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News and discussions from Novus Capital

Capital Raising Relief

Gavan Farley - Wednesday, February 24, 2021

Capital Raising Relief

ASX has introduced temporary relief to facilitate emergency capital raising by ASX-listed entities until 31 July 2020. ASX has introduced this relief as recognition that many ASX-listed entities will need to urgently raise capital in the coming months to sustain their operations and protect themselves from a steep drop in revenue caused by the economic disruptions of COVID-19.

Many ASX-listed entities are going to come to the conclusion in the coming weeks and months that raising capital is necessary. During a crisis such as this, effective boards should remain informed about the relief available to them and consider whether their financial situation warrants taking advantage of such relief.

ASX is introducing three key measures as part of this temporary relief:

Back-to-back trading halts: ASX will permit an entity to request two consecutive trading halts (enabling up to a 4 day trading halt) to consider, plan and complete a capital raising.

Increase in the 15% placement capacity to 25%: ASX has increased the 15% limit on placements in listing rule 7.1 to 25%. Entities that already have shareholder approval for the additional 10% placement capacity under listing rule 7.1A will be able to elect to use that additional placement capacity or the additional 10% placement capacity available under this temporary measure, not both. Entities who utilise this temporary additional capacity must also offer securities under a pro-rata entitlement offer or a follow-on offer under an SPP to retail investors at the same or lower price.

The increase in placement capacity is a one-off measure meaning, once utilised, an ASX-listed entity will not be able to replenish its temporary extra placement capacity. Furthermore, ASX will only allow listed entities to undertake one placement to take advantage of their temporary extra placement capacity. Should a listed entity seek to undertake more than one placement using their temporary extra placement capacity, the entity will need to approach ASX for an individual waiver.

Waiver of the one-for-one cap on non-renounceable entitlement offers: ASX will waive the requirement that the ratio of securities offered under a standard non-renouncement entitlement offer must not be greater than one security for each security held by a shareholder. The waiver of the one-for-one cap provided in listing rule 7.11.3 will apply to standard non renounceable entitlement offers and ANREOs. (Renounceable offers may still be offered at a ratio greater than 1 for 1, but we would expect that in many cases non-renounceable offer structures will be required in order for the offer to be successful.)

The above measures will be implemented by class waivers, meaning there is no requirement for ASX-listed entities to apply individually to gain access to the above relief measures. ASX will review the above measures with industry participants closer to 31 July 2020 to determine whether they warrant an extension or alteration if they are not have the desired effect on capital raisings.

ASX has also advised that it supports the guidance given by ASIC in its "Market Integrity Update – COVID-19 Special Issue – 31 March 2020" which clarified ASIC's expectations regarding fair treatment of retail shareholders in capital raisings. Importantly, as part of its relief measures, ASIC has increased the allowable suspension period for listed entities undertaking "low doc" offers (including rights offers, placements and SPPs) to include listed entities that have been suspended for a total of up to 10 days in the previous 12-month period (the previously allowable limit was up to 5 days in the previous 12-month period).

ASX also reiterated its expectation that capital raising will be conducted in the best interest of the entity – such as the need for quick and certain capital and that the capital raising relief being provided will not be abused by listed entities.

Updated temporary class waivers for capital raisings announced on or after 23 April 2020

ASX, in consultation with ASIC, has now released updated temporary class waivers that will apply to capital raisings announced on or after 23 April 2020.

Since ASX released the initial class waivers, there have been a significant number of equity capital raisings, with several entities seeking to rely on the increased placement capacity to quickly raise cash to support their businesses or continue to pursue growth opportunities in the current COVID-19 crisis. While the temporary measures implemented by ASX to facilitate capital raisings in these challenging times have been applauded by many, they have also drawn criticism. For example, some comments are directed to the perceived unfairness of preferencing institutional investors through the placement at the expense of existing high net worth and retail shareholders or the dark arts of the share allocation process.

However, there's more sides to this story of course, for example: share purchase plans can make many retail shareholders whole; high net worth shareholders can often bid into placements directly or through brokers (and some smart minds are looking to enhance this ability); boards will generally look to encourage participation by existing shareholders; some institutional investors are quality long-term investors that will enhance a register for the benefit of all shareholders; new cornerstone investors can be necessary to get deals away; and covering a retail "tail" with sub-underwriting to promote deal certainty can be harder than you think. The list goes on, reflecting the reality that every deal is different and that the fundraising process can be more art than science.

ASX is attuned to these intricacies and, having moved with considered speed, has refined its model. It requires details in advance around the proposed use of the 25% placement waiver and is willing to refuse access to the waiver where it feels it is unwarranted. The changes made in the updated waivers include enhanced disclosure obligations that seek to promote transparency in relation to the allocation processes adopted by entities that rely on the increased placement capacity in a way that reflects multiple sides of the story.

What are the changes to the ASX relief?

The most significant changes to the temporary class waivers have been to include additional disclosure requirements for those listed entities relying on the temporary extra placement capacity waiver (which increases the limit on placements from 15% to 25%). ASX have also included a number of changes to clarify the operation of the temporary class waivers.

The amendments to the temporary extra placement capacity class waiver include the following:

Enhanced disclosure requirements

ASX has increased the disclosure requirements for entities wishing to rely on the increased placement capacity class waiver. Entities must announce to the market the following matters within 5 business days of completion of the placement:

  • results of the placement;
  • reasonable details of the identification and allocation processes, including details of the allocation objectives and criteria, whether there was an objective of pro rata allocation amongst existing shareholders and any significant exceptions or deviations from those objectives and criteria; and
  • confirmation that, as far as the entity is aware, no related parties, shareholders holding more than 30% of the entity's securities, or shareholders holding more than 10% of the entity's securities that also hold a Board appointment right (together, being Listing Rule 10.11 Parties), participated in the placement, subject to certain exceptions.

Listed entities relying on the waiver must also provide ASIC and ASX with an allocation spreadsheet (not for release to the market) containing details of participants and the number of shares allocated to each participant.

These enhanced disclosure obligations have been supported by ASIC, stating that "ASIC will be reviewing the allocation spreadsheets and monitoring the disclosures made by companies about placements, rights offers and SPPs to ensure they are accurate, sufficiently detailed and provide meaningful, rather than ‘boiler plate’ disclosure".

Where there is a limit on the amount to be raised under an SPP, a listed entity must now disclose the reason for the limit, and how it was determined. A listed entity will also be required to use all reasonable endeavours to ensure that SPP offer participants have a reasonable opportunity to participate equitably in the overall capital raising.

ASX has clarified that any scale back under SPPs must be applied on a pro rata basis, based on either the size of a participant's holding, or the number of securities applied for.

Clarifications provided

The changes that clarify or expand the existing temporary extra placement capacity class waiver include the following:

  • entities are now able to conduct a follow-on standard entitlement offer, not just an accelerated entitlement offer or SPP (as contemplated by the initial temporary class waiver in ASX Compliance Update no 03/20). This will assist smaller listed companies that do not have a significant institutional shareholder base;
  • Listing Rule 10.11 Parties (including Directors) are now permitted to participate in an SPP on the same terms as other shareholders, pursuant to the grant of a waiver of Listing Rule 10.12 Exception 4 equivalent to the waiver granted to Listing Rule 7.2 Exception 5;
  • confirmation that any entity that has a waiver or exemption to allow it to make SPP offers of more than $30,000 to individual holders in any 12 month period will still satisfy the conditions of ASIC Corporations (Share and Interest Purchase Plans) Instrument 2019/547; and
  • any existing Listing Rule 7.1 or 7.1A placement capacity that has been used is counted for the purposes of calculating the remaining temporary extra placement capacity.

In addition, as noted above, if an entity wishes to rely on either temporary class waiver, ASX has explained that the notice of reliance to be provided by listed entities is not for public release and must:

  • be given to ASX before making the capital raising in question; and
  • explain whether the capital raising to raise urgent capital in response to the COVID-19 pandemic, or for some other reason.

ASX has also clarified its power to withdraw the class waivers either:

  • in respect of a specific listed entity, by written notice to that entity; or
  • generally before the scheduled expiry date of 31 July 2020 by notice to the market.

ASX has also stated in its Compliance Update no 04/20 that entities wishing to seek two consecutive trading halts must make this clear in the request (otherwise ASX will only grant a single trading halt of up to two trading days). ASX also expects any request for two consecutive trading halts to state that the trading halt is for the purpose of considering, planning and executing a capital raising.

“Source: Clayton UTZ https://www.claytonutz.com/covid-19-response/corporate-law-and-governance

Continuous Disclosure Reforms To Be Made Permanent, And Extended To Misleading And Deceptive Conduct

Gavan Farley - Wednesday, February 24, 2021

Continuous Disclosure Reforms To Be Made Permanent, And Extended To Misleading And Deceptive Conduct

Following the recent Parliamentary Inquiry into class actions and public debate around regulatory settings during COVID-19, Treasurer Josh Frydenberg has announced his intention to legislate permanent reform to continuous disclosure laws.

If passed by Parliament, the law would ensure that companies and their officers will only be liable for civil penalty proceedings in respect of continuous disclosure obligations where they have acted with “knowledge, recklessness or negligence”.

The proposal is consistent with the temporary relief provided by the Treasurer during COVID-19 with the important exception that it is intended to extend to potential liability for misleading and deceptive conduct (which was originally omitted from the Treasurer’s COVID-19 relief). In other words, a plaintiff would need to prove fault where misleading or deceptive disclosure is alleged (ensuring alignment with the approach taken to the continuous disclosure provisions).

This would effectively be a rebalancing of disclosure settings and should act as a significant disincentive to the bringing of speculative shareholder class actions. In particular, the Government anticipates that the reform would trigger costs savings for Director and Officer insurance given securities class actions have been a primary driver of recent increases.

Extension of virtual AGMs and electronic communication relief to 15 September 2021

At the same time, the Treasurer has announced his intention to extend the expiry date of the temporary relief allowing companies to use technology to meet regulatory requirements to hold meetings, such as annual general meetings, distribute meeting related materials and validly execute documents from 21 March 2021 to 15 September 2021. Following 15 September 2021, meetings will need to be conducted consistent with pre-COVID-19 laws which require an-in person meeting to be held.

The Government will also conduct a 12-month opt-in pilot for companies to hold hybrid annual general meetings to enable a proper assessment of the shareholder benefits of virtual meetings. The Government will also finalize permanent changes to allow electronic signing and sending of documents prior to the expiry of these temporary arrangements. This has been brought about due to the mixed reactions from shareholders on Virtual AGM software and processes conducted over the last 6 months.

Source: “Grant Thornton website https://www.grantthornton.com.au/en/

Reforms to the Regulatory Framework for Superannuation in Australia

Gavan Farley - Wednesday, February 17, 2021

Superannuation is the future financial security for Australians and trustee misconduct significantly impacts members’ retirement savings. In response to the Hayne Royal Commission, the Government has introduced a number of legislative reforms in to support the sector, with most of the reforms commencing from 1 January 2021.

The reforms primarily expand ASIC’s role as the conduct regulator and increase ASIC’s powers to enforce provisions of the Superannuation Industry (Supervision) Act 1993 (SIS Act), as well as broadening the scope of the conduct obligations owed by trustees, covered by existing powers under the Corporations Act 2001 ( Corporations Act) and the Australian Securities and Investments Commissions Act 2001 ( ASIC Act). While APRA still retains its enforcement action provisions , the reforms provide for an increased monitoring role by ASIC with the aim of increasing consumer protections and ensuring market integrity.

What do the reforms mean for trustees?

The reforms have significant implications for trustees, and they are explained below:

1. Providing a superannuation trustee service

An entity provides a superannuation trustee service if they operate a registrable superannuation entity (RSE) as trustee. The creations of this new financial service will fill gaps in ASIC’s existing jurisdiction and ensure that conduct obligations in the Corporations Act – including the need to act efficiently, honestly and fairly – apply to trustee activities relating to operating a superannuation fund.

2. Licensing changes

From 1 July 2021, all trustees will be required to hold an AFS licence with authorisations to deal in superannuation and to provide a superannuation service.

Public offer superannuation trustees who are existing AFS licence holders with an authorisation to deal in superannuation are deemed, by law, to have the new authorisation – to provide a superannuation trustee service – from 1 January 2021.

Non-public offer fund trustees will no longer be exempt from holding an AFS licence to deal in financial products, and will need to apply for an AFS licence to deal in superannuation and provide a superannuation trustee service.

3. ASIC’s powers under the SIS Act

The modified SIS Act gives ASIC greater powers to take enforcement action against unlawful and harmful conduct by superannuation trustees. This includes greater scope for taking action against trustees who may be in breach of the covenants in section 52 of the SIS Act.

Enforcement is an important component to ensure that trustees are held accountable for misconduct.

4. Breach reporting

Under the SIS Act, trustees must report significant breaches of their RSE licence conditions to APRA, no later than ten business days after becoming aware of a significant breach (that has occurred or is imminent). Effective from 1 October 2021, the reforms increase this timeframe to 30 calendar days, which is consistent with the amended timeframes in the Corporations Act that will come into effect from the same date.


The aim of the reforms is to protect the financial wellbeing of the Australian community and provide for a stable, and stronger financial future for retiring Australians. The increased powers provided to ASIC and their collaboration with APRA aims to maintain the integrity of the system, with the increased regulatory obligations and enforcement action powers, ensuring trustees are held to a higher fiduciary standard and are prosecuted for breaches.


Important changes to directorships: Effective 18 February 2021

Gavan Farley - Wednesday, February 17, 2021

A significant change will occur this week with regard to Australian directorships. Please find details about this change below, and let us know if you require any further advice.

In February 2020, the Treasury Laws Amendment (Combating Illegal Phoenixing) Act2020 (Cth) (Phoenixing Act) was passed by Parliament. The Phoenixing Act is aimed at assisting regulators and liquidators to combat illegal phoenixing activities, by holding directors accountable and preventing them from improperly backdating resignations or leaving companies without directors.

The Phoenixing Act introduces amendments to the Corporations Act 2001 (Cth). While the amendments are aimed at combating phoenixing activities, all directors would be well advised to take note of the key changes, which take effect on 18 February 2021.

Resignation date

If a director’s resignation is notified to ASIC more than 28 days after the resignation, the resignation date will be taken to be the date that the notice is lodged with ASIC. The director or the company may apply to ASIC (provided such application is made within 56 days of the person ceasing to be a director) or the Court, to determine a different resignation date. However, these applications will be subject to increased scrutiny and directors cannot expect automatic relief.

Last director standing

A director’s resignation will not be valid if, after the resignation, the company does not have at least one other director. To enforce this, ASIC have advised that notices submitted to ASIC to cease the last remaining director without replacing that director, will be rejected with effect from 18 February 2021.

There are limited exceptions, including that:

  • the last director is deceased,
  • the company is being wound up or is under external administration, or
  • the director never consented to the appointment.

The practical effect for directors

Directors (and companies) must ensure that notice is given to ASIC of a director’s resignation within 28 days of the relevant person ceasing to be a director of the company. Unless an application to ASIC or the Court is successful in determining a different date, a failure to lodge the notification within 28 days will result in the effective date of resignation being the day that ASIC was notified of the resignation.

The last remaining director of a company cannot validly resign or be removed without a replacement director being appointed. This is particularly relevant for non-executive directors, and professional practitioners who may act as a director of a client company in the course of providing services to that client.

Foreign Investment Regime to commence on 1 January 2021 - exposure draft released (Part 2)

Gavan Farley - Thursday, December 17, 2020

Foreign Investment Regime to commence on 1 January 2021 - exposure draft released (Part 2)

In brief - an overview of the key changes in part two of the government's proposed reforms to Australia's foreign investment framework

On 18 September 2020, the Treasury released the second tranche of exposure drafts for the Foreign Investment Reform (Protecting Australia’s National Security) Regulations 2020 and the Foreign Acquisitions and Takeovers Fees Imposition Regulations 2020 as part of its foreign investment reform package. This follows the exposure draft of the Foreign Investment Reform (Protecting Australia’s National Security) Bill 2020 released on 31 July 2020.

Individual investments will continue to be reviewed on a case by case basis to ensure Australia's national interest and national security are protected, and to maintain public confidence in Australia's foreign investment regime.

National Security

In Part 1 of the Foreign Investment Regime exposure draft released, a new national security test is being proposed which amongst other things will:

  • require mandatory notification of ‘notifiable national security actions’ regardless of the value of the investment; and
  • allow certain actions named ‘reviewable national security actions’ to be ‘called in’ for screening on national security grounds.

Time limit on call in power

The draft Regulations provide a time limit of 10 years for the Treasurer's use of its call-in power. This means that if the Treasurer has not commenced a review of an action before this 10-year period lapses, the Treasurer will not be able to subsequently call in the action for review, even if a national security risk emerges.

The explanatory memorandum for the draft Regulations explains that the time limit will provide foreign persons with greater certainty as to the Treasurer’s powers and to assist with a foreign person’s decision as to whether to voluntarily notify.

Exemption certificates

To reduce the regulatory burden for foreign persons, the draft Regulations introduce two new types of exemption certificates. These exemption certificates will allow a foreign person to apply for an upfront approval for a program of investments without the need to seek separate approvals.

The two new types of exemption certificates will be for:

  • notifiable national security actions; and
  • reviewable national security actions.

A foreign person will be able to seek an exemption certificate to undertake a program of actions or kinds of actions that would otherwise be a ‘notifiable national security action’ or ‘reviewable national security action’.

The certificate will specify the foreign person that the certificate is issued to and the actions or kinds of actions covered by the certificate.

Applications can be made for these new types of exemption certificates on and from 1 January 2021.

Streamlining less sensitive investments

Treasury has identified that the broadness of the definition of 'foreign government investor' has meant that private institutional investors who manage funds with foreign government investors are currently subject to mandatory notification for most investments.

The draft Regulations have narrowed the definition of 'foreign government investor' to allow certain private institutional investors that manage funds with foreign government investors to access higher monetary thresholds. In order to access these thresholds, the foreign government investors in the fund must not be able to influence investment decisions or have access to sensitive information about the fund's investments.

The effect of these amendments is that funds with foreign government investors as passive investors will not automatically be deemed to be foreign government investors for the purposes of the foreign investment regime.

Reinstatement of pre-COVID-19 monetary thresholds

As noted previously, the temporary reduction of the existing monetary thresholds to zero were implemented in response to COVID-19. In essence, most foreign investment into Australia since these changes were implemented have required notification to FIRB.

The draft Regulations propose to reinstate the pre-COVID-19 monetary thresholds on and from 1 January 2021, indexed at the rates the thresholds would have been subjected to had the amendments in response to COVID-19 not been made.

A final decision on whether the monetary thresholds will be reinstated will depend on the impact that COVID-19 has on the economy and whether there is an ongoing risk that foreign investment in Australia could occur in ways that would be contrary to the national interest.

Other amendments

The draft Regulations have also proposed several amendments to simplify, and improve the clarity and integrity of the foreign investment regime.

The key amendments include:

  • narrowing the scope of the moneylending exemption where an interest in a national security business or national security land is obtained under a moneylending agreement
  • excluding an interest in a mining or production tenement where the interest acquired is a revenue stream in a mining or production tenement without any proprietary rights unless the land is national security land
  • expanding the definition of 'Australia media business' to capture the operation of an electronic service that delivers or allows access to content that is similar to a newspaper, radio, or television broadcast (i.e. Australian businesses that only publish or broadcast such content through the internet)
  • removing the exception applying to interests transferred by a will to a foreign person
  • capturing interests in national security land or the assets of a national security business which are acquired from the Commonwealth, a state or territory government or local government body
  • amending tracing provisions so that they can be applied to unincorporated limited partnerships.

Application fees

A new fee regime has been outlined in the exposure draft for the Foreign Acquisitions and Takeovers Fees Imposition Regulations 2020. This new fee regime will apply to application fees payable on and from 1 January 2021.

In essence, a new concept is introduced which calculates the fee payable for a notification by taking into account the type of interest and the consideration for the acquisition of the interest. For each proposed type of interest, there is a baseline dollar amount called the 'fee constant'.

For example, the fee constant for:

  • acquiring an interest in residential land is $1 million
  • acquiring an interest in agricultural land is $2 million
  • acquiring an interest in commercial land, a mining or production tenement, or in certain businesses and entities is $50 million.

If the consideration for the acquisition is less than or equal to the fee constant, the application fee will be a flat $6,600.

If the consideration is more than the applicable fee constant, the fee payable will be determined by applying another formula which increases the fee payable based on how many multiples the consideration is compared to the applicable fee constant.

The explanatory memorandum has provided calculated examples of fees payable under the new fee regime.

For example, the fees payable for an acquisition of commercial land on and from 1 January 2021 will be:

  • $6,600 for consideration of $50 million or less
  • $13,200 for consideration of $100 million or less
  • $26,400 for consideration of $150 million or less
  • $92,400 for consideration of $400 million or less
  • $250,800 for consideration of $1 billion or less
  • capped at $500,000 for consideration of more than $1.9 billion.

By comparison, the fees payable under the current fee structure is:

  • $2,100 for consideration of $10 million or less
  • $26,700 for consideration of more than $10 million but less than $1 billion
  • $107,000 for consideration of more than $1 billion.

The fees payable under the new fee regime are likely to be significantly higher. Commentary on this new fee regime has been mixed with some commentators noting that higher fees may make bidders more hesitant especially if there is a chance that these bids may not be successful.

JobKeeper 2.1 – Economic Response to the Coronavirus

Gavan Farley - Monday, September 07, 2020

JobKeeper 2.1 – Economic Response to the Coronavirus


ASIC Interim Corporate Plan 2020-21

Gavan Farley - Thursday, August 20, 2020

ASIC Interim Corporate Plan 2020-21

JobKeeper 2.0 – Extended to March 2021 with some changes.

Gavan Farley - Tuesday, August 04, 2020

Date: 27 July 2020

Reference: Federal Treasury

On 21 July 2020, and due to the ongoing coronavirus economic crisis, the Australian Government announced that iswould extend the JobKeeper Payment until 28 March 2021. However, it will be reduced twice. From 28 September 2020 the $1500 wage subsidy will be reduced to:

  • $1200 per fortnight full-time workers – those that work above 20 hours per week; and
  • $750 per fortnight part-time workers – those that work less than 20 hours per week.

From 4 January 2021, it will be further reduced to:

  • $1000 per fortnight for full-time workers; and
  • $650 per fortnight for part-time workers.

There are also changes to the way in which eligibility for the scheme will be assessed.

From 28 September 2020:

  • Business and not-for-profits seeking to claim the JobKeeper Payment will be required to demonstrate that they have suffered an ongoing significant decline in turnover using actual GST turnover (rather than projected GST turnover).
  • They will be required to reassess their eligibility with reference to their actual GST turnover in the June and September quarters 2020. They will need to demonstrate that they have met the relevant decline in turnover test in both of those quarters to be eligible from 28 September to 3 January 2021.

From 4 January 2021:

  • Business and not-for-profits will need to further reassess their turnover for eligibility. They will need to demonstrate that they have met the relevant decline in turnover test with reference to their actual GST turnover in each of the June, September and December quarters 2020 to remain eligible from 4 January 2021

The proposed changes to the scheme will be brought into legal effect once the Treasurer registers a Legislative Instrument to amend and/or supplement the Legislative Instrument titled the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020.

For more information in relation not the extension of the JobKeeper payment please refer to https://treasury.gov.au/sites/default/files/2020-07/Fact_sheet-JobKeeper_Payment_extension.pdf

Capital Raising – Placement Q&A

Gavan Farley - Wednesday, May 13, 2020

Capital Raising – Placement Q&A

1.What is the quickest way to raise capital?

One of quickest way for a listed company to raise capital is to make a placement of shares to a group of sophisticated or professional investors.

This is the quickest route to raising equity capital as the issuing company is not required to prepare and lodge a prospectus (a disclosure document) with the ASIC.

2.Are there requirements that have to be satisfied in making a placement to sophisticated or professional investors?

Yes. There are a number of requirements.

1.Each investor needs to qualify as a sophisticated or professional investor in accordance with the requirements of section 708 of the Corporations Act 2001 (Cth) (Corporations Act). The main categories of persons that would qualify as a sophisticated or professional investor are:

•an investor that is purchasing at least $500,000 of shares in the offer;

•an investor that holds or controls net assets of at least $10 million (e.g. a fund manager); and

•an investor that has a certificate from an accountant that says they have the required level of net assets or gross income.

2.The issuing company will need to comply with the requirements of the ASX Listing Rules in making the offer. These include:

•not issuing more than 15% of its capital in any 12 months period: ASX Listing Rule 7.1. Note the ASX has temporarily lifted the 15% limit to 25%, conditional on the company combining the placement with an entitlement offer or a follow-on offer to retail investors under a security purchase plan. See our focus paper: "Capital Raisings During COVID-19" for more information on the conditions for being able to utilise this uplift;

•complying with the requirements of ASX Listing Rules 10.11 and 10.12 and the relevant provisions of the Corporations Act in relation to offers to related parties. Generally shareholder approval will be required to issue placement shares to a director or other related party - so for a fast capital raise – related parties should not be offered shares in a placement. However, we understand that the ASX is taking a pragmatic view on waiver requests where a placement offer is made to related parties;

•considering whether a trading halt is required whilst the issuing company is investigating a capital raising. A listed company proposing to raise capital will need to make an announcement to the market under Listing Rule 3.10.3 as soon as it commits to proceed with the capital raising. This is usually done on ASX Form Appendix 3B. A trading halt will assist with management of the announcement and the capital raising. In conjunction with the temporary uplift in placement capacity, ASX will also permit companies to request back-to-back trading halts (i.e. up to a total of 4 trading days) to consider, plan and execute capital raising;

•complying with continuous disclosure requirements under Listing Rule 3.1. Generally, the raising of capital by an ASX listed company would be subject to continuous disclosure obligations. As such, it would be important to ensure that proposed placement parties are subject to confidentiality obligations to be able to fall within the incomplete proposal exception to the disclosure requirements, until the capital raising is finalised.

3.Should I have an underwriter for the placement?

If you can procure an underwriter at this time it will give confidence to investors that the full placement will proceed. In this market it is more likely that a broker or investment bank will want to manage, rather than underwrite, an issuing company’s placement. Again, although not underwriting, management of the placement by a broker or investment bank will give some confidence to the market that the placement in total will proceed.

An underwriter or placement manager will usually conduct a due diligence review of the issuing company before committing to becoming involved – usually by issuing a due diligence questionnaire to the officers of the issuing company to answer.

4.Can I have an investor that agrees to sub-underwrite or take a fixed % of the placement if others don’t take it up?

One issue to watch out for is the requirement to comply with the substantial shareholder notice provisions of the Corporations Act. These require the lodgement of a notice to the ASX where an investor’s voting power in an issuing company is 5% or more, and a further updated notice, where their voting power was at 5% or more and it changes by 1 percentage point or more.

Also, an investor should not be issued shares in the placement if their voting power in the issuing company will exceed 19.9%. If it does, and the circumstances of the issue do not fall within one of the relevant exceptions in the Corporations Act, they may be breaching the takeover provisions of the Corporations Act.

5.Will an investor be able to on-sell their offer shares on the ASX immediately after they are issued to them?

It depends.

On-sale by an investor within 12 months would usually require the issue of a prospectus unless it comes within one of the exceptions in section 708, for example an on-sale to a sophisticated or professional investor (refer to question 2 above Are there requirements that have to be satisfied in making a placement to sophisticated or professional investors?)

However, there are certain exceptions in the Corporations Act to allow the on sale by an investor of the shares they are issued in a placement.

The principal exception is known as case 1 (sale offer of quoted securities). This exception requires that:

•the offer shares must have been continuously quoted for 3 months before the issue of the offer shares;

•trading in the offer shares was not suspended for more than 5 days in the last 12 months before the issue of the offer shares. However, see ASIC 20-075MR issued 31 March 2020 where the ASIC outlines the terms on which it has extended in certain cases this 5 days to 10 days. See our focus paper "Capital Raisings During COVID-19" for more information on this; and

•the issuing company has given a cleansing notice to the ASX before the securities are able to be sold on the market.

There are some other technical requirements which will not be covered in this note – see section 708A (5) and (6) of the Corporations Act.

6.What is a cleansing notice?

A cleansing notice is a notice that complies with section 708A (6) of the Act. It must state that:

•the issuing company issued the offer shares without disclosure to investors;

•the notice is given in accordance with case 1 in section 708A (5); and

•as at the date of the notice, the body has complied with:

oits financial reporting obligations in Part 2M of the Act; and

oits continuous disclosure obligations in section 674 of the Act.

The cleansing notice must also include any information that is “Excluded Information” as at the date of the notice.

7.What is “Excluded Information”?

This is information that has not previously been disclosed to the market because of the exceptions to the continuous disclosure obligations in ASX Listing Rules 3.1A but investors and their professional advisers would reasonably require the information to be disclosed (and expect to see the information in a prospectus, if a prospectus was required to be issued by the company) in order to make an informed assessment of:

•the assets and liabilities, financial position and performance, profits and losses and prospects of the issuing company; or

•the rights and liabilities attaching to the offer shares.

This requirement will usually mean that, before the placement is effected, the issuing company will update the market with any market sensitive information which has not previously been disclosed, including information which may have been excluded as a result of the exceptions in Listing Rule 3.1A.

This requirement can sometimes be time consuming as it will usually involve a due diligence investigation into the issuing company involving the board, management and usually the issuing company’s lawyers and accountants.

8.Are there any other matters that I need to be concerned about?

As mentioned above, the issuing company will need to liaise with the ASX in relation to a number of matters including:

•calling a trading halt;

•lodging an Appendix 3B (New Issue Announcement);

•lodging an Appendix 2A (Application for Quotation of Securities); and

•providing the work sheet with the calculations of available issue capacity under Listing Rules 7.1 and 7.1A.

9.What restrictions are there on the issue price of the offer shares?

The price at which the offer shares are issued is a matter to be determined by the Board of the issuing company having regard to a range of factors including the current market price of the issuing company’s shares, the expected discount expected by investors in the current market and the expected dilution of current shareholders by the issue of the offer shares.

Indeed, the expected dilution of current shareholders may be a reason why the Board of an issuing company may decide to have a placement followed by an entitlement offer to existing shareholders or an SPP (share purchase plan).

Novus’ Response to the COVID – 19 Pandemic - A Note from our Managing Director

Gavan Farley - Friday, March 27, 2020


Novus’ Response to the COVID – 19 Pandemic - A Note from our Managing Director