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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.