On 27 August 2020, ASIC announced welcomed regulatory relief to reduce red tape and ASIC application fees for companies undertaking an initial public offering (IPO). This regulatory relief is provided by ASIC Corporations (Amendment) Instrument 2020/721 (Instrument 2020/721) and ASIC Corporations (IPO Communications) Instrument 2020/722 (Instrument 2020/722).
Facilitating voluntary escrow arrangements
A person who enters into an escrow arrangement with a security holder has a relevant interest in those securities as they have the power to control the disposal of the securities. There is pre-existing relief under ASIC Class Order [CO 13/520] which provides that a listed company does not have a relevant interest in its own securities merely because of escrow arrangements it is required to enter into with certain security holders under the ASX Listing Rules.
The relief provided by Instrument 2020/721, which amends ASIC Class Order [CO 13/520], extends this relief to voluntary escrow arrangements that the company, underwriter or lead manager requires a security holder to enter into in connection with an IPO.
Voluntary escrows may be required by the company, underwriter or lead manager in an IPO to increase investor confidence in the IPO, and promote an orderly market for the securities following the IPO.
The relief for voluntary escrow arrangements only applies if certain conditions are met, including that:
- the escrow arrangement must not restrict voting of the escrowed securities; and
- the escrow duration must not be longer than:
- 1 year for an arrangement with an underwriter or lead manager; and
- 2 years for an arrangement with the company.
ASIC had initially proposed to limit the total percentage of escrowed securities that a listed company can have on issue at the time of its listing as a condition to the relief, however, with the benefit of submissions from stakeholders, ASIC considered the minimum free-float requirements prescribed by the Australian Securities Exchange to be sufficient to mitigate the defensive use of escrow arrangements.
It is important to note that the relief (for both listing rule and voluntary escrows) applies for the purposes of the takeover provisions, but not the substantial holding provisions, of the Corporations Act 2001 (Cth). In other words, a company’s, underwriter’s or lead manager’s relevant interest in escrowed securities will need to be disclosed if required by the substantial holding provisions.
Section 734 of the Corporations Act restricts the advertising or publicising of offers of securities that require a disclosure document under the Corporations Act. ASIC often grants individual relief for companies to communicate with their security holders and employees about an IPO of the company before the company lodges its disclosure documents. Instrument 2020/722 facilitates the disclosure of non-promotional communications to security holders and employees of a company proposing to undertake an IPO prior to lodging its disclosure documents, without the need to apply for individual relief.
The relief is only available where the company does not communicate any advantages, benefits or merits of the IPO.
Instrument 2020/722 outlines the permitted content of the pre-prospectus communications for the relief to apply, and this differs for employees of the company and security holders of the company. Any communications published in reliance on the exemption in Instrument 2020/722 must be updated where necessary to ensure the information is accurate and up to date.
In Consultation Paper 328, ASIC had initially contemplated that pre-prospectus communications would be limited to communications published in writing only. Following public consultation, ASIC has decided not to impose this requirement as it may increase, rather than reduce, red tape.
In response to a submission by a stakeholder to extend the relief to all persons engaged by the company to do work in connection with an IPO (such as underwriters and company advisers), ASIC confirmed its view that it did not consider communications to persons involved in preparatory work for an IPO to be prohibited under s734(2) of the Corporations Act. ASIC has also updated Regulatory Guide 254 to clarify this.
This article is part of the October 2020 Equity Capital Markets Bulletin, click here to download.
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