EXPLANATORY STATEMENT for
ASIC Corporations (Takeovers – Accelerated Rights Issues) Instrument 2015/1069
Prepared by the Australian Securities and Investments Commission
Corporations Act 2001
The Australian Securities and Investments Commission (ASIC) makes ASIC Corporations (Takeovers – Accelerated Rights Issues) Instrument 2015/1069 under subsection 655A of the Corporations Act 2001 (Act).
Subsection 655A of the Act provides that ASIC may declare that Chapter 6 applies to a person as if specified provisions were omitted, modified or varied as specified in the declaration.
1. Background
A rights issue is an invitation to existing security holders to purchase additional new securities in the company. 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, while existing securities holders are all offered an opportunity to purchase additional securities, 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.
Item 10 of s611 of the Act 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. Without an appropriate exemption, an accelerated rights issue offer would likely result in a breach of the Chapter 6 takeover provisions.
2. Purpose of the instrument
The purpose of ASIC Corporations (Takeovers – Accelerated Rights Issues) Instrument 2015/1069 is to provide an exemption from the takeovers provisions in Chapter 6 for accelerated rights issues.
In 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 breaching the takeover thresholds stipulated in section 606.
The relief offered by ASIC Corporations (Takeovers – Accelerated Rights Issues) Instrument 2015/1069 is desirable because it creates an exception for persons who will, for technical reasons, temporarily exceed the takeover threshold in section 606 merely as a result of participating in an accelerated rights issue.
Without the exception provided by ASIC Corporations (Takeovers – Accelerated Rights Issues) Instrument 2015/1069, the market structure of many accelerated rights issues would result in technical breaches of the Corporations Act due to differences between the timing of the take-up offer between institutional and retail investors.
3. Operation of the instrument
ASIC Corporations (Takeovers – Accelerated Rights Issues) Instrument 2015/1069 provides a modification to section 611 by notionally inserting item 10A of section 611 (item 10A) to provide an exemption from the takeovers provisions in Chapter 6 for accelerated rights issues offers.
The accelerated rights issue exception in item 10A is similar to the rights issue exception in item 10, but allows for:
(a) timing differences between the offer periods and dates of allotment for retail and institutional holders, to accommodate accelerated rights issue structures; and
(b) differences in the offers resulting from the ability of retail holders, but not institutional holders, to trade their rights.
The exception only applies where the retail allotment of the accelerated rights issue occurs within two months of the allotment to institutional investors. The modification does not extend to shortfall offers or mean that an offeror does not have to comply with the nominee process in s615.
4. Consultation
The relief given in ASIC Corporations (Takeovers – Accelerated Rights Issues) Instrument 2015/1069 was the subject of public consultation in Consultation Paper 234 Remaking ASIC class orders on takeovers and schemes of arrangement (CP 234). CP 234 was published in August 2015 and is available on ASIC's website.
ASIC has determined that a Regulatory Impact Statement is not necessary for this instrument as it is a remaking of the previous Class Order [09/459], which was determined to be operating effectively and efficiently, and has thus been remade without significant changes.
Overview
The ASIC Corporations (Takeovers – Accelerated Rights Issues) Instrument 2015/1069, enacted under subsection 655A of the Corporations Act 2001, was introduced to address the problem of potential breaches in takeover provisions due to the specific structure of accelerated rights issues. Unlike traditional rights issues, accelerated rights issues offer existing security holders the opportunity to purchase additional securities in two tranches: institutional and retail, with institutional holders typically allotted their securities first. This structure can lead to technical breaches of the Corporations Act when the timing differences between the allotments to institutional and retail investors cause a temporary exceedance of takeover thresholds. The instrument provides an exemption from the takeover provisions in Chapter 6 for accelerated rights issues, allowing for timing differences between offers and allotments, while ensuring that the retail allotment occurs within two months of the institutional allotment. This exemption aims to facilitate the smooth operation of accelerated rights issues without contravening the takeover thresholds stipulated in section 606.
Scope and Application
The ASIC Corporations (Takeovers – Accelerated Rights Issues) Instrument 2015/1069 applies to entities and persons involved in the conduct of accelerated rights issues under the Corporations Act 2001. Specifically, it provides an exemption from certain takeover provisions in Chapter 6 for these types of rights issues, ensuring that technical breaches of the Act do not occur due to differences in the timing of offers to institutional and retail investors. This exemption is applicable nationally, covering all jurisdictions within Australia where the Corporations Act 2001 is enforced. However, it is important to note that the exemption does not extend to shortfall offers or alter the compliance requirements for the nominee process outlined in section 615 of the Act. Additionally, the instrument operates by modifying section 611 of the Act to include a new item 10A, which specifically addresses the unique characteristics of accelerated rights issues while ensuring that retail allotments occur within two months of institutional allotments.
Key Provisions
The ASIC Corporations (Takeovers – Accelerated Rights Issues) Instrument 2015/1069 (section 1) introduces specific provisions under the Corporations Act 2001 to exempt accelerated rights issues from the takeovers provisions in Chapter 6. This instrument, made by the Australian Securities and Investments Commission (ASIC), modifies section 611 of the Act by adding item 10A, which provides an exemption for accelerated rights issues that might otherwise breach the takeover thresholds (section 606). This exemption is crucial because it allows institutional and retail investors to participate in rights issues without triggering takeover provisions, which could otherwise be breached due to the different timing of allotments between institutional and retail investors (section 2).
Under the instrument, the exemption applies only if the retail allotment of the rights issue occurs within two months of the allotment to institutional investors (section 3). The exemption allows for differences in the offer timings and the ability of retail holders, but not institutional holders, to trade their rights. However, it does not extend to shortfall offers or exempt offerors from complying with the nominee process in section 615. The instrument ensures that while the exemption provides flexibility for accelerated rights issues, it does not compromise the integrity of the takeover regulations or the nominee process.
The obligations imposed by this instrument on entities conducting accelerated rights issues are primarily to ensure that the retail allotment occurs within the specified timeframe of two months from the institutional allotment. Entities must also ensure that their rights issue structures and offer terms comply with the other provisions of the Corporations Act, including the nominee process. By adhering to these requirements, entities can benefit from the exemption provided by the instrument, thus avoiding unintended breaches of the takeover provisions.
There are no specific offences, penalties, or civil/criminal consequences outlined for breaches of this instrument itself, as it primarily provides an exemption rather than imposing new obligations or prohibitions. However, any breach of the underlying Corporations Act provisions that the instrument seeks to exempt from could result in enforcement actions by ASIC. These could include civil penalties for corporations, fines for individuals, and potential criminal sanctions, depending on the nature and severity of the breach. The penalties for breaches of the Corporations Act can vary widely, with maximum penalties for serious offences reaching up to $2.1 million for corporations and $210,000 for individuals, along with potential imprisonment terms.