Background
On 3 April 2019, Treasury released an employee share schemes (ESS) consultation paper1 on proposed changes to simplify and expand the ESS regulatory framework to assist small businesses seeking to offer shares to their employees via an ESS. The release follows the Government’s initial announcement on 13 November 2018 of its intention to simplify and extend the current ESS regime2.
The consultation paper canvases the Government’s proposals to amend the current framework, which it describes as ‘complex and fragmented’ and ‘too restrictive’, and seeks feedback in relation to the proposals. The key proposals are summarised in the table below.
The proposals are primarily targeted at unlisted companies. However, feedback is also being sought on possible reforms to assist listed companies, including whether the current relief available to listed companies should be consolidated, simplified or expanded.
What are the key proposals?
| Key Proposal | Current Framework |
| Consolidating and simplifying the current exemptions | |
Consolidate and simplify the current statutory exemptions and ASIC Class Order3 relief from disclosure, licensing, hawking, advertising and other obligations under the Corporations Act 2001 (Cth) (Corporations Act), for example by:
|
Various restrictions and prohibitions on offers made under ESSs are imposed under the Corporations Act.
The current exemptions are legally complex and fragmented across the Corporations Act and ASIC Class Orders. For example, the definition of ‘eligible ESS’ under the Corporations Act4 does not align with the broader scope of ESSs covered by the ASIC Class Orders5. |
| Increasing the offer cap per employee | |
| Increase the value limit of eligible financial products that can be offered by unlisted companies in a 12 month period from $5,000 to $10,000 per employee. | Unlisted companies seeking to rely on ASIC Class Order 14/1001 can only offer up to $5,000 in eligible financial products per employee per year without a disclosure document (notwithstanding that no monetary consideration is provided for the financial products by the employee).
This requirement can be restrictive, for example where proposed offers are to senior managers. |
| Facilitating the use of contribution plans | |
| Expand relief for unlisted companies to include contribution plans, where an employee can make a monetary contribution to acquire eligible products. It is proposed that:
|
Unlisted companies relying on ASIC Class Order 14/1001 are prohibited from making offers under an employee incentive scheme that involves a contribution plan.
This prohibition is intended to protect employees of unlisted companies from financial risk associated with providing monetary consideration in exchange for shares in the absence of a reliable market price and regulated disclosure document. |
| Expanding the exemption from public access to disclosure documents | |
| Allow small businesses to offer ESSs without publically disclosing commercially sensitive financial information, unless otherwise obliged to do so.
The current proposal involves expanding the current exemption so that it applies to a broader range of companies (e.g. small companies) and ESS offers. It is not proposed that the exemption will extend to large companies, as such companies are required to lodge audited financial reports with ASIC, which are publically available. |
The exemption from the requirement for disclosure documents lodged with ASIC to be made publically accessible is available for certain offers under an ESS (within the meaning of the Income Tax Assessment Act 1997 (Cth)) made by ‘start-ups’ (being unlisted companies that are less than 10 years old and with an annual aggregated turnover not exceeding $50 million).6
The definition of ESS offers under the income tax law is narrower than, and does not align with, the Corporations Act definition of ‘eligible ESS’ or the scope of ESSs covered by the ASIC Class Orders.7 |
What are the key take aways?
The Government recognises that the current ESS regulatory framework is complex, fragmented and too restrictive, which may result in increased legal costs for companies and ultimately discourage some employers from offering an ESS.
The Government’s proposals are broadly to consolidate and simplify the regulatory framework to improve the ability of small businesses to offer ESSs to help attract, retain and motivate employees and grow their businesses.
Interested parties can submit responses to the consultation paper until 30 April 2019.
This article was written by Shaun Cartoon, Partner, Jamie Restas, Partner, Cam Steele, Special Counsel and Stephanie Kolaczkos, Solicitor.
| Shaun Cartoon
P: +61 3 8644 3615 E: scartoon@hwle.com.au |
Jamie Restas
P: +61 8 8205 0581 E: jrestas@hwle.com.au |
Cam Steele
P: +61 8 8205 0562 E: csteele@hwle.com.au |
1Employee Share Schemes, 3 April 2019, Consultations, Australian Government Treasury.
2Government proposes to double the value limit available under employee share schemes, 13 November 2018, Media Release, the Hon Josh Frydenberg MP, Treasurer, and Senator the Hon Michaelia Cash, Minister for Small and Family Business, Skills and Vocational Education. See our e-alert Proposed changes to employee share schemes for small business.
3ASIC Class Order 14/1000 and ASIC Class Order 14/1001, which apply to listed and unlisted companies, respectively.
4Section 9 of the Corporations Act.
5Referred to as ’employee incentive scheme’ under the ASIC Class Orders.
6Section 1274(2AA) of the Corporations Act.
7Referred to as ’employee incentive scheme’ under the ASIC Class Orders.