ASIC CLASS ORDER [CO 05/938]
EXPLANATORY STATEMENT
Prepared by the Australian Securities and Investments Commission
Corporations Act 2001
Subsections 741(1) and 1020F(1) — Variations
Subsections 741(1) and 1020F(1) of the Corporations Act 2001 (the Act) provide that the Australian Securities and Investments Commission (ASIC) may make an order exempting a person from a provision of Ch 6D (fundraising) or Pt 7.9 (financial product disclosure and other provisions relating to issue, sale and purchase of financial products) of the Act or declare that the Ch 6D or Pt 7.9 applies as if specified provisions were omitted, modified or varied as specified in the declaration.
1. Background – amendments to Class Order [CO 01/1455] Continuously quoted securities
The Act permits a disclosing entity to issue a prospectus or Product Disclosure Statement (PDS) with a specified limited content (‘transaction-specific disclosure’) for continuously quoted securities: s713 and 1013FA. Transaction-specific disclosure is predicated on the fact that such entities are subject to the continuous disclosure requirements of the Act and that the market generally should have all information necessary to reach an informed view about those securities.
Section 9 of the Act defines ‘continuously quoted securities’ and excludes the securities of an entity where that entity, its directors or auditor have taken advantage of relief under s340 or 341 from the financial reporting and audit requirements of Ch 2M in the 12 months before the date of the prospectus or PDS. Hence, an entity is not permitted to use transaction-specific disclosures where the entity, its directors or auditor have taken advantage of relief under s340 or 341.
Class Order [CO 01/1455] Continuously quoted securities allows an entity to use transaction-specific disclosures even where the entity, its directors and/or auditor has taken advantage of certain ASIC relief under s340 or 341 that:
(a) is minor and technical; or
(b) otherwise does not detract from the level of information available to the market.
On 5 September 2005, ASIC made Class Order [CO 05/910] Auditor’s independence declaration – exemption pursuant to s341(1). [CO 05/910] grants an exemption for an auditor from the requirement to make an independence declaration under s307C where the declaration would be required to set out details of any contraventions of s324CE(2), 324CF(2) or 324CG(2) of the Act, provided that the auditor had reasonable grounds to believe that the auditor, audit firm or audit company (as applicable) had in place, at the time of the contravention, a quality control system that provided reasonable assurance of compliance with the specific auditor independence requirements in Subdiv B of Div 3 of Pt 2M.4 of the Act. As a condition of this relief, the auditor must make a written statement to the directors giving details of any contraventions of the auditor independence requirements of the Act or any applicable codes of professional conduct, other than those that arise solely under s324CE(2), 324CF(2) or 324CG(2) of the Act. [CO 05/910] provides consequential relief for directors, companies, registered schemes and disclosing entities.
As a result, [CO 01/1455] now needs a minor amendment in order to permit an entity to use transaction-specific disclosure despite having relied on the relief provided by [CO 05/910].
2. Background - amendments to Class Order [CO 04/672] Extension of on-sales exemptions
The Act requires an entity to issue a prospectus or PDS where the entity is on-selling a financial product within 12 months of that product being issued and:
(a) there was no disclosure at the time of issue; and
(b) certain other criteria are satisfied as outlined in s707(3) and 1012C(6).
There are a number of exemptions to the requirements in s707(3) and 1012C(6). In particular, s708A(5) and 1012DA(5), the ‘on-sale exemptions’, recognise that a prospectus or PDS need not accompany the on-sale of a financial product that is quoted on an Australian financial market provided, amongst other things, the on-selling entity, its directors and auditor are not relying on any relief granted in the 12 months prior to the issue of the product under s340 or 341.
Class Order [CO 04/672] Extension of on-sales exemptions allows an entity to rely on the on-sale exemptions even where the entity, its directors and/or auditor has taken advantage of certain ASIC relief under s340 or 341 that:
(a) is minor and technical; or
(b) otherwise does not detract from the level of information available to the market.
As stated above, ASIC made [CO 05/910] pursuant to s341(1) on 5 September 2005. This class order is essentially of a minor nature and ensures that the auditor independence requirements operate in an effective manner.
As a result, [CO 04/672] now needs a minor amendment in order to permit an entity to rely on the on-sale exemptions despite having relied on the relief provided by [CO 05/910].
3. Class Order [CO 05/938] Variation of Class Orders [CO 01/1455] and [CO 04/672]
Class Order [CO 05/938] Variation of Class Orders [CO 01/1455] and [CO 04/672] amends [CO 01/1455] and [CO 04/672] to permit an entity that has taken advantage of the relief under Class Order [CO 05/910]:
(a) to rely on transaction specific disclosure; and
(b) to take advantage of disclosure exemptions for secondary sales of securities and financial products.
[CO 05/938] recognises that the information provided in financial reports and accompanying documents is in no way reduced by the relief provided under [CO 05/910].
4. Consultation
As [CO 05/938] is of a minor or machinery nature and does not substantially alter existing arrangements, ASIC did not undertake any consultation with stakeholders before that class order was made.