ASIC CLASS ORDER [CO 09/462]
EXPLANATORY STATEMENT
Prepared by the Australian Securities and Investments Commission
Corporations Act 2001
The Australian Securities and Investments Commission (ASIC) makes ASIC Class Order [CO 09/462] Variation of [CO 05/26] under paragraph 601QA(1)(b) of the Corporations Act 2001 (the Act).
Paragraph 601QA(1)(b) of the Act provides that ASIC may declare that Chapter 5C of the Act applies to a person as if specified provisions were omitted, modified or varied as specified in the declaration.
1. Background
Paragraph 601GA(1)(a) of the Act requires that the constitution of a registered scheme must make adequate provision for the consideration that is to be paid to acquire an interest in the scheme.
ASIC Class Order [CO 05/26] excludes certain placements of interests in registered schemes that are listed on the financial market of ASX Limited and certain foreign markets from this requirement. This exclusion enables responsible entities to determine the issue price of interests for the placement. Before [CO 09/462] the exclusion was limited if the discount for interests issued under the placement was more than 10% of the current market price o placements that have been approved by a resolution of members.
2. Purpose of the class order
There has been increased volatility in prices of interests quoted on relevant financial markets in the adverse economic circumstances since the second half of 2008. Some responsible entities have considered they need to raise funds for registered schemes quickly including to enable the repayment of debts from the scheme property of the registered scheme. Access to debt financial has been restricted. To ensure fundraising could proceed effectively and within commercially necessary timing some responsible entities have considered that they need to price interests in placements effected at a higher level of discount to market price that had previously been usual and exceeding 10% discount.
The class order facilitates fundraising by removing the 10% discount limit on placements without approval of a resolution of members that has been an impediment to placements in these circumstances.
3. Operation of the class order
Paragraph 4(a) and (b) of [CO 09/462] amends [CO 05/26] to remove the requirement for approval by a resolution of members to a placement because the price is more than 10% less than the current market price.
4. Consultation
Before making this instrument, ASIC invited the public to make submissions on its proposal to make the amendment that is contained in [CO 09/462] to remove the requirement for approval by a resolution of members to a placement because the price is more than 10% less than the current market price.
This invitation was included in Consultation Report 105: Facilitating Capital Equity Raising. We received 23 responses to CP 105 from a wide variety of sources including relevant industry bodies, consumer groups, legal bodies and law firms and stock exchanges. The responses were supportive of the relief in [CO 09/462] being granted. CP 105, the non-confidential submissions received by ASIC, and Report 160 Response to submissions on CP 105 Facilitating equity capital raising can be found on the ASIC website.
Overview
The Australian Securities and Investments Commission (ASIC) has issued Class Order [CO 09/462] under the Corporations Act 2001 to address the challenges faced by responsible entities of registered schemes in raising funds during periods of economic volatility. This order was enacted to facilitate more effective and timely fundraising by amending Class Order [CO 05/26], which previously limited the discount on placements to 10% of the current market price without requiring member approval. The primary objective of this amendment is to support responsible entities in meeting their financial obligations and securing debt financing when market conditions have restricted access to credit. The public was consulted through Consultation Report 105, and the responses received were largely supportive of the changes proposed in [CO 09/462].
Scope and Application
ASIC Class Order [CO 09/462], made under the Corporations Act 2001, aims to facilitate the fundraising activities of responsible entities managing registered schemes, particularly in the context of increased economic volatility and restricted access to debt finance. The Class Order modifies the requirements of ASIC Class Order [CO 05/26], which previously limited the discount on placements of interests in registered schemes that are listed on the Australian Securities Exchange and certain foreign markets, to 10% of the current market price unless approved by a resolution of members. The primary objective of [CO 09/462] is to enable responsible entities to price placements at a higher discount level than previously permissible, thereby expediting their ability to raise necessary funds during adverse economic conditions. The Class Order achieves this by removing the need for member approval for placements with discounts exceeding 10% of the current market price, thus providing greater flexibility in pricing strategies. This change applies to responsible entities managing registered schemes listed on specified markets and is designed to support effective and timely fundraising in challenging economic circumstances.
Key Provisions
The ASIC Class Order [CO 09/462] Variation of [CO 05/26] (the Order) modifies the requirements under the Corporations Act 2001 (the Act) for the pricing of placements of interests in registered schemes, particularly those listed on the Australian Securities Exchange (ASX) and certain foreign markets. Section 601QA(1)(b) of the Act allows ASIC to vary the application of Chapter 5C to certain persons by omitting, modifying, or varying specified provisions. The Order primarily seeks to facilitate the fundraising process for responsible entities in the context of economic volatility, particularly since the second half of 2008. The main operative sections of the Order, specifically paragraphs 4(a) and 4(b), amend the existing Class Order [CO 05/26] to remove the need for a resolution of members when placing interests at a price more than 10% below the current market price.
The Order imposes certain obligations on responsible entities of registered schemes. It requires them to ensure that the constitution of their registered schemes makes adequate provision for the consideration to be paid to acquire an interest in the scheme. However, the Order allows these entities to determine the issue price of interests for placements, particularly when those placements are listed on financial markets like the ASX and certain foreign markets. This is intended to enable these entities to raise funds more effectively in adverse economic conditions, where access to debt finance may be restricted.
Under the Order, responsible entities are no longer required to obtain a resolution of members to place interests at a price more than 10% less than the current market price. This change aims to expedite the fundraising process and enable entities to secure necessary capital more swiftly. However, these entities must still comply with other relevant provisions of the Act and the constitution of their registered schemes.
Failure to comply with the requirements of the Corporations Act 2001 and the provisions of the Order may lead to civil or criminal consequences. Although specific penalties are not detailed in the explanatory statement, breaches of the Act can result in substantial fines and, in some cases, imprisonment. The exact penalties depend on the nature and severity of the breach, and are determined in accordance with the relevant sections of the Act. The Act also provides for other civil remedies, such as pecuniary penalties and disqualification orders for directors, to address non-compliance.