Changes to financial reporting relief for wholly-owned companies
In October, ASIC repealed ASIC Class Order 98/1418 (Class Order), which provided financial reporting relief for wholly-owned companies within a group where the members of the group are party to a deed of cross guarantee in the form of ASIC Pro Forma 24. The Class Order has been replaced by ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 (Instrument) (which applies to financial years ending on or after 1 January 2017). ASIC Pro Forma 24 has also been revised. Companies that previously relied on relief under Class Order will be able to continue to do so under the Instrument.
However, as a result of the minor amendments to ASIC Pro Forma 24, where a new entity seeks to become a party to the pre-existing deed of cross guarantee, either: (i) the pre-existing deed of cross guarantee will need to be amended to comply with revised ASIC Pro Forma 24; or (ii) a new deed complying with ASIC Pro Forma 24 will need to be entered into by all members of the group. Groups should also check whether they need to obtain consent or approval from financiers for an amendment to pre-existing deeds of cross guarantee or the entry into new deeds of cross guarantee.
ASIC releases revised IS214 relating to reporting forward looking statements by the mining industry
ASIC’s Information Sheet 214 (IS214), which provoked widespread criticism upon its release in April, was revised in October. There are a number of aspects of the revised IS214 which are welcome. In particular, ASIC has confirmed that:
- Mineral resource estimates (not just ore reserve estimates) can support production targets and other forecast financial information, provided that sufficient exploration and evaluation work has been done. Any forward looking statement based on mineral resources must disclose the extent to which the JORC ‘modifying factors’ have been analysed and progressed - the greater the work done, the more likely it will be that reasonable grounds for the forward looking information will be found to exist.
- Secured funding is not necessarily required in order to establish that reasonable grounds exist for a production target. However, companies are required to disclose all assumptions underpinning the target, including as to scheduling of development and production and availability of finance as and when required, and those assumptions must have objectively reasonable grounds.
- Companies should be clear about their financial capacity to achieve production targets and what additional funding (if any) is required. In practice, we consider this would take the form of a clear statement of current financial capacity and the expected amount of finance required, with warnings as to a lack of certainty of funding, and the potential dilution impacts of any equity raising.
Further information can be found in our recent article ASIC issues revised Information Sheet 214.
ASX releases interim guidance on reporting scoping studies
Following the release of ASIC’s revised IS214, ASX released ASX interim guidance: Reporting scoping studies to provide additional guidance to listed entities on the reporting of scoping studies. ASX has provided the following 9 steps as a guide for reporting:
- Follow Chapter 5 of the Listing Rules – in particular, address all the relevant requirements of Listing Rules 5.15 – 5.19 (as applicable).
- Have reasonable grounds for any forward-looking statements.
- Disclose all material assumptions, including any assumptions made about the JORC ‘modifying factors’, timeframes for development and production, funding availability and production schedules.
- Include the required cautionary statements (an example of which has been included in ASX's interim guidance).
- Give a fair and balanced summary of the scoping study.
- Do not report results in headline statements.
- Report results using a realistic range and use language which identifies the imprecise nature of a scoping study.
- Don’t describe results as a per share value without reasonable grounds.
- Do not use non JORC terminology (for example “mining inventory”).
The guidance annexes a checklist which ASX is encouraging entities to complete to verify compliance. It takes directors through the disclosure points above and Chapter 5 of the Listing Rules. Although companies aren’t required to complete the checklist, ASX has noted that it will use the checklist as an enforcement tool.
Further information can be found in our recent article ASX Checklist for Scoping Study Disclosure.
Changes to ASX admission requirements
ASX has updated its admission requirements, most of which are due to take effect from 19 December 2016. Some of the pertinent changes include:
- A 20% free float requirement which ASX is already applying (free float excludes restricted securities, securities subject to voluntary escrow and securities held by affiliated security holders).
- A single tier spread test of at least 300 non-affiliated shareholders holding securities (excluding restricted securities and securities subject to voluntary escrow) with a value of at least $2,000.
- The profits test now requires consolidated profit from operations for the last 12 months to be at least $500,000 (up from $400,000).
- The assets test now requires net tangible assets of $4 million (up from $3 million) or a market capitalisation of at least $15 million (up from $10 million).
- Where an entity is seeking admission under the assets test and it has in the 12 months prior to admission acquired another entity or business (which is significant in the context of the entity to be admitted), it must provide audited accounts for that other entity or business for the last 2 years (or 2.5 years if the last financial year ended more than 6 months prior to the date of admission). We note however, this is not necessarily consistent with ASIC’s prospectus disclosure requirements as outlined in Regulatory Guide 228 revised in November 2016, which go further in some circumstances.
- Standardising the $1.5 million working capital requirement for those admitted under the assets test.
There are some less publicised changes to the admission process, which are included in a detailed update of ASX Guidance Note 1 and will presumably impact the smaller end of the listing market. These include:
- ASX reserving the right to request a detailed description of the applicant’s due diligence process and a copy of the final due diligence report (which would need to be ready when the listing application is submitted, which may not be practical under the “fast track” listing process).
- An applicant that is incorporated, or which has its main business interests, in a foreign market may have a listing condition imposed requiring that 75% of the spread come from investors based in Australia.
- ASX has highlighted its discretionary powers in relation to a listing application. ASX has raised the following examples (amongst a more extensive list) of where it may consider that an applicant does not have a structure or operations that are appropriate for a listed entity:
- the applicant has not yet secured the key licences, government approvals, intellectual property rights or other property or rights it will need to operate its business;
- a material part of the applicant’s business operations is conducted through an incorporated or unincorporated joint venture with another party or parties and the joint venture agreement gives another joint venture participant disproportionate representation on the governing body of the joint venture or disproportionate decision-making powers; and
- the applicant’s board has no directors with experience directing or managing a business of the type that the entity will have at the time of its proposed listing.
ASX has also made some changes to Guidance Note 12 in relation to backdoor listings, in particular in relation to allowing a fully disclosing entity to trade prior to the shareholders’ meeting.
Further information can be found in our recent article “Meet me half way”: ASX responds to consultation on changes to admission requirements.
ASX quarterly reports – Appendix 5B
ASX updated Appendix 5B (Mining exploration entity and oil and gas exploration entity quarterly report) with effect from 1 September 2016. The new form should be used for all quarterly cash flow reports for quarters ending on or after 30 September 2016. Click here to download a copy of the updated Appendix 5B ifrom the ASX website.
G+T releases updated Company Secretary Checklist
Gilbert + Tobin’s 2016 Company Secretary Checklist for ASX listed companies has been released. It has been designed as a practical guide to the main obligations and procedures of a listed public company under the Corporations Act 2001 (Cth), the ASX Listing Rules and ASX Corporate Governance Principles and Recommendations.