ASIC CLASS ORDER [CO 13/527]
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 13/527] under paragraph 655A(1)(b) of the Corporations Act 2001 (the Act).
Paragraph 655A(1)(b) provides that ASIC may declare that Chapter 6 of the Act applies as if specified provisions were omitted, modified or varied as specified in the declaration.
1. Background
The class order relates to accelerated rights issues in the context of Chapter 6 of the Act which deals with takeovers. A traditional rights issue is made on a pro rata basis—that is, an entity offers existing holders the opportunity to subscribe for new securities or interests in proportion to their holding of securities or interests in that class. The terms of the offer are the same for each holder, including the timing of the offers. By contrast, in an accelerated rights issue, offers generally proceed in two tranches: institutional and retail. Institutional holders are required to deal with their pro rata entitlement before other holders and are generally allotted their securities first. This allows issuers to receive a significant proportion of the offer proceeds from their institutional holders in a very short timeframe.
In the absence of an applicable exemption, a person is prohibited under Chapter 6 from acquiring a relevant interest in securities in an entity as a result of participating in an accelerated rights issue if that acquisition would result in the person’s or someone else’s voting power in the entity increasing from 20% or below to more than 20%, or from a starting point that is above 20% and below 90% (relevantly a person has a ‘relevant interest’ when they hold securities, can control voting rights attached to the securities or can control the disposal of the securities). Item 10 of section 611 provides an exemption for traditional rights issues that satisfy a number of conditions (e.g. the terms of all the rights issues offers are the same), however, this exemption does not extend to accelerated rights issues.
ASIC Class Order [CO 09/459] notionally inserts item 10A of section 611 of the Act to provide an exemption from the takeovers provisions in Chapter 6 for accelerated rights offers. ASIC released Consultation Paper 193: Takeovers, compulsory acquisitions and substantial holdings: Update to ASIC guidance (CP 193) in November 2012 which included a proposal to update Class Order [CO 09/459] so that the exception in item 10A of section 611 applies to accelerated rights issue offers with a retail rights trading component.
2. Purpose of the class order
The class order varies Class Order [CO 09/459] to extend the scope of the exemption in item 10A of section 611 so that it also applies to rights issue structures with a retail rights trading component. Under the terms of an accelerated rights issue of this kind retail holders are permitted to trade their rights on market, but rights trading is not permitted under the terms of the offers made to institutional holders.
Accelerated offers using these structures fall outside the rights issue exception in item 10 of section 611 and the terms of Class Order [CO 09/459] (which allows for differences only in the offer periods and dates of allotment), as offers to all holders are not made on the same terms.
A key element of Chapter 6 is the ‘equality principle’ in paragraph 602(c) which aims to ensure that holders, as far as practicable, have a reasonable and equal opportunity to participate in any benefits arising from a proposal to acquire a substantial interest in a company, body or scheme. ASIC considers that differences in offer terms permitting rights trading only by retail holders does not necessarily offend the equality principle, particularly as retail holders will not generally acquire control of an issuer as a result of an accelerated rights issue.
3. Operation of the class order
The class order varies Class Order [CO 09/459] to extend the operation of item 10A of section 611 to enable a person to disregard differences in offer terms resulting from offers that:
(a) permit offerees who are not exempt investors to trade the rights on a prescribed financial market; and
(b) prohibit offerees who are exempt investors from trading the rights
when considering the requirement in paragraph (e) of item 10A that the terms of all the offers are the same.
Under Class Order [CO 09/459], an exempt investor is a person who is offered securities in circumstances that do not need disclosure under Part 6D.2 of the Act because of subsections 708(8) to 708(12) (e.g. a person who is a professional investor, such as a financial services licensee) or a person offered securities as a wholesale client (as defined in section 761G).
4. Consultation
On 14 November 2012, ASIC released CP 193 seeking feedback on proposals to update and consolidate a number of regulatory guides relating to Chapters 6–6C of the Act. CP 193 also sought feedback on proposals to reissue the class orders associated with ASIC’s updated guidance and to make new class orders and variations addressing some discrete policy issues. One of the proposals discussed in CP 193 was the variation to [CO 09/459] which is the subject of [CO 13/527]. The consultation period for CP 193 closed on 22 February 2013.
ASIC received 7 submissions in response to CP 193. Details of the submissions received are contained in REP 350 Response to submissions on CP 193 Takeovers, compulsory acquisitions and substantial holdings which is available on ASIC’s website at www.asic.gov.au.
Notwithstanding ASIC’s general consultation on the re-issue and update of its takeovers class orders, ASIC considers that Class Order [CO 13/527] is of a minor or machinery nature and does not substantially alter existing arrangements.
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
ASIC Class Order [CO 13/527]
This class order is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview of the class order
The class order relates to Chapter 6 of the Corporations Act 2001 (the Act) which deals with takeover bids. The Act prohibits a person from acquiring a relevant interest in voting shares in a company that increases their voting power above certain levels. The Act provides exceptions to this prohibition. One of the exceptions relates to rights issues. ASIC has previously granted class order relief in Class Order [CO 09/459] to extend this exception to a particular kind of rights issue commonly known as an accelerated rights issue.
The class order varies Class Order [CO 09/459] to further extend the scope of the accelerated rights issue relief so that it also applies to rights issue structures with a retail rights trading component.
Human rights implications
This class order does not engage any of the applicable rights or freedoms.
Conclusion
This class order is compatible with human rights as it does not raise any human rights issues.