodian as the registered holder of securities and not to each of the underlying beneficiaries. The conditions of ASIC class order relief required that underlying holders be “expressly noted” on the register to be eligible to participate as a separate investor. This policy was specifically confirmed by ASIC as recently as March 2009.
The practical effect of this policy was that one custodian holding securities for several individual beneficiaries not noted in separate holdings on the securities register could only participate once (to the value of $5,000 in 12 months) in any SPP, meaning the underlying investors not noted on the register were unable to participate separately and receive the full entitlement themselves.
The new Class Order represents an expansion of ASIC’s SPP relief by enabling an issuer to offer securities under an SPP without a prospectus or product disclosure statement to each of the underlying beneficiaries whose securities are held on their behalf by a custodian, even if the name of the underlying holder is not expressly noted on the register of members.
Consistent with the treatment of joint-holders who are specifically noted on the register, the $15,000 limit applies to beneficial joint-holders as if they were one holder.
3. Cleansing notice
A major change to the existing regime introduced by the new Class Order is the requirement for a notice to be issued in respect of the SPP to the effect that no information has been withheld by the entity from continuous disclosure (including under an exception). Such notices are commonly referred to as “cleansing notices”.
Whilst cleansing notices have been used in relation to institutional placements and undocumented rights issues for securities to be on-sold, they have not been required in relation to securities issued under the current class orders.
Practically this does not represent a major hurdle as a cleansing notice given in respect of a placement which is combined with an SPP would be expected to comply with the requirements of the new Class Order. As with traditional cleansing notices, for any defect in the original notice, an obligation subsists until 12 months after the issue of securities under the offer to correct that defect.
A separate cleansing notice will still need to be provided at the time of issue of securities to an underwriter as part of a shortfall under an SPP.
Custodian Certificates
Under the previous regime, when applying for securities under an SPP, a registered holder of securities had to provide the company with a certificate stating that the aggregate of the shares being applied for and any other securities applied for in the last 12 months under a similar offer does not exceed the threshold (then $5,000).
The certification provisions have been retained, with the modification that a custodian applying for securities on behalf of its beneficiaries (even if not noted on the register) must issue a certificate providing the details of such beneficiaries and confirming that the $15,000 limit in 12 months will not be exceeded in respect of each individual beneficiary.
The listed entity is under an obligation itself not to issue securities under an SPP unless it is reasonably satisfied that the $15,000 limit in 12 months will not be exceeded in respect of any investor, whether holding securities personally or through a custodian. The entity should therefore be careful to scrutinise certificates before issuing the securities.
Other changes:
- Securities must not have been suspended from trading for a total of more than 5 days during the shorter of 12 months before the SPP offer and the period since quotation.
- The issuer must not be covered by any exemption or order under the disclosing entity provisions or the financial reporting and audit requirements.
Comment
We expect these changes to be widely embraced by listed entities, custodians and investors.
The increase of the monetary limit to $15,000 per member in any 12 month period means listed entities have the opportunity to raise a higher level of capital from their existing members without going through the time and expense of producing a prospectus or product disclosure statement. Whilst this change is not unexpected and ASIC has granted specific relief to increase the limit in certain cases, the facilitation of capital raising is particularly welcome in the current economic climate.
What was more unexpected, but no less welcome, was the change to the provisions relating to custodians. Many listed companies have received complaints from disgruntled investors in the past who have been unable to participate in SPPs because their securities are held by a custodian on their behalf. These complaints arose because the shareholdings of such members were diluted without them having the opportunity to take up the offer of further securities under the SPP. The changes will enable issuers to offer such members the opportunity to take advantage of such offers in the future.
Whilst there are several changes to the requirements for the exemption to comply, including the need to issue a cleansing notice, the burden of such requirements should not outweigh the welcome effect to listed entities of the higher level of capital that can be raised and widened investor participation.