Summary

  • New Class Order 14/1000 applies to a broader range of incentives and personnel than the pre-existing ASIC relief.
  • The new Class Order also provides broader relief than the statutory exemptions.
  • There are ‘grandfathering’ arrangements that preserve the old ASIC relief for compliant pre-existing plans.

Overview

ASIC has released new Class Order 14/1000, which provides listed entities with relief from various Corporations Act rules that can otherwise apply to offers of equity and equity-based cash-settled incentives to employees and other personnel.

Key benefits of relying on the Class Order rather than the existing statutory exemptions include:

  • clear relief from the secondary sale restrictions in s707 of the Corporations Act, meaning that there will not be a need for a cleansing notice under s708A(5) or a prospectus when employee shares are issued to employees so as to ensure that shares are freely transferrable,
  • the new Class Order applies to broadly defined categories of equity-based derivatives (such as cash-settled 'phantom' rights), and
  • the Class Order facilitates the operation of broadly-based incentive plans for personnel below the 'senior manager' level, without the need to prepare prospectus or PDS style disclosure documents.

The Class Order imposes a 5% ‘dilution limit’ on the number of shares that may be issued in reliance on it in a three year period (reduced from five years under the old Class Order).

From an ASX perspective, listed entities are reminded that if employee incentives are issued with approval for the purposes of ASX Listing Rule 7.2, Exception 9 (shareholder approval of an incentive plan) or Exception 14 (shareholder approval of an issue of securities to a director), the issue will not count towards the entity’s 15% placement capacity under ASX Listing Rule 7.1, regardless of whether the incentives were issued under the new Class Order or a statutory exemption.

What has changed?

The new Class Order expands upon old ASIC Class Order relief that has been available for many years. The new Class Order contains a number of improvements, including:

  • a wider range of incentives are expressly covered,
  • the ongoing requirement to lodge offer documentation with ASIC within 7 days has been replaced with a ‘once off’ requirement to lodge a simple form within one month that will cover a plan indefinitely. Subsequent forms will only need to be lodged for new plans, and
  • offers can be made to a wider range of personnel, such as contractors and prospective employees, provided certain conditions are met.

In addition, relief under the new Class Order is available for newly listed entities after their securities have been quoted for 3 months, rather than the current 12 months, as long as the securities have not been suspended from trading for more than 5 days. In the revised Regulatory Guide that ASIC released at the same time as the new Class Order, ASIC flagged that it would consider granting case-by-case relief from the quotation requirement where there is an alternative disclosure document (such as a prospectus or scheme booklet) for financial products in the same class as the employee incentives being offered. In other words, where options are granted under a scheme of arrangement, ASIC may grant relief from the 3 month quotation requirement.

Some other notable changes from the old ASIC relief include:

  • all employee offer documents must now include general information about the risks of acquiring and holding an eligible product being offered under a plan,
  • new requirements that apply to employee incentive plan trust arrangements, including in relation to trustee record keeping and fee arrangements, discretionary voting by a trustee, and a new 5% voting share cap that will apply to some trustee holdings, and
  • a requirement that when a trustee will hold shares in connection with an employee offer, a copy or summary of the terms of the trust deed must be included with the offer documentation provided to employees.

Transitional arrangements

All new plans that need class order relief will need to comply with the new Class Order.

Plans that were in existence on 29 October 2014 or which had been approved by the Board or by shareholders on or before that date may be ‘grandfathered’ under the old ASIC relief. New offers can be made under ‘grandfathered’ plans provided they would have been covered by the old ASIC relief.

Entities who rely on the grandfathering arrangements will need to continue to lodge offer documentation with ASIC within 7 days of providing the documentation to plan participants and will not be able to take advantage of the improved aspects of the new Class Order.

Other developments

At the same time as it released the new Class Order and updated Regulatory Guide 49 ‘Employee incentive schemes’, ASIC released a new Class Order 14/1001 that applies to employee incentive schemes for unlisted bodies.