The ASX has amended certain Listing Rules relating to reverse takeovers effective 1 December 2017.
These amendments introduce new shareholder approval rules and notice requirements.
New Shareholder approval requirements
The Listing Rules require a shareholder approval for the issue of securities which exceed 15% of the listed entity’s fully paid ordinary capital (over a 12 month period). Previously, certain exceptions applied to these Listing Rules where securities were issued under a reverse takeover, a scheme of arrangement, or to fund those transactions.
The Listing Rules have been amended so that the exceptions no longer apply with respect to reverse takeovers. Under the new rules, listed entities must obtain shareholder approval for a reverse takeover if the total number of securities issued/to be issued, is equal to or greater than the total number securities on issue in the issuer/bidder.
This additional regulatory burden is aimed at addressing the dilution of issuer/bidder shareholders. These requirements will continue to make reverse takeovers less attractive as a potential transaction structure, however, given the relatively high threshold imposed, only a small number of transactions should be affected by these requirements.
1. Additional time to issue securities
The ASX has recognised that reverse takeovers and schemes of arrangement can take some time to implement. To ensure entities have enough time to issue shares before any shareholder approval becomes ‘stale’, the ASX has extended the period of time for a listed entity to issue securities after it has obtained shareholder approval from 3 months to 6 months.
2. Requirements to provide a notice
A new Listing Rule has been introduced requiring a notice of meeting to be issued to shareholders of the shell with respect to the approval of the issue of securities under, or to fund, a reverse takeover. The ASX intends to publish a new guidance note to provide further information as to the disclosures required under such a notice.
3. Voting exclusions – reverse takeovers
ASX has expanded the scope of voting exclusion to include:
(a) where securities are issued under the reverse takeover: the target and any person obtaining a material benefit from the reverse takeover or proposed issue; and
(b) where securities are issued to raise funds: the target, any participant in the issue and any person who will obtain a material benefit from the reverse takeover or the proposed issue.
If the benefit is solely by reason of being a holder of securities in the entity or the target, the person may vote.
In addition to the amendments relating to reverse takeovers, the ASX has also made the following notable amendments to the Listing Rules:
1. Voting exclusions - general
‘Excluded persons’ are now only excluded from voting in favour of the relevant resolution – that means unlike previously, an excluded person is entitled to, and may vote against the resolution.
2. Definition of Associate
The definition of ‘associate’ has been expanded by the ASX (from the original definition referring to the Corporations Act), to include groups of entities under common control regardless of the legal classification of the controller. This is to ensure that groups controlled by or through individuals are also captured by the term ‘associate’.