Listed companies should prepare themselves for more proposed changes to the ASX Listing Rules with effect from 1 July 2014 in light of the supplementary consultation paper on the “Proposed Governance-Related Listing Rule Amendments” issued by the ASX on 21 February 2014.
In this Alert, Partner Michael Hansel and Associate Katherine Hammond set out the key Listing Rule amendments now being proposed by the ASX, which companies, directors and officers need to be aware of ahead of their intended introduction on 1 July 2014 (the same time as the third edition of the Corporate Governance Principles and Recommendations are expected to take effect).
Key changes proposed by the ASX
- Allowing disclosure of the Corporate Governance Statement required to be prepared annually by companies in either the company’s annual report or on the company’s website (the amendments proposed by the ASX last year in this regard are essentially unchanged).
- Requiring companies to prepare and lodge an Appendix 4G with its Corporate Governance Statement annually.
- Amending Listing Rule 10.17 to clarify the meaning of “directors’ fees”.
- Disclosure of acquisitions by companies under employee incentive schemes only being required in the annual report and not in an ASX announcement for each acquisition – new Listing Rule 4.10.22 will replace the proposed Listing Rule 3.19B.
- Removing the “Chairman’s Box” from proxy forms.
- Clarifying the scope of the rights issues exceptions in Listing Rule 7.2 and 10.14.
The supplementary consultation paper follows submissions the ASX received on its initial consultation paper entitled “Proposed Changes to ASX Listing Rules and Guidance Note 9: Corporate Governance Disclosures” and proposed new Listing Rules and amended “ASX Guidance Note 9: Disclosure of Corporate Governance Practices”, which were released on 16 August 2013 (Listing Rule Consultation Materials).
At the same time, the ASX Corporate Governance Council (Council) released a separate consultation paper entitled “Review of the Corporate Governance Principles and Recommendations”, which related to the Council’s proposed new (third) edition of the Corporate Governance Principles and Recommendations (Corporate Governance Principles and Recommendations).
Although most of the changes that the ASX proposed to the Listing Rules and Guidance Note 9 were intended to complement and give effect to the reforms proposed by the new Corporate Governance Principles and Recommendations, the ASX also took the opportunity to put forward a number of other governance related amendments.
As a result of the feedback received on the Listing Rule Consultation Materials, the ASX is now proposing some changes to the amendments it had initially proposed, along with some separate and additional governance related amendments to the Listing Rules.
Corporate Governance Principles and Recommendations – Listing Rule changes
In the supplementary consultation paper, the ASX has not proposed any changes to the corporate governance amendments that it initially proposed to Listing Rules 4.7 and 4.10. Those amendments, if adopted, will essentially require that:
- a listed company must prepare a statement, in accordance with Listing Rule 4.10.3, which discloses the extent to which it has followed the Corporate Governance Principles and Recommendations during a particular period (Corporate Governance Statement);
- a listed company may include its Corporate Governance Statement in its annual report or in a separate document given to the ASX at the same time as it gives the ASX its annual report (Listing Rule 4.7.4);
- if the Company does not include the Corporate Governance Statement in its annual report, it must include it on its website and must include in its annual report the website URL where the Corporate Governance Statement is located (Listing Rule 4.10.3); and
- a listed company must give the ASX a completed Appendix 4G at the same time as it gives its annual report to the ASX (Listing Rule 4.7.3).
Appendix 4G - key to governance disclosures
Some of the Corporate Governance Principles and Recommendations state that certain information should be publicly available or disclosed – in some, but not all, cases prescribing a suggested location for such disclosure. In practice, this can mean that an entity complies with a recommendation without identifying where it has disclosed the information relevant to the recommendation.
The Appendix 4G is therefore intended to serve as a guide as to where a company’s governance disclosures can be found.
The Appendix 4G is not intended to detract from the requirement for listed entities to include a Corporate Governance Statement in its annual report or website, but is intended to ensure that the disclosures made in accordance with the Listing Rules or in connection with the Corporate Governance Principles and Recommendations are readily identifiable and easily located (including by investors and regulators).
This will also assist companies to conduct a verification process (which the ASX has in its guidance encouraged companies to undertake) to confirm that statements in the annual report have a reasonable basis and are not misleading.
Timing and implementation
The ASX has indicated that the proposed “Appendix 4G” will be released this month (March 2014).
Although the amendments are proposed to commence on 1 July 2014, they will only be mandatory in respect of financial years ending on or after 30 June 2015.
Employee share scheme purchases – one off annual disclosure only
The ASX had initially proposed a new Listing Rule 3.19B which would have required a listed company to disclose, within five business days after the purchase, certain information regarding each on market purchase of securities made by the company on behalf of employees or directors or related parties (Prescribed Person) under an employee incentive (share) scheme (EIS).
That proposed new listing rule was designed to close a gap under Listing Rule 10.14, which meant that while the acquisition of securities by a director (or an associate) under an EIS without shareholder approval is prohibited, no disclosure or shareholder approval is required where an acquisition under the EIS is made by the company.
The ASX has decided not to proceed with the introduction of Listing Rule 3.19B. Instead, the ASX is now proposing new Listing Rule 4.10.22 which will only require a listed entity to disclose the following information, which is substantively the information that would have been required under LR 3.19B, it in its annual report:
- the number of securities purchased during the reporting period;
- the average price per security purchased during the reporting period; and
- the name of any director or related party for whom securities were purchased on behalf of or allocated to, along with the correlative number of securities.
If adopted, listed companies will only be required to comply with this new rule in respect of financial years ending on or after 30 June 2015.
Non executive director remuneration cap - what is included?
Listing Rule 10.17 is proposed to be amended to clarify the meaning of “directors’ fees” for the purpose of the rule restricting the total aggregate amount of directors’ fees payable to non-executive directors (NEDs) without shareholder approval.
The proposed amendments clarify that “directors’ fees ”:
- means all fees payable by the entity or any of its child entities to a NED for acting as a director of the entity or any child entity (including attending and participating in any board committee meetings), but not including fees paid to a NED of a child entity who is not a director of the parent;
- includes superannuation and salary sacrificed amounts (such as director fees sacrificed to pay for securities); and
- does not include reimbursement of out-of-pocket expenses for attending board or board committee meetings, “special exertion” fees in accordance with the company’s constitution or other payments with shareholder approval.
Proxy forms – no more “Chairman’s Box”
The ASX proposes to remove the requirement for the so-called “chairman’s box” in a proxy form. This is currently required by Listing Rules 14.2.3A and14.2.3B and a shareholder must tick to authorise the Chair to vote on a resolution if the Chair becomes the shareholder’s proxy by default or because the shareholder does not appoint another person as proxy, but is otherwise excluded from voting on that resolution by the Listing Rules.
However, the Proxy Form will need to include a statement as to how the Chair intends to vote undirected proxies.
The amendments are proposed to take effect on 1 July 2014, in time for this year’s annual general meeting season.
ASX proposes to amend Listing Rule 7.2 (Exception 2) to clarify that the exception does not apply to any issue of securities to an underwriter except for securities comprising the shortfall from a pro rata issue. For example securities issued in payment of an underwriting fee do not fall within the exception.
Similarly, the ASX proposes to amend Listing Rule 10.12 (Exception 1) to make it clear that the exception does not apply to a related party taking up shortfall of a pro rata issue, even if the shortfall is allocated on a pro rata basis.