Corporate Advisory Update - April 2022

09/05/2022

In this edition of Gilbert + Tobin's Corporate Advisory Update, we focus on key legal developments over the last month which are particularly relevant to in-house counsel.

ASX consults on listing rule updates that will impact IPOs and secondary raisings

ASX has issued a consultation paper seeking feedback on a range of changes to the Listing Rules proposed to be made in December 2022. Submissions are due by 27 May 2022.

If implemented in their proposed form, the changes will:

impact some ASX admission requirements for companies undertaking an IPO; and
constrain the allocation policies ASX listed companies may adopt when undertaking share purchase plans, rights issues and institutional placements as well as introduce additional disclosure requirements regarding allocation of shares in those offers.

The proposed changes will go through a period of consultation with the market before being finalised and implemented. We expect ASX’s proposed encroachment on boards’ discretion around allocations – in particular on entitlement offers – to be the subject of some discussion.

ASX consults on enhancements to the ASX investment products offering

A recent ASX consultation paper consults on possible enhancements to the ASX investment products offering with a view to identifying improvements and alignment of the current governing rule books. Currently, ASX’s investment product offering comprises the following three product sets regulated by three separate rule books:

listed investment companies, listed investment trusts, real estate investment trusts and infrastructure funds listed and quoted on the ASX under the ASX Listing Rules;
exchange traded funds, managed funds and structured products quoted on ASX under the AQUA Product Rules in schedule 10A of the ASX Operating Rules; and
warrants quoted on the ASX under the Warrant Rules in schedule 10 of the ASX Operating Rules.

ASX’s aim is to ensure there is a clear and consistent rule framework that safeguards the interests of investors, while at the same time providing issuers with the flexibility to innovate and bring new products to market, and without imposing undue compliance costs or burdens.

ASX seeks feedback on a range of relevant policy issues and submissions are due by 24 June 2022.

Phase 2 of the consultation, which will likely be in early 2023, will then seek feedback on specific proposed changes to ASX’s rules, procedures and guidance for investment products.

ASX envisages that, subject to regulatory approvals, the changes will be released in mid to late 2023 and will come into effect no earlier than 1 January 2024.

Employee share scheme reforms to commence from 1 October 2022

As part of the Budget 2022/23 announcements, a raft of changes to the Corporations Act 2001 (Cth) will come into effect on 1 October 2022 which are designed to expand the availability of employee share schemes and allow more employees to share in the growth and success of the business. The reforms will be of particular interest to start ups and other ‘cash poor’ businesses looking to be more competitive in recruitment and retaining staff.

These reforms follow the removal of the employee share scheme deferred taxing point on cessation of employment from 1 July 2022.

The reforms are contained in Schedule 4 of the Treasury Laws Amendment (Cost of Living Support and Other Measures) Act 2022.

Where an employee share scheme falls within the relief, the standard regulatory requirements under the Corporations Act for businesses offering shares and financial products to retail clients will not apply so that:

a scheme can be operated without an AFSL and general financial advice can be provided in relation to the scheme without an AFSL;
the restrictions on advertising and hawking securities and financial products and the design and distribution obligations in the Corporations Act do not apply to the scheme;
where the scheme requires no payment to participate, no disclosure requirements will apply and where a scheme does require payment, a streamlined set of disclosure requirements will apply.

The relief also applies in relation to any contribution plan or loan related to the scheme.

The key criteria for relief are:

the interests issued, sold or transferred to participants under the scheme fall within certain eligible categories of interests (e.g., shares or options);
the participants in the scheme are directors, employees, or service providers;
if the scheme requires payment to participate:
- certain disclosure documents are provided with the offer;
- if the scheme has an associated contribution plan, loan or trust, the contribution plan, loan or trust meet certain requirements;
- the total number of products issued under the scheme over the previous three years does not exceed a specified percentage of the body corporate’s issued capital (5% for listed bodies and 20% for an unlisted body corporate), unless otherwise specified by regulation or the body corporate’s constitution); and
- for an unlisted body corporate, there is a monetary cap of $30,000 per year (up from the previous $5,000 cap) (which can be accrued for unexercised options over a five-year period, up to a maximum of $150,000), plus 70% of dividends and 70% of cash bonuses.

TerraCom Ltd v ASIC – important legal professional privilege reminders on how to reduce the risk of waiver

A recent decision of the Federal Court of Australia provides a timely reminder, in the context of reports prepared by third-party experts, of the importance of:

at the time of making a privileged communication, ensuring that evidence will be available in support of a claim of privilege over the communication, in the event that it becomes necessary to make such a claim in the future. In particular, when retaining an expert to prepare a report for an internal investigation, ensure that any retainer or letter of engagement makes clear the privileged purpose for retaining the expert;
once a privileged report or communication has been made, ensuring that appropriate safeguards are in place to prevent conduct which could amount to a waiver of privilege over the communication; and
as the case shows, depending on the nature and structure of the privileged expert report, a disclosure of part of the report (even in an oblique way) may result in privilege over the entire report being waived.

Australia welcomes further guidance on improving climate-related financial risk management by banks and supervisors

The Basel Committee on Banking Supervision has recently released its 2022 draft principles. G+T partner Ilona Millar, special counsel Louise McCoach and paralegal Shanae Streeter chart the recent developments for APRA related entities in climate related financial risk, comparing the Basel Committee’s draft principles with publications from other regulatory bodies and what these developments mean for Australian banks.

Dominance in Australia: 2022

G+T Partner Elizabeth Avery and Special Counsel Liana Witt have contributed to the Lexology/Getting The Deal Through - Dominance 2022 publication by authoring the Australia chapter.

This quick reference guide includes the Australian general legal framework and sector-specific rules, the definition of collective dominance, and relevance of dominant purchasers; abuse of dominance and related defences; specific forms of abuse, enforcement, sanctions, remedies and appeals; and current trends.