ASIC Class Order [CO 10/322]

Administered by Department of the Treasury

Legislation au F2010L01298 Not in force Legislative Instrument

Legislation content

ASIC CLASS ORDER [CO 10/322]

 

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 10/322] On-sale for convertible notes issued to wholesale investors under s741(1)(b) and s1020F(1)(c) of the Corporations Act 2001 (the Act).

 

Paragraph 741(1)(b) 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. Paragraph 1020F(1)(c) provides that ASIC may declare that Part 7.9 of the Act applies in relation to a person or a financial product, or a class of persons or financial products, as if specified provisions were omitted, modified or varied as specified in the declaration.

 

1. Background

 

Some offers of convertible notes are only marketed to wholesale or institutional investors (including offshore institutional investors). These offers do not require a prospectus since there is no retail participation. Similarly, the secondary sale of convertible notes is limited to institutional investors and does not require a prospectus. However, a prospectus or PDS will often be needed so that the underlying quoted securities can be on-sold to retail investors.

 

2. Purpose of the class order

 

What is the problem addressed by the class order?

 

The need to prepare a specific prospectus so that the underlying quoted securities can be on-sold to retail investors may act as an impediment to entities that wish to raise funds by issuing convertible notes to wholesale investors.

 

In the absence of relief, an issuer’s ability to issue convertible notes to institutional investors is limited by the fact that the underlying securities may generally only be on-sold to retail investors within 12 months if the issuer provides:

 

  • a transaction-specific prospectus in relation to the convertible notes; or

 

  • a cleansing notice on each conversion.

 

 

 

 

 

Why is a class order necessary to address this problem?

 

The purpose of [CO 10/322] is to grant relief from the on-sale provisions of the Act so that the quoted securities underlying convertible notes can be on-sold without a prospectus if a cleansing notice containing prospectus-like disclosure is provided to the relevant market operator at the time the convertible notes are issued.

 

The relief should make it easier for entities to issue convertible notes without undermining protection for retail investors. This is because:

 

  • no relief is provided in relation to any issue or on-sale of convertible notes to retail investors—it is only the underlying quoted securities that may be on-sold to retail investors; and

 

  • the issuer will be subject to continuous disclosure obligations and there will be prospectus-like disclosure at the time the convertible notes are issued, meaning that the market should receive sufficient information about the issue of convertible notes and the underlying quoted securities.

 

3. Operation of the class order

 

Declaration

 

Paragraph 5 of [CO 10/322] modifies the Act so that persons who have been issued convertible notes will not be required to prepare a prospectus or PDS where they on-sell the underlying quoted securities (once converted) to retail investors.

 

Where relief applies

 

The relief will apply where certain requirements are met, including:

 

  • the underlying securities are continuously quoted securities, and were issued by reason of the conversion of convertible notes;

 

  • trading in the relevant class of underlying securities has not been suspended for more than five days in the 12 months prior to the first issue of the convertible notes; and

 

  • ASIC has not made certain determinations to prevent an issuer from relying on its relief.

 

Furthermore, the relief will only apply where prior to the issue of the convertible notes, the issuer of the convertible notes gives the relevant market operator a notice that contains certain information, including prospectus-type disclosures for the convertible notes and the underlying quoted securities.

 

In the period that the convertible notes are on issue, the issuer's annual financial reports will be required to include information on: the number of underlying securities issued during the financial year as a result of conversion and the average conversion price paid for those securities; the number of convertible notes that remain on issue at the end of the year (and the issuer's remaining liability to make payments on those securities); and any other matters relating to the notes that holders of the issuer’s enhanced disclosure securities would reasonably require to make an informed assessment of the issuer’s financial position and its prospects for future financial years. The annual report may omit material that would otherwise need to be included in relation to the issuer's prospects for future financial years if it is likely to result in unreasonable prejudice to the issuer.

 

4.                 Consultation

 

Before making [CO 10/322], ASIC consulted generally with relevant industry stakeholders. The consultation process included the publication of Consultation Paper 126 Facilitating debt raising in December 2009, which outlined ASIC’s proposals for this class order relief and sought comments from stakeholders. Submissions were in favour of the proposed relief, with the majority noting that the relief would benefit prospective issuers without impeding the level of protection available to retail investors.

Overview

The ASIC Class Order [CO 10/322] was enacted in 2010 to address the problem of impediments to entities issuing convertible notes to wholesale investors, specifically the need to prepare a prospectus for on-selling the underlying securities to retail investors. This Class Order was made under the Corporations Act 2001 by the Australian Securities and Investments Commission (ASIC) to streamline the process of issuing and on-selling convertible notes while ensuring that retail investors are adequately protected. The policy objective behind this Class Order is to provide relief from the on-sale provisions of the Act, thereby making it easier for entities to raise funds without compromising the protection afforded to retail investors. The relief provided allows the underlying quoted securities to be on-sold to retail investors without a prospectus, provided a cleansing notice containing prospectus-like disclosure is issued at the time of the convertible notes issuance.

Scope and Application

The ASIC Class Order [CO 10/322] applies to entities issuing convertible notes to wholesale investors under the Corporations Act 2001, specifically targeting those who market their notes exclusively to institutional or wholesale investors without necessitating a prospectus. The scope of the Act extends to the on-sale of the underlying quoted securities of these convertible notes, where the securities are continuously quoted and have not faced trading suspensions for extended periods. The class order is designed to facilitate the on-sale of these securities to retail investors without the need for a prospectus, provided certain conditions are met. The relief provided under this class order is geographically applicable across Australia, as it is an instrument of the Commonwealth. However, it only applies to the specific context of convertible notes issued to wholesale investors and their subsequent on-sale of the underlying securities, excluding any transactions involving the direct sale of the convertible notes themselves to retail investors. Subordinate instruments may further define the specifics of the relief and the obligations of issuers, but the primary application remains within the parameters set out in the Act.

Key Provisions

The ASIC Class Order [CO 10/322] modifies the Corporations Act 2001 (the Act) to provide relief for issuers of convertible notes to wholesale investors, particularly concerning the on-sale of underlying securities. Under section 741(1)(b), ASIC can declare that Chapter 6D of the Act applies to a person as if specified provisions were omitted, modified, or varied. Similarly, under section 1020F(1)(c), ASIC can declare that Part 7.9 of the Act applies as if specified provisions were omitted, modified, or varied. The purpose of [CO 10/322] is to facilitate the issuance of convertible notes to wholesale investors by exempting the on-sale of underlying quoted securities to retail investors from the requirement of a prospectus or Product Disclosure Statement (PDS). This relief is contingent upon certain conditions being met, such as the continuous quotation of the underlying securities and the provision of a cleansing notice by the issuer at the time of issuing the convertible notes. The obligations imposed by [CO 10/322] on issuers of convertible notes include providing a cleansing notice containing prospectus-like disclosure to the relevant market operator prior to the issue of the convertible notes. This notice must include information about the convertible notes and the underlying quoted securities. Additionally, issuers are required to include specific details in their annual financial reports, such as the number of underlying securities issued due to conversions, the average conversion price, and the number of convertible notes remaining on issue. Issuers must also disclose any other matters relating to the notes that holders of the issuer’s enhanced disclosure securities would reasonably require to assess the issuer’s financial position and prospects. Failure to comply with the provisions of [CO 10/322] may result in significant legal consequences for issuers. Breaches of the continuous disclosure obligations and failure to provide the required cleansing notice can result in civil penalties. Under the Corporations Act, civil penalty provisions can include substantial fines, with the exact amount determined by the court but potentially reaching up to several hundred thousand Australian dollars for corporations. Additionally, individuals involved in the breach may face personal fines and disqualification from managing corporations. Criminal penalties may also apply in cases of serious or repeated breaches, potentially leading to imprisonment.

Legal classification tags

Area of Law
Corporate Law & Governance
Instrument
Regulation
Concepts
Definitions & Interpretation
Regulatory Standards
Reporting & Disclosure Obligations

Interactions

Authorises

All Versions

Sourced from the Federal Register of Legislation at 26 August 2026. For the latest information on Australian Government law please go to https://www.legislation.gov.au.