A proposed new Listing Rule will tighten the disclosure requirements for listed companies seeking to acquire shares on market on behalf of executives. The amendment has come on the back of financial media criticism of the existing framework which has enabled Australia’s top-100 companies to spend $3 billion buying shares for their executives in the past two years without disclosing them or getting shareholder approval.
The ASX is proposing amendments to the Listing Rules and ‘Guidance Note 9: Disclosure of Corporate Governance Practices’ in conjunction with the ASX Corporate Governance Council’s proposed new edition of the Corporate Governance Principles and Recommendations.
A proposed new listing rule will require companies to disclose shares purchased for employees and directors under an employee incentive scheme (EIS).
In this alert Michael Hansel and Katherine Hammond outline the new rules that companies need to be aware of when issuing shares to employees and directors under an EIS.
For more information on the other new ASX Listing Rules and new ASX corporate governance rules, look out for our related alert.
New Employee Incentive Scheme Rules
ASX Listing Rule 10.14 prohibits the acquisition of securities by a director (or an associate) under an EIS without shareholder approval. However no approval is required where the shares are purchased on market under the terms of an EIS that provides for the purchase of shares by or on behalf of employees or directors.
The carve-out in ASX Listing Rule 10.14 enables listed companies to buy shares for their executives without providing timely disclosure of the details of the acquisition or otherwise seeking shareholder approval.
The share package is required to be disclosed as part of the executive’s remuneration and is subject only to a non-binding shareholder vote at the annual general meeting.
The ASX proposes to introduce new Listing Rule 3.19B, with effect from 1 January 2014, which will require disclosure of on-market purchases of securities on behalf of employees or directors or their related parties under an EIS.
The company will need to disclose to the ASX, within five business days after the purchase:
- the number of securities purchased;
- the average price per security; and
- the name of any director or related party for whom securities were purchased, and the correlative price and number of securities.
Thirty four of the top 100 companies reportedly buy shares on market, often before the rights vest, and place them in a trust for beneficiaries of the company’s EIS.