Acting for You, February 2019

Given that the NSW Parliament has recently passed the Modern Slavery Act 2018 (NSW) which has several major points of difference between from the Commonwealth Act we consider it is likely that the NSW Act will increase the regulatory burden on entities incorporated in, or operating in NSW. We encourage state and Commonwealth governments to explore ways of reducing this burden. We have also expressed our willingness to be involved in consultation on the formal administrative guidance to the Act.

Governance Institute will continue to keep members updated on this matter.

ASX listing rules amendment package

ASX released a public consultation package Simplifying, clarifying and enhancing the integrity and efficiency of the ASX listing rules in late November 2018. The package includes a broad range of amendments affecting entities seeking to list on ASX and existing listed entities. The last major update was in 2016. Submissions are due on 1 March 2019 and the proposed effective date of the reforms is 1 July 2019.

Some of the key changes are set out below:

• Enhanced powers for ASX — LR 18 is to be amended to enhance ASX’s power to grant waivers and exercise compliance powers, to facilitate ASX requiring information from entities (including under oath) about their compliance with any conditions or requirements impose under the LRs and any future compliance and to empower ASX to disclose this information publicly and to formally censure entities for egregious breaches.
• Admission
  • The application forms for admission will be separated from the agreements which will shorten the application forms and remove the need for signatures.
  • The good fame and character tests applicable to directors and company secretaries will be extended to CEOs and proposed CEOs.
  • Entities seeking admission to the list will no longer be able to rely on budgeted revenue and budgeted administration costs to satisfy the $1.5M minimum working capital requirement, but must disclose the objectives they aim to achieve from an IPO to confirm they have adequate working capital to meet those objectives.
  • The escrow regime will be streamlined and the administrative requirements around the regime reduced by introducing a two-tier escrow regime where ASX can require certain more significant holders of restricted securities and their controllers to execute a formal escrow agreement in the form of Appendix 9A. For less significant holdings, ASX will permit entities to rely on a provision in their constitution imposing appropriate escrow restrictions on the holder of restricted securities and to simply give a notice to the holder of restricted securities.
• Meetings and notices of meetings
  • Disclosure of closing dates for director nominations — amending the drafting of LR 31.13.1 to clarify that entities must provide five business days’ notice of the closing date for receipt of director nominations, as opposed to simply disclosing the date of the meeting at which directors may be elected.
  • Voting results disclosure — the proposal is to enhance the disclosure of voting results of shareholders’ meetings, including requiring a short description of resolutions, whether the resolution was decided on a show of hands or by poll and the aggregate number of securities for which proxies were received, whether adoption of an entity’s remuneration report received a first or second strike and any resolutions proposed in the notice of meeting but not put to the meeting, including an explanation of why the resolution was not put to the meeting.
  • Employee incentive schemes — adding a new LR 14.10 providing that securities held by or for an employee incentive scheme must only be voted on a resolution, if and to the extent, that they are held for the benefit of a nominated participant in the scheme who is not excluded from voting on the resolution and who has directed how the securities are to be voted.
  • Entities will have to disclose a director’s total remuneration package when seeking security holder approval for a grant of securities to that director.
  • Expanding and rationalising the disclosure requirements for notices of meetings.
• Communication with ASX
  • From 1 July 2019 anyone appointed as the person responsible for communication with ASX about LR issues (for new listings or new appointments) must demonstrate an adequate level of knowledge of the rules by completing an approved LR compliance course and attaining a satisfactory result. ASX will make a free online course available and may approve courses provided by other organisations.
  • Persons appointed prior to 1 July 2019 will be grandfathered from this requirement but will have access to the online course to refresh their knowledge.
  • LR 15.5 will be amended to make it clearer how documents should be given to ASX and adding a requirement that where documents are for release to the market they include a covering letter including the name, title and contact details of a person security holders and others can contact.
• Corporate actions — The timetables for corporate actions in Appendix 6A and 7A will be updated. This includes new timetables specifically for mergers or takeovers by court-approved schemes of arrangement and changes to record dates, payment dates, interest payment dates and quotation periods.
• Disclosure and reporting
  • There will be a new quarterly activity reporting for start-up entities as well as expanded reporting requirements in quarterly activity and cash flow reports for mining/oil and gas exploration entities to ensure they remain accountable for their reported use of funds.
  • Entities will be required to include a description of, and explanation for, any payments to a related party in their quarterly cash flow reports.
  • Listed investment companies and listed investment trusts will be required to improve their disclosures for the valuation methodologies they employ for investments in unlisted securities and to standardise ‘net tangible asset backing’ disclosure.
  • New rules will be introduced about disclosure of the key terms of underwriting agreements to ensure disclosure is clear and consistent.

• Issuing securities
  • The current process for applying for quotation of newly issued securities and for disclosing the proposed issue of securities will be simplified and rationalised. Entities will use an amended Appendix 3B to disclose proposed issues and an Appendix 2A to apply for quotation of new securities. The amended Appendix 3B will not be required for proposed issues under employee incentive schemes or as a consequence of conversion of convertible securities. Both forms will be ‘smart’ forms.
  • The time for an application to apply for quotation for restricted securities will be decreased from ten days to five days.
  • There will be simplified and streamlined disclosure of an entity’s reliance on the additional ten per cent capacity under LR 7.1A. Appendix 3B and Appendix 2A will prompt an entity to distinguish between issues under their ten per cent capacity and under their 15 per cent capacity. Entities will not be able to issue securities under LR 7.1A for non-cash consideration.
  • Amending rules to enable an entity to have an agreement to issue securities ratified by security holders. The relevant rules only permit an actual issue of securities to be ratified.
  • Rationalising lists of equity issues that can be made without security holder approval.
  • Amending the list of voting exclusions for greater consistency and to give greater certainty as to which parties must have their votes excluded.
• Other — the need to apply for a number of standard waivers will be eliminated and the standard form relief will be built into the LR. A number of standard forms will be moved from the Appendices to the LR and will be available online. There are also a number of changes correcting current gaps or errors and further aligning certain rules with the Corporations Act.

Governance Institute will make a submission on the amendment package and will keep will continue to keep members updated on this issue.