ASIC CLASS ORDER [CO 08/25]

EXPLANATORY STATEMENT

Prepared by the Australian Securities and Investments Commission

Corporations Act 2001

The Australian Securities and Investments Commission (ASIC) makes Class Order
[CO 08/25] under subsections 741(1) and 1020F(1) of the Corporations Act 2001 (the Act).

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

Subsection 1020F(1) of the Act provides that ASIC may declare that Part 7.9 of the Act applies in relation to a person as if specified provisions were omitted, modified or varied as specified in the declaration.

1. Background

Regulation of sale offers under Chapter 6D

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 when 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.

Section 708A allows some sale offers to be made without disclosure.  Its scope was extended by the Corporations Legislation Amendment (Simpler Regulatory System) Act 2007 (SRS Act) to cover certain sale offers made within 12 months after a controller sale.

The exemption applying to sale offers made within 12 months after a controller sale has various conditions that relate to the issue of the relevant securities.  The nature of these conditions means that it is more appropriate to apply them with reference to the controller sale rather than the issue of the securities.

For example, the conditions require a “cleansing notice” to be given to the relevant market operator within 5 business days after the issue of the securities.  However, the securities may have been issued a number of years before the controller sale and before the relevant company was listed or a controller sale contemplated.  The condition operates more effectively if the notice must be given within 5 business days after the controller sale since the 12 month period during which the exemption may be relied on commences at the time of the controller sale rather than the time the securities were issued.

Another example is that both the body whose securities are being sold and the controller are responsible for giving the cleansing notice to the relevant market operator, but only the body is liable for a defective notice. The condition operates more effectively if both the body and the controller may be liable for the defective notice.

Regulation of sale offers under Part 7.9

Part 7.9 regulates the making of offers for the issue or sale of financial products (other than securities).  It requires disclosure for sale offers of financial products in similar circumstances to those applying to sale offers of securities under Chapter 6D.

Section 1012DA allows some sale offers to be made without disclosure.  Its scope was also extended by the SRS Act to cover certain sale offers made within 12 months after a controller sale.  The disclosure exemption applying to these sale offers has various conditions that relate to the issue of the relevant financial products.  As with the corresponding exemption under section 708A, the nature of these conditions means that it is more appropriate to apply them with reference to the controller sale rather than the issue of the financial products.

2. Purpose of the class order

Class Order [CO 08/25] is intended to ensure the effective operation of the exemptions under section 708A and 1012DA for sale offers made within 12 months of a controller sale.

3. Operation of the class order

The effect of the class order is that various conditions of the exemption under section 708A for sale offers of securities made within 12 months of a controller sale relate to the controller sale rather than the issue of the securities.  Similar amendments are made to the corresponding exemption for sale offers of financial products under section 1012DA.

The class order also makes technical amendments to subsection 707(5) and paragraph 1012C(9)(b) to clarify, and give effect to, the intended operation of those provisions.

4. Consultation

ASIC consulted Treasury before making this class order. ASIC did not undertake any further specific consultation with other stakeholders because the class order is essentially of a technical nature to ensure that the legislation has its intended effect.