ASIC Class Order [CO 07/42]

Administered by Department of the Treasury

Legislation au F2007L00506 Not in force Legislative Instrument

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ASIC CLASS ORDER [CO 07/42]

 

EXPLANATORY STATEMENT

 

Prepared by the Australian Securities and Investments Commission

 

Corporations Act 2001

 

Paragraphs 741(1)(b) and 1020F(1)(c) – Variation

 

The Australian Securities and Investments Commission (ASIC) makes Class Order [CO 07/42] Disclosure for onsale of securities and other financial products -Variation   under paragraphs 741(1)(b) and 1020F(1)(c) of the Corporations Act 2001 (the Act). Paragraph 741(1)(b) provides that ASIC may declare that Chapter 6D applies to a person as if specified provisions were omitted, modified or varied as specified in the declaration. Paragraph 1020F(1)(c) provides that ASIC may declare that Part 7.9 applies in relation to a person as if specified provisions were omitted, modified or varied as specified in the declaration.

 

1. Background

 

Prospectus relief for secondary sales of securities received under foreign schemes

 

Chapter 6D regulates the making of offers for the issue or sale of securities. It provides a disclosure and liability regime so as to ensure adequate investor protection in circumstances where an investor may not know all the information needed to make a decision whether to accept an offer of securities.

 

In addition to requiring disclosure for the issue of securities, the provisions set out where an offer for the sale of securities needs disclosure to investors.  The following sale offers need disclosure under Chapter 6D (unless an exemption applies):

 

  • an offer of a body's securities for sale by the body's controller where the securities are either not quoted or not offered for sale in the ordinary course of trading on a relevant financial market;
  • an offer of a body's securities for sale within 12 months after their issue without disclosure where either the body issued the securities, or the person to whom they were issued acquired them, with the purpose of the securities being on-sold; and
  • an offer of a body's securities for sale within 12 months after their sale without disclosure by the body's controller where the securities were at the time of sale by the controller either not quoted or not offered for sale in the ordinary course of trading on a relevant financial market and either the controller sold the securities, or the person to whom they were sold acquired them, with the purpose of the securities being on-sold.

 

The offer of securities for issue under a Part 5.1 scheme of arrangement (Part 5.1 scheme) is exempt from the prospectus requirement under subsection 708(17) of the Act.  [CO 04/671] gives disclosure relief for secondary sales of securities where the securities were issued without disclosure because of subsection 708(17) to facilitate the on-sale of securities received in a Part 5.1 scheme. 

 

[CO 07/9] gives disclosure relief for offers of securities for issue under schemes of arrangement (foreign schemes) regulated by or under a law in force in  certain foreign countries .  This is because these jurisdictions provide scheme regulation that offers a comparable level of disclosure and investor protection to that provided in Australia.  Similarly to securities received under Part 5.1 schemes, secondary sales of securities received under a foreign scheme would be inhibited by the requirement to prepare a prospectus.

 

PDS relief for secondary sales of financial products received under Part 5.1 schemes and foreign schemes

 

Part 7.9 regulates the issue, sale and purchase of financial products (except securities). It provides a disclosure and liability regime so as to ensure adequate protection in circumstances where a person who is a retail client may not know all the information needed to make a decision whether to acquire a financial product.

 

The provisions set out where the sale of a financial product needs disclosure, generally in the form of a Product Disclosure Statement (PDS). A PDS may need to be given (unless an exemption applies):

 

  • by a person who gives personal advice recommending a particular financial product; and
  • by a person who sells a financial product in certain situations.

 

[CO 07/9] gives relief from the requirement to prepare a PDS for financial products offered under a Part 5.1 scheme or foreign scheme because the offers are likely to be accompanied by adequate disclosure. However, secondary sales of financial products received under a Part 5.1 scheme or foreign scheme would be inhibited by the requirement under Part 7.9 to prepare a PDS.

 

PDS relief for secondary sales of financial products received under an employee share scheme

 

Class Order [CO 04/671] grants disclosure relief for the on-sale of securities that were issued without disclosure because the issuer relied on relief from the provisions of Chapter 6D granted by ASIC in relation to an employee share scheme.

 

ASIC class order and individual relief instruments also allow financial products other than securities to be issued under an employee share scheme without a PDS being prepared. Before Class Order [CO 07/42] came into effect, a PDS was required for the on-sale of financial products that were issued without a PDS in reliance on ASIC relief relating to an employee share scheme.

 

2. Purpose of the class order

 

The purpose of [CO 07/42] is to provide relief from the disclosure requirements to persons who make offers to sell:

 

(a) securities received under a foreign scheme; or

 

(b) financial products received under a Part 5.1 scheme or a foreign scheme.

 

3. The class order

 

[CO 07/42] varies [CO 04/671] to:

 

(a)   give disclosure relief for the on-sale of securities or financial products where the securities or products were issued without disclosure to investors under Part 6D.2 or without a PDS  for the product being prepared because:

 

(i) subsection 708(17) applied; or

 

(ii) the issuer relied upon Class Order [CO 07/9]; and

 

(b)  extend the on-sale disclosure relief that applies where offers were made without disclosure in reliance on ASIC relief for an employee share scheme so that a PDS will not be required for the on-sale of financial products that were issued without a PDS in reliance on that relief.

 

4. Consultation

 

In July 2005, ASIC released a Policy Proposal Paper Disclosure in reconstructions (PPP) seeking submissions from interested parties on a range of proposals, including the relief in [CO 07/42].  Submissions received in response to the PPP supported the relief in [CO 07/42].

 

 

Overview

The Australian Securities and Investments Commission (ASIC) introduced Class Order [CO 07/42], titled "Disclosure for onsale of securities and other financial products - Variation," under the Corporations Act 2001. This legislation aims to address the issue of inhibiting secondary sales of securities and financial products by providing relief from the disclosure requirements when these products were initially issued without disclosure. This relief is particularly applicable to securities received under foreign schemes, securities received under Part 5.1 schemes, and financial products received under Part 5.1 schemes or foreign schemes. The purpose of this class order is to facilitate the on-sale of these financial instruments by ensuring that adequate disclosure and investor protection standards are maintained, thereby allowing for more fluid secondary market transactions. ASIC sought feedback through a Policy Proposal Paper released in July 2005, and the submissions received were supportive of the measures proposed in [CO 07/42].

Scope and Application

The ASIC Class Order [CO 07/42] applies to persons who make offers to sell securities or financial products that were issued without disclosure under the Corporations Act 2001, specifically under Chapter 6D for securities and Part 7.9 for financial products. This relief is intended for securities received under foreign schemes or financial products received under Part 5.1 schemes or foreign schemes, and it extends the disclosure relief to secondary sales of financial products issued without a Product Disclosure Statement (PDS) under an employee share scheme. The class order is designed to facilitate the on-sale of securities and financial products without the need for extensive disclosure, provided the initial issuance was under a scheme regulated by a foreign jurisdiction or an Australian scheme that offers comparable disclosure and investor protection. This relief helps mitigate the administrative burden on issuers and ensures that the secondary market for these securities and products remains functional and accessible. The scope of this class order is limited to the specific types of securities and financial products as outlined and does not apply to all offers of securities or financial products. The relief provided is contingent on the initial issuance meeting the criteria set out in the Corporations Act and relevant class orders.

Key Provisions

The ASIC Class Order [CO 07/42], made under paragraphs 741(1)(b) and 1020F(1)(c) of the Corporations Act 2001, aims to provide relief from certain disclosure requirements for the on-sale of securities and financial products received under specific schemes. This Class Order varies the existing Class Order [CO 04/671] to include additional relief for the on-sale of these financial instruments. Under section 741(1)(b) and 1020F(1)(c) of the Corporations Act, ASIC has the authority to declare that Chapter 6D and Part 7.9 apply to a person as if specified provisions were omitted, modified or varied as specified in the declaration. The primary obligation imposed by the Class Order [CO 07/42] is to exempt certain secondary sales of securities and financial products from the need to prepare a prospectus or a Product Disclosure Statement (PDS). This relief applies to securities received under foreign schemes, financial products received under Part 5.1 schemes or foreign schemes, and financial products received under an employee share scheme. For these types of securities and products, the requirement to prepare a prospectus or a PDS is waived if they were originally issued without such disclosure due to specific exemptions under the Corporations Act or ASIC relief. This ensures that the on-sale of these financial instruments is not unduly inhibited by unnecessary disclosure requirements. Failure to comply with the requirements of the Class Order [CO 07/42] does not directly create specific offences or penalties under the Corporations Act. However, non-compliance with the underlying disclosure obligations in Chapter 6D or Part 7.9 can lead to significant civil and criminal consequences. For instance, failure to provide adequate disclosure in a prospectus can result in civil penalties for misleading or deceptive conduct under section 1041H, with penalties that can extend to the maximum of three times the benefit obtained from the conduct, or in some cases, fines up to $1.8 million for corporations. Similarly, failure to comply with PDS requirements under Part 7.9 can also result in civil penalties, as well as potential criminal penalties for serious misconduct, with fines and imprisonment terms varying based on the severity of the breach. In summary, the Class Order [CO 07/42] provides important relief from disclosure requirements for the secondary sales of certain securities and financial products, ensuring that these markets function smoothly without the burden of unnecessary disclosure obligations. While the Class Order itself does not create specific offences, non-compliance with the broader disclosure obligations can lead to substantial penalties under the Corporations Act.

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