Changes to the ASX Listing Rules are due to come into effect on 1 December 2019. These are the most important changes that listed companies and those thinking of listing should be aware of.
In March this year, we published an article outlining the proposed changes to the ASX Listing Rules due to go live in July 2019. On 10 October 2019, ASX announced that the revised changes to the ASX Listing Rules will take effect from 1 December 2019.
The following changes are some of the most important changes listed companies (and those thinking of listing) need to understand.
- Enhanced powers for ASX to control market participants by exercising its discretion, censuring a company or directors or removing a company from the ASX Official List.
- Requirements for more comprehensive disclosure of meeting results.
- Changes to the disclosure requirements for listed investment companies and listed investment trusts with respect to net tangible assets backing.
- New quarterly reporting requirements for newly listed entities with half or more of its total tangible assets in cash (or a form readily convertible to cash) with business objectives to spend at least half of its cash.
- Streamlined process for issue of additional securities under Listing Rule 7.1A.
- Additional disclosure elements for voting exclusion statements in notices of meeting to clarify persons excluded from voting.
- Introduction of rules to govern how employee incentive schemes must be voted on.
- Entities wishing to issue restricted securities must amend their constitution to impose restrictions on restricted securities holders.
- Clarification on the form (and details to be included) with any document submitted to the ASX.
- Explicit timelines for the application for quotation of new securities.
- New requirement for entities to release information via 'distribution schedules' for issues of new classes of quoted securities.
- Appendix 3B's must no longer be immediately issued for conversion of convertible securities or securities issued under dividend or distribution plans, or employee incentive schemes.
- Clarifications to conditions 10 and 11 of the ASX Listing Rules Chapter 1 for allowing admission to the official list as an ASX Listing.
- New measures to address inappropriate behaviours by promoters and professional advisers in new and backdoor listings, including being able to reject listing or re-listing applications based on the calibre of the promoters or advisers.
These changes are set out in more detail below. For a further discussion of the detailed changes, please see this article on the final changes to the Listing Rules.
What didn't make it?
Below sets out the changes proposed by ASX which have not been adopted following ASX's public consultation. The changes would have required entities to give more detailed disclosure in quarterly reports where expenditure was different to estimated cash outflows. The changes would also have required LICs and LITs to disclose a list of derivatives and the value of the entities individual investments and derivatives. ASX made the decision not to shift a timing requirement for the issue of securities from appendix 7A to Listing Rule 7.10.
Changes in more detail
Enhanced powers for ASX to control market participants by exercising its discretion, censuring a company or removing it from the ASX Official List.
- Listing Rule 18.5A will give ASX the power to exercise absolute discretion on whether or not it exercises a power or discretion conferred by the Listing Rules in relation to an entity. The Rule will also state explicitly that the ASX may exercise this discretion on conditions, and the entity must comply with the requirements of the ASX.
- The introduction of Listing Rule 18.8A will enable ASX to formally censure listed entities that have breached the Listing Rules or conditions imposed under the Listing Rules. This power is similar to powers used by the LSE and other international exchanges and is intended to target 'egregious' behaviour.
- There have been a number of amendments made to Guidance Note 33, which was released on 15 April 2019:
- A special resolution, rather than an ordinary resolution, is now required to approve a de-listing.
- The transition period for ASX's long term suspended entity policy has been extended until February 2020, meaning that entities who have failed to lodge documents under Listing Rule 17.5 within the specified period or whose securities have been suspended from quotation for a continuous period of 2 years have an addition 7 months' notice of their automatic removal. An entity in this position who can demonstrate to ASX that it is in the 'final stages' of implementing a transaction that will allow it to resume trading in its securities may, subject to ASX's approval, have the deadline for automatic removal extended.
Requirement for more comprehensive disclosure of meeting results.
Proposed amendments to Listing Rule 3.13.2 require an entity to more comprehensively disclose each resolution put to a meeting of security holders by providing information including:
- Number and a short description of the resolution;
- Whether the resolution was passed or not;
- If the resolution was decided by show of hands or poll (and the specific results of poll voting);
- Specific proxy disclosures;
- 'First' and 'second' strike disclosure; and
- Resolutions proposed but not put at the meeting.
Changes to the disclosure requirements for listed investment companies and listed investment trusts with respect to net tangible asset backing.
LICs and LITs will be required to disclose their net tangible assets backing as soon as practicable and not more than 14 days after the end of the month. Under the proposed changes, entities that fail to lodge a monthly statement under Listing Rule 4.12 will attract an automatic suspension from trading under Listing Rule 17.5
New quarterly reporting requirements for newly listed entities with half or more of its total tangible assets in cash (or a form readily convertible to cash) with business objectives to spend at least half of its cash.
Listing Rule 4.7B requires an entity to complete an Appendix 4C quarterly cash flow report for the first eight quarters after admission to the ASX Official List. This rule applies to entities which are admitted under Listing Rule 1.3.2(b), being entities which have more than half of their tangible assets in cash or a cash equivalent with business objectives to spend at least half of its cash and assets.
The new rule is modelled on Listing Rule 5.3 and 5.4, which require mining exploration and oil and gas exploration entities to submit quarterly activities reports.
A quarterly activities report under Listing Rule 4.7 must be completed for each of quarter of the financial year and be submitted to ASX no later than one month after the end of the quarter. A quarterly activities report must include:
- details of business activities for the quarter;
- a comparison of the entity's 'use of funds' statement to its actual expenditure (if applicable);
- a comparison of the entity's actual expenditure since its date of admission against its expenditure program (if applicable);
- explanation as to any material differences between its expenditure for the quarter and estimated cash outflows for the next quarter (if applicable); and
- a description and explanation for any payments to related parties that are included in its Appendix 4C for the quarter.
Streamlined process for issue of additional securities under Listing Rule 7.1A.
Simplification of Listing Rule 7.1A to streamline the process of issuing equity securities.
Entities will no longer be able to make an issue under their additional 10% placement capacity for non-cash consideration.
The new Guidance Note 21 provides worksheets to assist companies in assessing their placement capacity.
Additional elements to voting exclusion statements in notices of meeting to clarify persons excluded from voting.
The current Listing Rule 14.11 provides that if a voting exclusion statement is to be included in a notice of meeting, the notice of meeting must contain a statement to the effect that the entity will disregard any votes cast in favour of the resolution by or on behalf of the named person or class of persons excluded from voting or an associate of that person or those persons.
The amendment to Listing Rule 14.11 requires that an additional statement be included in the notice of meeting, with the effect of stating that the exclusion above does not apply to:
- votes cast as proxy or attorney for another person entitled to vote on the resolution; or
- votes cast by a holder acting solely in a nominee, trustee, custodial or other fiduciary capacity on behalf of a beneficiary if the beneficiary has provided written confirmation to the holder that they are not excluded from voting and are not an associate of a person excluded from voting, and provided that the holder votes on the resolution in accordance with the directions given by the beneficiary to the holder to vote in favour of the resolution.
Introduction of rule to govern how employee incentive schemes must be voted on.
A new Listing Rule 14.10 will be introduced, providing that securities held by or for an employee incentive scheme must only be voted on a resolution under the Listing Rules if they are held for a participant in the scheme whom is not otherwise excluded from voting under the Listing Rules and the participant has directed how the shares are to be voted.
Entities wishing to issue restricted securities will be required to amend their constitution to impose further restrictions on restricted securities holders A listed entity cannot issue restricted securities without including a provision on how the restricted securities must be dealt with in its constitution. An entity whose constitution does not already contain a provision dealing with restricted securities will need to amend its constitution by passing a special resolution of its shareholders.
The entity's constitution must specifically contain provisions including:
- a holder of restricted securities must not dispose of or agree to offer to dispose of the securities during the escrow period that is applicable to those securities, except as permitted by ASX or the Listing Rules;
- provide that the holder of restricted securities that are in the same class as quoted securities will be taken to have agreed in writing that the restricted securities are to be kept on the entity's issuer sponsored subregister and will have a holding lock applied for the duration of the escrow period that is applicable to those securities;
- a holder of restricted securities will not be entitled to participate in any return of capital on those securities during the escrow period applicable to those securities except as permitted by the listing rules or ASX; and
- that a holder of restricted securities that breaches a restriction deed or a provision of the entity's constitution restricting a disposal of those securities will not be entitled to any dividend or distribution, or to exercise any voting rights in respect of those securities for as long as the breach continues.
Clarification on the form and details to be included with any document submitted to the ASX.
ASX has stipulated the form of documents to be submitted to ASX and requires that documents released to the market should include, or be sent under, a covering letter including the name, title and details of a contact person for security holders and other interested parties with queries. Explicit timelines for the application for quotation of new securities.
Entities that apply for quotation of securities will be required to do so in accordance with the new timelines set by ASX. The timelines for applying for quotation vary, depending on the type of security being quoted:
- 7 days after the date of a disclosure document or PDS if the securities are being offered under a disclosure document or PDS stating that the securities being offered under it are to be quoted on the ASX;
- 5 business days after the date of conversion, for unquoted convertible securities that are being converted into the same class as quoted securities; and
- 5 business days for unquoted partly paid securities in the same class as quoted fully paid securities, calculated from the date that they were fully paid up.
New requirement for entities to release information via 'distribution schedules' for issues of new classes of quoted securities.
The new Listing Rule 3.10.5(b) requires an entity issuing a new class of quoted equity securities to give ASX a list of its 'top 20' recipients of those securities and a distribution schedule. The distribution schedule must set out the total percentage of securities held by holders in each of the following securities categories:
- 1 – 1 000;
- 1 001 – 5 000;
- 5 001 – 10 000;
- 10 001 – 100 000; and
- 100 001 and over.
The 'top 20' list and distribution schedule must be attached to the Appendix 3B submitted by the entity in its application for quotation of the securities in question.
When applying for quotation of the new class of securities under Appendix 2A, if the entity has the relevant information, then the 'top 20' list and distribution schedules can be attached to the Appendix 2A.
Explicit timelines for the application for quotation of new securities.
An entity proposing to issue new securities must notify ASX in the form of an Appendix 3B. This requirement to notify applies to an issue of securities that is not made under a dividend or distribution plan, an employee incentive scheme or as a result of the conversion of any convertible securities.
Clarifications to conditions 10 and 11 for allowing admission to the official list as an ASX Listing.
Amendments have been made to conditions 10 and 11 of the ASX Listing Rules Chapter 1, the requirements for ASX Listing. These new conditions are applicable to the following entities:
- entities issuing or proposing to issue securities that are restricted securities under the ASX Listing Rules;
- entities that have acquired classified assets from a related party or promoter of the entity in the 2 years prior to the date of its application for admission to the official list; and
- entities that have acquired or propose to acquire a classified asset from someone who is not a related party or promoter of the entity in the 12 months prior to submitting an application for listing.
New measures to address inappropriate behaviours by promoters and professional advisers in new and backdoor listings, including being able to reject listing applications based on the calibre of the promoters or advisers.
The ASX has absolute discretion to reject a listing application to safeguard the reputation and integrity of the ASX Market. ASX can reject a listing application where ASX has concerns, for any reason, about the calibre of the promoters or advisers involved in the application.
If an entity is subject to re-compliance, the ASX will closely examine any issues of securities in the lead up to the re-compliance to promoters and professional advisers. If ASX forms the view that such an issue of securities was to confer a benefit on the recipients of those shares, ASX can classify the shares as restricted securities or may exercise its discretion, depending on the inappropriateness of the behaviour of the promoter, not to re-admit the entity to the official list.
What didn't make it, in more detail
Listing Rule 4.7C.
Proposed changes to Listing Rule 4.7C.4 would have required an entity to provide an explanation in its quarterly activities report if any category of expenditure in its Appendix 4C for the quarter was materially different to estimated cash outflows for that quarter reported in its Appendix 4C for the preceding quarter. The proposed changes will not come into effect as the changes would have been inconsistent with the deletion of Item 9 of Appendix 4C.
Listing Rules 5.3.6 and 5.4.6
ASX is not proceeding with the proposed introduction of Listing Rules 5.3.6 and 5.4.6 due to the deletion of Item 9 in Appendix 5B. These rules would have applied to resources explorers and required them to include in their quarterly activities report an explanation if any category of expenditure in its Appendix 5B for the current quarter was materially different to the estimated cash outflows for that quarter, shown in its Appendix 5B for the preceding quarter. The introduction of these new rules would be inconsistent with the deletion of Item 9 in Appendix 5B.
Listing Rule 4.10.20(a)
Proposed changes to Listing Rule 4.10.20(a) involved an extension of the existing requirement for LICs and LITs to disclose investment portfolios to require a list of derivatives and the value of the entity's individual investments and derivatives. ASX did not adopt this change.
Section 1 of Appendix 7A requires that the opening date of an issue of securities to existing security holders which is not a pro rata issue must be at least 10 business days after the disclosure document or PDS is sent to them, unless the disclosure document or PDS is lodged with ASIC and given to ASX at least 7 days before the opening date. ASX proposed to shift this requirement to Listing Rule 7.10, however following public consultation ASX will remove section 1 of
Appendix 7A but not proceed with shifting the provision to Listing Rule 7.10.
ASX identified an error in the timetable for a standard non-renounceable rights issue in section 2 of the proposed amended Appendix 7A, which contained an incorrect entry relating to the close of rights trading. This entry has been deleted.