Changes to ASX Listing Rules and Guidance Notes
Having completed its consultation process, ASX has released the final version of the changes to its Listing Rules and related Guidance Notes. Subject to the receipt of the necessary regulatory approvals (which are expected to be forthcoming), all but two of the changes will come into effect on 1 December 2019.
Listing Rule Changes
The changes to the Listing Rules are significant. The following is necessarily a summary of many (but not all) of those changes.
- An entity applying for admission under the 'assets test' that is not an investment entity is currently required to have working capital of at least $1.5 million including its budgeted revenue and administration costs for its first full financial year after listing. The ability to include the first full financial year's budgeted revenue and administration costs is being removed, so that an entity must have at least $1.5 million working capital at the time of admission.
- Currently, an entity's directors and proposed directors must be of 'good fame and character'. This test is being extended to also include an entity's CEO or proposed CEO, and CFO or proposed CFO.
- An entity is required to appoint a person to be responsible for communication with ASX in relation to Listing Rule matters. With effect from 1 July 2020, this person is now required to have completed an approved Listing Rule compliance course and attained a satisfactory pass mark in the examination for that course. This requirement will also apply to any person appointed after 1 July 2020 with an existing listed entity.
- ASX is introducing a two-tier approach to escrow under which only significant holders (related parties, promoters, substantial (10%+) holders, vendors of classified assets, and their associates) must execute restriction deeds. Less significant holders may be given a 'restriction notice' in the prescribed form. In addition, the entity must have a prescribed provision in its constitution by which the entity's shareholders agree not to dispose restricted securities during the escrow period, and agree to the application of a holding lock for the escrow period.
Notice of Meeting Requirements
- A notice of meeting containing a resolution seeking shareholder approval under a Listing Rule must summarise the relevant rule and what will happen if shareholders give, or do not give, that approval.
- A notice of meeting seeking shareholder approval for a future issue of equity securities, or the subsequent approval of a prior issue of equity securities, must include the names of the persons to whom the entity will issue or has issued the securities (as the case may be) or the basis upon which those persons were or will be identified or selected. In this regard, it is necessary to name those persons if known and their identity is likely to be material to a decision by shareholders to approve the issue. The identity of an investor is likely to be material if they are a related party of the entity, a member of the entity's key management personnel, a substantial holder in the entity, an adviser to the entity, or an associate of any of them; and they are being issued more than 1% of the entity's current issued capital. If it is not necessary to include the names of the persons, it is necessary to explain the process by which investors were or will be (as the case may be) identified or selected.
- An entity is required to obtain shareholder approval to acquire a substantial asset from, or dispose of a substantial asset to, certain persons, including related parties of the entity and a person who is or was in the previous six months a substantial (10%+) holder in the entity. The Listing Rules now specify minimum content requirements for seeking this shareholder approval.
- Shareholder approval will now be required for an entity to issue or agree to issue equity securities to a person who is or was in the previous six months a substantial (30%+) holder in the entity, and to a person who is or was in the previous six months a substantial (10%+) holder in the entity and who has nominated a director to the Board of the entity pursuant to an agreement which gives them a right or expectation to do so.
- If an entity proposes to issue securities to a director or an associate of, or person connected with, a director, and the issue is intended to remunerate or incentivise the director, the notice of meeting must now include details of the director's current total remuneration package.
- ASX has amended the form of its voting exclusion statement.
- ASX has issued new Guidance Note 35 in relation to security holder resolutions in which it states that as a matter of proper governance all Listing Rule resolutions must be decided by a poll rather than a show of hands.
- ASX has specified the information to be included in an announcement of the results of a meeting.
Announcements and Quarterly Reports
- Announcements must have minimum content requirements including the identification of the title of the body, or the name and title of the officer, of the entity who authorised the announcement; and the name, title and contact details of a person who can be contacted with any queries.
- All entities that lodge a quarterly cash flow report must lodge an accompanying quarterly activity report. If a quarterly cash flow report discloses that an entity has less than two quarters of funding available, the entity is required to answer questions about its expected continued level of cash flows; any steps taken or proposed to be taken to raise further cash; and its expectation to be able to continue its operations and meet its business objectives. If the entity indicates that it may not have enough cash to fund its next two quarters, ASX will carefully examine the report and any recent announcements that go to its capacity to continue operations and meet its business objectives, and will suspend the entity if it has any concerns. The quarterly cash flow report changes come into effect for the first quarter in 2020.
- There are clearer rules about the announcement of a proposed issue of securities, and the application for quotation of securities, and associated new forms.
- Currently, certain eligible entities can seek shareholder approval at an AGM for an additional 10% placement capacity over a 12 month period which can be used to issue shares for cash or non‑cash consideration. The ability of such entities to use this additional placement capacity for the issue of shares for non-cash consideration is being removed.
- A number of timetables for corporate actions will be updated, and a number of new forms will be introduced.
- ASX's powers to monitor and enforce the Listing Rules will be significantly strengthened. It will be made explicitly clear that ASX may exercise, or decide not to exercise, any power or discretion under the Listing Rules in its absolution discretion. ASX may also require any information, document or explanation that it asks for to confirm an entity's compliance with the Listing Rules to be verified under oath. ASX may censure an entity for an egregious breach of the Listing Rules, and release the censure and the reasons for it to the market.
Guidance Note Changes
As a result of the Listing Rule changes, ASX has released six new and 12 updated Guidance Notes.
Of note is that ASX has updated its guidance about transactions involving a significant change to the nature or scale of an entity's activities. An entity must not announce such a transaction unless ASX has reviewed and not objected to the announcement; the entity must as soon as practicable after the announcement apply to ASX for in principle advice on its suitability for re-admission to the official list; and the entity must as soon as practicable after the announcement apply for any Listing Rule waivers or rulings that are required to complete the transaction. ASX will not undertake any further work to progress the transaction until the entity has obtained favourable rulings on these applications.
For further details please contact: