The changes are voluminous and, in many cases, technical or clarifying in nature.
ASX has also strengthened its monitoring and enforcement powers, including the ability to formally and publicly censure a listed entity for a breach of the Listing Rules.
What changes should you be aware of?
The new Listing Rules come into effect on 1 December 2019 and set out below is a high level summary of the significant changes.
Listed entities should be mindful that corporate actions currently being planned may be impacted if such actions are being announced or implemented post-1 December 2019.
ASX announcements and periodic reporting
Form of market announcements
All documents (other than prescribed ASX or ASIC documents) to be released to the market must now:
- include the entity’s name, address and corporate logo (or be sent with a covering letter that includes that information)
- be dated
- identify the title of the body or the name and title of the officer of the entity who authorised the document to be given to ASX, and
- if the document is an announcement under Listing Rule 3.1, include the name, title and contact details of a person who securityholders or other interested parties can contact if they have any queries.
Quarterly reporting - activity reports
Entities which are required to provide a quarterly ‘cash flow report’ must now also provide a quarterly ‘activity report’ which:
- details their business activities for the quarter
- provides a comparison of expenditure against any ‘use of funds’ statement included in its IPO prospectus or PDS, and
- details any payments to related parties or their associates.
Quarterly reporting – forward looking statements
Entities which are required to provide a quarterly ‘cash flow report’ must also provide additional disclosures if their available cash is less than 2 quarters’ worth. These additional disclosure include whether the rate of cash outflow is expected to remain the same, whether the entity proposes to take steps to raise more capital (and what those steps are) and whether it expects to be able to continue to meet its stated objectives.
LICs and LITs
Listed LICs and LITs (ie investment entities) are subject to additional monthly and annual disclosures. In relation to monthly NTA reports, there is an updated definition of ‘net tangible asset’ and the reports must now be disclosed ‘immediately’ after such reports are available. Securities will be suspended if the monthly NTA report has not been released within 14 days after month-end.
In relation to annual reports, LICs and LITs must disclose:
- how it values their investments in accordance with Accounting Standards, and
- the NTA backing of quoted securities at the beginning and end of a reporting period and an explanation of any change over that period.
Distribution schedule in Annual Reports
The distribution schedule to be included in an entity’s Annual Report must now also include the total percentage of the securities in a class held by the holders in each category.
Capital raisings and issuing new securities
Key changes to the placement capacity rules under Chapter 7 are as follows:
- greater clarity has been provided on how to calculate an entity’s placement capacity, and pro-forma worksheets are available to calculate capacity
- many of the placement capacity exceptions can only be relied on if additional disclosures are provided to the market, and
- ASX has changed its approach to how convertible securities are counted towards an entity’s placement capacity. Under the new Listing Rules, convertible securities are counted as the maximum number of fully paid ordinary securities into which they can be converted on the date of the calculation. Convertible securities that may convert by reference to a variable other than the market price of the underlying security or the value of a foreign currency may not be accepted by ASX.
ASX has expanded its disclosure requirements with respect to underwriting arrangements for capital raisings. These disclosures apply not only to rights offers, but also to underwritten institutional placements, underwritten dividend reinvestment plans and offers of options. Entities subject to these rules must disclose the name of the underwriter(s), the amount underwritten, any fees or commissions payable and a summary of termination events under the underwriting agreement. In addition, entities must immediately notify ASX of the exercise by an underwriter of a right to terminate an underwriting agreement.
Approval required for issues to 10% substantial holders and 30% substantial holders
Unless an exception applies, securityholder approval is required to issues of securities to ‘10% substantial holders’ or to ‘30% substantial holders’ (or their associates).
- A ‘10% substantial holder’ is a securityholder who holds, or who held at any time in the 6 months prior, a 10% or more holding in the entity and who has “nominated a director…pursuant to a relevant agreement which gives them a right or expectation to do so”.
- A ‘30% substantial holder’ is a securityholder who holds, or who held at any time in the 6 months prior, a 30% or more holding in the entity.
ASX has introduced a new Guidance Note 25 which provides detailed guidance on Listing Rule 10.11.
Procedure for announcing security issuances has changed
ASX has amended the Listing Rules to deal with announcements of new issues and applications for quotation of securities in two different ‘smart forms’.
- Issuance of securities: Most issues of securities will now need to be notified to ASX via an Appendix 3B at the time the issue is proposed (other than issues under an employee incentive scheme or made as a consequence of the conversion of any convertible securities). Entities may continue to use the existing Appendix 3B until the end of January 2020.
- Quotation of securities: An application for quotation of securities must now be made via an Appendix 2A. For securities that are issued and quoted immediately, the Appendix 2A is the appropriate form to be using to meet both the quotation and the notification requirements.
Issues under an employee incentive scheme or made as a consequence of the conversion of any convertible securities need to be notified to ASX within 5 days of the relevant securities being issued.
ASX has updated the suite of timetables for capital raisings and other corporate actions.
Limited purpose for using 10% placement capacity top-up
ASX has removed the ability for entities to issue securities under their additional 10% placement capacity for non-cash consideration (ie the issue cannot be consideration for an acquisition). Further, to ensure the market is properly informed, entities must disclose the fact that an issue is being made using their additional 10% placement capacity rather than their 15% capacity.
New guidance note on securityholder meetings
ASX has issued a new Guidance Note 35 in respect of securityholder resolutions under the Listing Rules. The guidance note provides detailed guidance on notices of meeting disclosures, the ASX review process, voting exclusions and the voting process.
All Listing Rule resolutions must be approved by poll
Consistent with the ASX Corporate Governance Principles, ASX Guidance Note 35 provides that all Listing Rule resolutions must be decided by a poll rather than by a show of hands.
Additional disclosure requirements for notices of meetings
ASX has prescribed in greater detail the level of disclosure to be included in notices of meetings. The key changes include:
- capital raisings: requiring entities to list the names of certain recipients of securities (where known and likely to be material to the decision of securityholders) in relation to approvals or ratifications of share issues
- related party transactions: minimum content requirements for resolutions approving related party transactions under Listing Rule 10.1
- equity grants to directors: requiring disclosure of a director’s total current remuneration package for resolutions approving the grant of equity incentives under an employee incentive scheme to a director or associate, and
- consequences of resolution: requiring notices to summarise relevant listing rules and explain the consequences if the resolution is / is not passed.
New format for disclosing results of meetings
Entities must provide greater detail when disclosing the results of member meetings. ASX has prepared a pro forma notification that entities can use to notify ASX of the results.
Closing date for director nominations
Entities must disclose the closing date for the receipt of director nominations at least 5 business days before the closing date.
Updates to voting exclusions
ASX has updated the voting exclusions applicable to a range of Listing Rules. Many of the voting exclusions now apply to persons who will receive a ‘material benefit’ as a result of the transaction.
Limitations on voting employee incentive scheme securities
Securities held by or for an employee incentive scheme will not be able to voted unless they have been allocated to a nominated participant in the scheme who is not excluded from voting on that resolution and who has directed how the securities are to be voted.
CEO and Chair AGM speeches
ASX now requires entities to disclose both the Chair’s and CEO’s prepared addresses prior to any securityholder meeting.
Compliance and ASX enforcement powers
ASX has the power to censure listed entities
ASX has a new power to formally censure entities that breach the Listing Rules, or a condition imposed under the Listing Rules, and to publish the censure and the reasons for it to the market.
ASX’s new power brings it into line with other major exchanges.
ASX has stated that it only expects to exercise its censure power where the breach is an “egregious one” and “warrants a public censure”. Entities will have the opportunity to review and comment on the censure before release.
ASX has greater monitoring powers
ASX has expanded its powers to monitor compliance with the Listing Rules. ASX can request any document or information confirming its compliance with the Listing Rules. ASX can require any information or document provided to it be verified under oath.
Training now mandatory for an entity’s communications officer
ASX is introducing a requirement that the person responsible for communication with ASX in relation to Listing Rule matters must complete an approved compliance course and attain a satisfactory pass mark in the examination for that course.
This requirement will not take effect until July 2020 as ASX is in the process of completing preparation of the online course.
ASX discretion to refuse admission
ASX will have complete discretion to refuse admission even if all of the listing criteria are met. A new example of where ASX may refuse admission is where the ASX has had prior unacceptable dealings with the entity’s CEO or CFO.
Working capital requirements for listings under the assets test
Entities seeking to list under the assets test must have at least $1.5 million in working capital. ASX has made it clear that entities can no longer include the first 12 months of their projected revenue in the calculation of their working capital.
Good fame and character requirements extended to CEOs and CFOs
The good fame and character tests that directors and proposed directors are currently subject to have been extended to apply to CEOs and CFOs.
Mandatory escrow arrangements
A number of reforms have been introduced to simplify the mandatory escrow requirements in relation to entities seeking admission under the asset test. Under the new Listing Rules, only significant security holders will be required to execute a formal escrow deed. An entity’s constitution can include provisions to enforce mandatory restrictions against the balance of restricted holders.