Earlier this month, ASX Chief Compliance Officer Kevin Lewis outlined a series of proposed changes to the ASX Listing Rules and signalled “ground up” rewrites of a series of Guidance Notes as well as the addition of new Guidance Notes. A complete consultation package is earmarked for release for public comment and submissions in August this year; with the effective date for the changes, once finalised, proposed to be 1 July 2019. In the meantime, we have outlined some of the key proposed changes and discuss potential implications below.
Application to ASX admission
ASX Listing Rule 1.1 requires that an entity seeking admission to the ASX must satisfy (to the ASX) that each director is of good fame and character. Under the proposed changes, this requirement will extend to include chief executive officers. This means that each chief executive officer will need to provide the ASX with national police and bankruptcy checks.
Additionally, simplification and clarification measures are proposed for the profit test listings of continuous profits, working capital requirements for assets test listings and the escrow regime for restricted securities.
Market integrity and disclosure
A new requirement is proposed for persons responsible for communication with the ASX on Listing Rules to undertake an online course provided by ASX and pass an exam on the Listing Rules.
The quarterly activity reporting requirements for mining and oil and gas exploration entities under Appendix 5B are to be extended to those entities presently providing quarterly cash flow reporting under Appendix 4C. This is in an attempt to provide startups and newly listed companies with a streamlined approach to providing market updates on their business activities.
Share issuance rules
Changes are proposed to streamline the requirements for entities to access the extra 10% placement capacity available under ASX Listing Rule 7.1A, including a prohibition on accessing the extra 10% placement capacity for non-cash consideration.
Rationalisation of the regimes for announcing issues of securities is also proposed. This includes amendments to the Appendix 3B, seeking quotation of equity issues and also alignment of the exceptions (including in LR 7.2, 10.12 and 10.15/15A) for issues that can be made without security holders’ approval.
Related party approvals
The ASX also proposes to introduce a new provision that securities held by, or for, an employee incentive scheme must only be voted on a resolution under the ASX Listing Rules. This will apply if, and to the extent, they are held for the benefit of a nominated participant in the scheme who is not excluded from voting on the resolution under the ASX Listing Rules and who has directed how the securities are to be voted.
The ASX is seeking increased compliance powers to impose conditions and request information. It also seeks an additional new power to publish censures against directors and senior executives found to have committed serious wrongdoings.
Rewrite of guidance notes
A substantial rewrite of ASX guidance notes (GN) is also proposed for the following areas:
- a substantially updated GN 11 on escrow and restricted securities;
- a substantially updated GN 13 on spin-outs;
- a new GN 21 on the restrictions on issuing securities in Chapter 7;
- a substantially updated GN 24 on acquisitions and disposals of substantial assets involving persons in a position of influence;
- a new GN 25 on share issues to persons in a position of influence;
- changes to GN 12 removing the ‘2 cent’ waiver from back door listings and updating ASX’s guidance on the ’20 cent’ rule minimum option exercise price; and
- changes to GN 33 tightening ASX’s policy on the automatic removal of long-term suspended entities and shortening period for automatic removal.
The wholesale change resulting in the removal of the 2 cent waiver (having been introduced in September 2014) will re-set the strict adherence to the minimum 20 cent issue price requirement in back door listings. This may significantly increase the barrier for junior exploration, technology and other companies seeking to pivot their business focus via Chapter 11.
It is important to note that the proposed changes mentioned above are all subject to a consultation period to be conducted by the ASX later this year and as such are not set for implementation. We will provide a further update once the consultation materials are released. If you would like to read more on ASX back door listings, please see our previous article.