On 1 December 2019, the biggest change in a decade to the ASX Listing Rules (Rules) came into effect.
ASX has introduced the majority of the changes proposed in the consultation paper ‘Simplifying, clarifying and enhancing the integrity and efficiency of the ASX listing rules’, which broadly aim to:
- Provide clarity to the Rules;
- Improve disclosures to the market; and
- Enhance ASX’s monitoring and enforcement powers.
We have highlighted the key changes below.
To standardize the disclosure of entities, ASX has provided more specific guidance for items required to be disclosed and the format of such disclosure under the continuous disclosure obligations set out in Chapter 3 of the Rules. This includes:
- Reorganisations of an entity’s capital (Rule 3.10.1);
- Issue of equity securities under an employee incentive scheme (Rule 3.10.3A);
- Conversion of convertible securities (Rule 3.10.3B);
- Unquoted partly paid securities becoming fully paid securities (Rule 3.10.3C);
- The issue of a new class of quoted equity securities (Rule 3.10.5);
- The outcome of resolutions put to a meeting of security holders (Rule 3.13.2);
- An entity making a decision not to pay a dividend or distribution on a quoted security if it had previously announced an intention to do so (Rule 3.21); and
- An entity making a decision to make an interest payment on a quoted debt security or deciding not to pay interest on a quoted debt security (Rule 3.22).
- ASX has amended Rule 7.1 and 7.1A.2 to correct the omission in the previous drafting of the Rules to take into consideration convertible securities which were issued or agreed to be issued before the commencement of the relevant period;
- Entities contemplating an issue of equity securities pursuant to Rule 7.1 or 7.1A.2 will now be required to complete a work sheet found in GN21 and to send it to its ASX Listings Compliance adviser. These work sheets will not be disclosed to the market and the entity does not need to wait after lodging the work sheet for any confirmation from ASX before it can proceed with the proposed issue of equity securities; and
- ASX has also amended the disclosure requirements for a notice of meeting to approve an issue or agreement to issue securities under Rule 7.1 or 7.1A (Rules 7.3 and 7.3A).
Good fame and character
The ‘good fame and character’ requirements for directors for new listings have been extended to apply to non-director CEOs and CFOs and proposed CEOs and CFOs (Rule 1.1 condition 20).
Transactions involving persons in a position of influence
ASX has introduced concepts of a 10% and 30% substantial holder for acquisitions of securities in the entity:
- Where the counterparty to a transaction involving certain equity securities is a person who is, or was in the period 6 months before the issue/agreement a substantial 30%+ holder in the entity, the entity must not issue/agree to issue the equity securities without approval of the entity’s ordinary securities (Rule 10.11.2A); and
- Where the counterparty to a transaction involving certain equity securities is a person who is, or was in the period 6 months before the issue/agreement a substantial 10%+ holder in the entity, and who has nominated a director the board of the entity, the entity must not issue/agree to issue the equity securities without approval of the entity’s ordinary securities (Rule 10.11.2A).
Exam for persons responsible for communications with ASX
- For listing applications lodged on or after 1 July 2020, persons responsible for communications with ASX in relation to Rule matters must have completed an approved education course and examination covering Rule compliance (Rule 1.1 condition 13); and
- An entity must also appoint and at all times have a person responsible for communication with ASX in relation to Rule matters. If the entity is admitted as an ASX Listing and the person is appointed on or after 1 July 2020 that person must have completed an approved education course and examination covering Rule compliance (Rule 12.6).
Assets Tests for IPOs
- ASX has revised the working capital test and its definition of working capital. Under the amended definition ‘working capital’ is current assets minus current liabilities only (Rule 19.12); and
- Entities must have at least $1.5 million in working capital at the time of admission, rather than also having an option to include the first 12 months of projected revenue of an entity, as stated in the existing rule (Rule 1.3.3).
Quarterly reporting obligations
Entities which currently lodge Appendix 4C quarterly cash flow reports must now also lodge a quarterly activities report for release to the market at the same time as the Appendix 4C. This report must include information for the group comprising the entity and its child entities on a consolidated basis (Rule 4.7C). The terms of this disclosure is set out at Rule 4.7C.1 – 4.7C.3. This Rule change comes into effect for the quarter ended 31 March 2020.
Increased quarterly disclosure obligations for mining, oil and gas producing and exploring entities have also been introduced to ensure transparent disclosure around the expenditure of these entities (Rule 5.3, 5.4, 5.5).
ASX enforcement powers
ASX has introduced a power to censure an entity that it considers has breached the Rules or a condition or requirement imposed under the Rules, and if ASX considers it appropriate to do so. ASX may release the censure and the reasons for it to the market (Rule 18.8A).
ASX has clarified that it has unfettered discretion in relation to the application of the Rules, such that ASX may elect to exercise any power or discretion conferred under Rules in relation to an entity in its absolute discretion (Rule 18.5A).
ASX has extended its power to ask for information, documents or explanations to confirm or ensure compliance with the Rules (Rule 18.7 and 18.8).
Given the large volume of changes to the Listing Rules and Guidance Notes, we recommend you review or get advice on the new changes before undertaking any actions that are subject to the Listing Rules. A link to all amendments can be found here.
This article was written by Grant Hummel, Partner, Hanna Posa, Senior Associate and Jonathan Tay, Law Graduate.