The long-awaited changes to the Corporations Act’s disclosure and related rules for employee share schemes came into force on 1 October 2022. The new Division 1A of Part 7.12 of the Corporations Act 2001 (Cth) (the Division) effectively replaces and expands the current ASIC class order relief (for a listed entity, ASIC Class Order [CO 14/1000] Employee incentive schemes: Listed bodies or for an unlisted entity, ASIC Class Order [CO 14/1001] Employee incentive schemes: Unlisted bodies (the Class Orders)) in relation to employee share schemes (ESS) for listed and unlisted bodies.

We won’t bore you with a breakdown of all the changes – there are a lot (although if you are interested in understanding what has changed and why, our long form update can be found here). Essentially though the Division replaces the Class Orders, increases a previous $5,000 value cap of offers in any 12 month period to approximately $30,000 (for unlisted entities), expands the availability of ESS interests to a wider group of participants and provides a streamlined regime for both listed and unlisted entities to obtain relief from disclosure and other relevant regulatory requirements under the Corporations Act when offering ESS interests. For example, an entity can now make an offer using a commonly used disclosure exemption, the small-scale offers exemption (ie the “20/12 rule”) (where disclosure is not required for equity fundraising on a small scale, defined as total investment of no more than $2 million raised from no more than 20 investors in any 12-month period), but can obtain relief from the other regulatory requirements already afforded under the Class Orders.

There are various other conditions that were previously found in the Class Orders that have been relaxed, too – we have created a flowchart (found HERE) that sets out how an ESS offer will need to be structured to obtain the relief offered under the Division.

What do you need to do?

If you currently make offers of ESS interests relying on either Class Order, you can continue to make offers under the applicable Class Order until 31 December 2022. Offers that are made before 1 January 2023 can remain open for a period of 13 months. From 1 January 2023, ASIC has stated they intend to terminate the ability of entities to make new offers under the Class Orders and therefore any new offers from that date will need to be made under the Division.

ASIC has also confirmed that it doesn’t have any intention to revoke instruments that have been provided to entities that sought individual relief that were unable to rely on the Class Orders.

If you don’t currently rely on a Class Order and you intend to rely on the relief offered under the Division, you will need to review your current ESOP documents, including the plan rules and template offer letter. The changes required to your current ESOP documents, and possibly your constitution, will vary depending on how you currently make offers and whether your ESS includes a loan, involves a trust, or a contribution plan. At the very minimum, you will need to make certain updates to your offer document to make it clear that the offer is made under the Division.