ASIC has recently implemented a raft of measures aimed at reducing the compliance burden for issuers undertaking an initial public offering (‘IPO’), while ensuring investor protection and market integrity are not compromised. These measures include:
an amendment to the existing ASIC Class Order [CO 13/520] to exclude eligible voluntary escrow arrangements with issuers, underwriters and lead managers from the takeover restrictions in Chapter 6 of the Corporations Act 2001 (Cth) (‘Corporations Act’); and
a new ASIC Corporations (IPO Communications) Instrument 2020/722 to permit certain types of pre-IPO communications with shareholders, employees and former employees.
These legislative instruments formalise ASIC’s existing policies so that issuers no longer need to seek specific relief, incur associated legal fees and ASIC application fees, and potentially delay an IPO. However, it is important to note that the measures apply on in an IPO context and not, for example, in connection with a subsequent capital raising or an M&A transaction involving the issue of shares.
Voluntary Escrow Arrangements
A person who has the power to control the disposal of securities has a ‘relevant interest’ in those securities: see section 608(1)(c) of the Corporations Act. Accordingly, when entering into voluntary escrow arrangements with securityholders, an issuer, underwriter or lead manager must take care not to contravene the takeover provisions in Chapter 6 of the Corporations Act. Among other things, these provisions prohibit the acquisition of a relevant interest in more than 20% of the voting shares in a listed company or an unlisted public company, or any increase in a relevant interest in voting shares from a starting point that is above 20% and below 90%.
Previously, anyone who wished to enter into such voluntary escrow arrangements needed to either seek ASIC relief or obtain shareholder approval under item 7 of section 611 of the Corporations Act. However, this will no longer be required in the context of an IPO where the following requirements are satisfied:
|Type of securities||The escrowed securities are in the same class of securities as the securities offered under the IPO.|
|Scope of Restrictions||The escrow agreement restricts disposal and not voting.|
|Takeovers and Mergers||The escrow agreement allows the securityholder to accept into a successful takeover bid and allows the escrowed securities to be transferred or cancelled as part of a merger by scheme of arrangement.|
|Termination||The escrow terminates: in the case of an escrow arrangement with the issuer – no more than two years after the date of the escrow agreement; andin the case of an escrow arrangement with an underwriter or lead manager – no more than one year after the date of the escrow agreement.|
|Transfers||Where the escrowed securities may be transferred to another person, the escrow agreement provides that the securityholder must not transfer the escrowed securities if: it would result in a change in the beneficial ownership of the escrowed securities;it would result in an extension of the escrow period; orthe transferee does not agree to be subject to the same restrictions on disposal in the escrow agreement.|
|Security interests||Where the escrow agreement permits the securityholder to create security interests in some or all of the escrowed securities in favour of certain persons, the escrow agreement also provides that security interests cannot be created unless the person has agreed in writing to take or acquire the security interest subject to the terms of the escrow agreement.|
ASIC’s IPO voluntary escrow relief does not extend to the substantial holding provisions in Chapter 6C of the Corporations Act. This means an issuer, underwriter or lead manager who obtains a substantial holding as a result of voluntary escrow arrangements will still need to give notice of its holding and any changes to its holding.
It also does not extend to voluntary escrow arrangements entered into in the context of an M&A transaction or other transaction outside of an IPO. If an issuer, underwriter or lead manager will obtain a relevant interest in more than 20% of the voting shares of a listed company or listed public company in those circumstances, ASIC relief or an appropriate shareholder approval will still be required. However, we expect ASIC will continue to adopt its existing policy approach of granting relief in these types of transactions provided the conditions set out above are satisfied.
When preparing for an in IPO, issuers often legitimately need to communicate with its shareholders, employees and former employees. However, this practical reality could sometimes be at odds with the general prohibition on the advertising or publicity of offers of securities that require a disclosure document in section 734(2) of the Corporations Act. This section provides that a person must not:
- advertise the offer or intended offer; or
- publish a statement that
- directly or indirectly refers to the offer or intended offer; or
- is reasonably likely to induce people to apply for securities
ASIC recognises that certain types of communications are low-risk and appropriate to allow for the orderly and timely preparation for an IPO. Accordingly, provided the communications do not advertise the advantages, benefits or merits of the planned offer under the IPO, issuers are now permitted to make the following types of communications before the disclosure document is lodged with ASIC:
The requirements of the new ASIC instrument are similar to a common form of ASIC relief that has routinely been granted by ASIC in relation to factual information about a planned IPO, but issuers can now save the time, cost and effort of applying for and obtaining this relief on an IPO.