ASIC CLASS ORDER [CO 08/171]

EXPLANATORY STATEMENT

Prepared by the Australian Securities and Investments Commission

Corporations Act 2001

The Australian Securities and Investments Commission (ASIC) makes Class Order [CO 08/171] under subsections 601QA(1), 741(1) and 1020F(1) of the Corporations Act 2001 (the Act).

Subsection 601QA(1) provides that ASIC may exempt a person or class of persons from specified provisions of Chapter 5C of the Act and declare that provisions of Chapter 5C of the Act apply to a person or class of persons as if they were omitted, modified or varied as specified in the declaration. 

Subsection 741(1) provides that ASIC may exempt a person or class of persons from specified provisions of Chapter 6D of the Act and declare that provisions of Chapter 6D of the Act apply to a person or class of persons as if they were omitted, modified or varied as specified in the declaration.

Subsection 1020F(1) provides that ASIC may exempt a person or class of persons from specified provisions of Part 7.9 of the Act and declare that provisions of Part 7.9 of the Act apply to a person or class of persons as if they were omitted, modified or varied as specified in the declaration.

1. Background

Class Order [CO 04/671]

Class Order [CO 04/671] provides relief from the on-sale provisions of the Corporations Act (s707(3) and (4) and s1012C(6) and (7)) for the on-sale of securities and financial products in relation to certain stapled securities

Disclosure exemption for rights issues

Part 7.9 regulates the making of offers for the issue or sale of financial products (including interests in managed investment schemes) and sets out when an offer needs disclosure to investors through a Product Disclosure Statement (PDS). These provisions also set out certain categories of offers that do not need disclosure.

Section 1012DAA of the Act permits an entity to make an offer of quoted interests without a PDS where the offer is a rights issue (as defined in section 9A), provided that certain conditions are satisfied (disclosure exemption). These provisions were introduced by the Corporations Legislation Amendment (Simpler Regulatory System) Act 2007 to encourage this kind of fundraising in which retail holders can participate as opposed to forms of fundraising that exclude retail holders (e.g. institutional placements).

Class Order [CO 05/26]

Class Order [CO 05/26] provides various exemptions from and modifications to Chapter 5C of the Act.  These include an exemption from paragraph 601FC(1)(d) of the Act to allow a responsible entity to treat institutional and retail investors differently to the extent of the period that they are given to notify their acceptance of offers under a rights issue: paragraph 5(b) of Class Order [CO 05/26].  The exemption requires the date by which retail investors must notify their acceptance of offers under the rights issue to be specified in a PDS for the offer.  However, as a result of the disclosure exemption, rights issues that satisfy the conditions in section 1012DAA do not need to be made in a PDS.

2. Purpose of the class order

The purpose of Class Order [CO 08/171] is to:

• modify Class Order [04/671] to clarify the operation of on-sale relief in relation to stapled securities; and
• modify Class Order [05/26] to reflect the fact that rights issues that satisfy the disclosure exemption in section 1012DAA do not need to be made under a PDS.

3. Operation of the class order

Class Order [CO 08/171] modifies Class Order [CO 04/671] by replacing the existing provisions of Class Order [CO 04/671] that deal with on-sale relief for stapled securities in order to clarify the intended effect of the on-sale relief.

Class Order [CO 08/171] modifies paragraph 5(b) in Class Order [CO 05/26] so that if a PDS is not required for a rights issue due to the exemption in section 1012DAA, the date by which retail investors must notify their acceptance of offers can be disclosed in the terms of the offer rather than in a PDS.

4. Consultation

Class Order [CO 08/171] is of a minor or machinery nature and does not substantially alter existing arrangements. Consequently, ASIC did not undertake any consultation with stakeholders before making the class order.  For completeness, it is noted that ASIC consulted on various other matters in relation to the disclosure exemption for rights issues in Consultation Paper 91 Non-traditional rights issues (CP 91) (released for comment on 28 September 2007).  Further details of the submissions received are contained in REP 128 Report on submissions to CP 91 Non-traditional rights issues, which is also available on our website (at www.asic.gov.au).