Corporate Finance Update – Issue 1

Issue 1, June 2020

Changing how you lodge documents with ASIC

The way you lodge corporate finance documents (e.g. fundraising disclosure documents, bidder and target statements, and scheme explanatory statements) will change from 27 July 2020.

The ASIC Regulatory Portal (portal) will replace current channels to receive these documents. The portal will also become the primary method to submit shareholder meeting materials and applications for relief. Other documents will continue to be lodged under the existing process.

Our approach to assessing these documents will not change.

The portal will become your central point of access to our growing suite of regulatory services over time. Benefits include:

  • structured online transactions with mandatory fields and questions that make it easier for you to provide ASIC with the information we require upfront
  • ability to attach supporting documentation
  • status tracking of your transactions and applications
  • ability to correspond with ASIC online about submitted transactions and applications
  • fee estimates automatically calculated based on the information provided in the transaction or application
  • online payment options for applications and some transactions and a record of invoice history.

Obtain further information by visiting the applications for relief and fundraising and corporate finance documents webpages on our website, or email

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Electronic options to pay and receive money

In May 2020, the Australian Custodial Service Association (ACSA) warned of the inefficiencies and risks to investors, custodians and registries of the use of cheques to make and receive payments, particularly during the COVID-19 pandemic.

While uncommon, listed companies have been known to mandate the use of cheques only (to the exclusion of electronic payment alternatives) for corporate events, such as the receipt of takeover/scheme of arrangement proceeds or payments for capital raising proceeds.

Because cheques require manual processing and delivery, the challenges of their use are particularly heightened in the current COVID-19 environment.

We support ACSA’s position and encourage listed companies to work with their corporate advisers and share registries to offer electronic payment and receipt options for all corporate events.

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Corporate governance

Virtual meetings

On 5 May 2020, the Federal Treasurer exercised new temporary relief powers to provide conditional relief which:

  • facilitates the holding of investor and creditor meetings using one or more technologies that gives all persons entitled to attend the meeting a reasonable opportunity to participate without being physically present at a venue
  • allows companies to give information required for a meeting to be circulated and accessed electronically
  • modifies the operation of section 127 of the Corporations Act 2001 (Corporations Act) to allow company officers to use an electronic signature. A company may also execute a document without a common seal in specified circumstances.

The conditional relief will remain in place until 5 November 2020.

We have published guidance on the appropriate approach to calling and holding meetings using virtual technology and the requirements of the conditional relief. The guidance applies to all investor meetings, including meetings to consider corporate transactions such as acquisitions approved under item 7 of section 611 of the Corporations Act and proposed schemes of arrangement.

We have also started a program observing hybrid and virtual meetings held during the COVID-19 restrictions. We may provide further guidance if necessary.

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Continuous disclosure

The Federal Treasurer also exercised new temporary relief powers to modify the continuous disclosure provisions that apply to companies and their officers during the COVID-19 pandemic. The Corporations Act was amended so that companies and officers will only be liable if there has been ‘knowledge, recklessness or negligence’ with respect to updates on price-sensitive information to the market.

The changes will be in effect for six months, until 25 November 2020.

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Financial reporting relief and AGM extensions

We have extended certain deadlines for lodgement of financial reports required under Chapter 2M or Chapter 7 of the Corporations Act to help entities whose reporting processes take additional time due to the COVID-19 pandemic. We expect that, where possible, entities should continue to lodge within the normal statutory deadlines.

Unlisted entities with balance dates from 31 December 2019 to 7 July 2020, and listed entities with balance dates from 21 February 2020 to 7 July 2020, can take one additional month to lodge their full-year and half-year financial reports. Listed entities will also need to inform the market if they rely on the extended period for lodgement.

We have also adopted a ‘no action’ position for public companies with financial years that end from 31 December 2019 to 7 July 2020 who do not hold their annual general meeting (AGM) by their respective deadline. This ‘no action’ position means that we will not take action against a company that fails to hold its AGM on time if the AGM is held within two months after the statutory deadline. The ‘no action’ position also allows for additional time to send reports to members before the AGM if required.

Consistent with our historical position on holding meetings during the peak holiday period, we expect companies who choose to delay their AGMs should refrain from holding their AGMs in late December 2020 and early January 2021.

Companies that fall outside the scope of our relief or ‘no action’ position will need to apply for individual relief before their lodgement or meeting deadlines.

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Director trading during COVID-19

We have recently issued a reminder to directors and other ‘insiders’ (e.g. company officers and key management personnel) of a listed entity on important matters they should consider before deciding to acquire or dispose of securities or other financial products issued by their entity. These considerations have relevance given the recent volatility we have seen in financial markets.

Regardless of their motivation for trading, durectors must be mindful of the:

  • legal restrictions that may apply to their ability to buy and sell
  • impact their trading may have on both their reputation and that of the market, including any contribution it may make to investor perceptions about the entity and, information asymmetries between insiders and other investors in the entity.

We ask directors and other ‘insiders’ to consider:

  • the entity’s trading policy
  • the value of the information in their possession given the volatile market conditions and previous disclosures made to the market
  • notification requirements under the ASX Listing Rules and the Corporations Act
  • conflicts and disclosure obligations arising from margin loans and similar arrangements.

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Commencement of design and distribution obligations deferred

We have deferred the commencement of the design and distribution obligations for six months from their original commencement date.

The deferral allows for industry participants to focus on immediate priorities and the needs of their customers during the COVID-19 period. We expect entities will continue preparing for commencement on the extended timeline. More information about our response to COVID-19 is available on our website.

The design and distribution obligations were originally scheduled to commence on 5 April 2021, following a two-year transition period.

Draft guidance for the design and distribution obligations was released for consultation on 19 December 2019, with consultation closing on 11 March 2020. We accepted a number of submissions after these dates due to COVID-19 disruption. We aim to release the final guidance in mid-2020.

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Mergers and acquisitions

Statement of no objection in creditors’ schemes

In many creditors’ schemes of arrangement, the issue of avoidance of the provisions of Chapter 6 of the Corporations Act will not be a relevant concern because no reliance is placed on the exception in item 17 of section 611 in connection with any aspect of the transaction. This may be because:

  • Chapter 6 does not apply to the scheme company
  • the transaction contemplated does not result in any person acquiring an interest in voting shares in the scheme company that increases their (or another person’s) voting power to or from a point above the 20% threshold in section 606 (e.g. a scheme involving only the compromise or restructuring of debts and no issue of equity).

In such cases, we do not consider it necessary to provide a ‘no objection’ letter for the purposes of paragraph 411(17)(b) because we do not see how any issue concerning the avoidance of Chapter 6 can arise.

However, for creditors’ schemes proposed by a Chapter 6 company where one or more persons will obtain or increase their voting power above 20% (e.g. some transactions giving effect to a ‘debt for equity swap’), both the issue of avoidance of Chapter 6, and concerns with the principles and protections under Chapter 6, may arise.

The fact that item 17 of section 611 applies to acquisitions under the scheme is not an answer to the question of whether the scheme has been proposed to avoid any provision of Chapter 6. Given the framework of Chapter 6 – which is based on a general prohibition and a series of exemptions – it would be rare that any avoidance of Chapter 6 through the use of a scheme did not involve reliance on an exemption in section 611.

Where it is necessary to rely on item 17 of section 611, it is appropriate for ASIC to consider providing a statement of no objection under paragraph 411(17)(b), in line with Regulatory Guide 60 Schemes of arrangement. Scheme proponents can apply for a statement of no objection in these cases.

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Creditors’ schemes that affect members

In cases where creditors’ schemes of arrangement are legally used to effect a control transaction, scheme proponents should consider how members of the company are affected.

It is important that these schemes are proposed in a way that is consistent with the principles and protections underpinning Chapter 6 of the Corporations Act.

Ordinarily these principles will not be satisfied where members receive no actual opportunity to consider and approve, or participate in, a control transaction. We believe members should receive an opportunity to vote (such as through item 7 of section 611) to approve any control transaction effected through a creditors’ scheme.

Where members’ shares have no residual equity value, it may be appropriate for the protections of Chapter 6 to be displaced on policy grounds – like those underpinning our relief to facilitate transfers by an external administrator under section 444GA. In such cases, we accept that members may not require the protections of an opportunity to vote (where such approval is not required for other reasons) provided they have enough information about the control proposal and are informed of their rights in relation to the scheme. This is the approach we recently took in Tiger Resources Limited, in the matter of Tiger Resources Limited [2019] FCA 2186.

Even in these cases, the issue of avoidance of Chapter 6 still remains, and we will consider providing a ‘no objection’ letter. 

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Update on equity raisings

Between 20 March and 25 May 2020, 89 listed entities sought to raise $22.2 billion of secondary capital during the COVID-19 pandemic – the vast majority through placement ($16.5 billion) and the remainder by entitlement offer ($3.2 billion) and share purchase plans ($2.5 billion).

The average discount offered under a placement was 16.8% to the last closing share price and the average discount offered under an entitlement offer was 31.4% to the last closing share price. The average day one premium for placements was 17.6%.

On 22 April 2020, ASX updated its class waiver decision Temporary Extra Placement Capacity (class waiver), originally dated 31 March 2020. The update included new requirements for entities seeking to take advantage of the class waiver, including (but not limited to):

  • before the capital raising, entities must provide a written notice to ASX (not for release to the market) advising of reliance on the class waiver and the reason for the proposed transaction
  • entities must announce the results of placements and provide reasonable details of the approach taken in identifying investors and determining allocations
  • provision to ASIC and ASX (on a confidential basis) of an allocation spreadsheet showing full details of the persons to whom securities were allocated in the placement and the number of securities allocated
  • if there is a cap on the amount to be raised under a follow-on share purchase plan (SPP) offer, entities must reasonably try to ensure that participants in the SPP offer have a reasonable opportunity to participate equitably in the overall capital raising, disclose why there is such a cap and how the cap was determined in relation to the total proposed fundraising.

These requirements reflect our expectations that directors should provide transparent disclosure to the market about the capital raising decisions they make, which are required to be in the best interests of the company. We will also be reviewing the allocation spreadsheets and monitoring the disclosure made by companies about placements, entitlement offers and SPPs.

  • Read the ASIC and ASX media releases

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Handling confidential information – analyst and investor briefings

In the current volatile operating environment, investors and analysts are actively seeking information from listed companies about their performance, stability and outlook.

Investors and analysts should not try to elicit confidential, market-sensitive information from companies, and companies must remain vigilant about the handling and disclosure of this type of information. This may be during analyst and investor briefings or in discussions with other stakeholders.

Access to analyst and investor briefings should occur in a wide-reaching and timely manner. Companies must ensure they avoid briefing selectively and should carefully consider the nature and scope of any briefings given. Given the current level of capital raising activities, we remind companies and their advisers to take care when conducting market soundings to avoid leaks of confidential information.

If market-sensitive information is inadvertently disclosed during a briefing, the company should take immediate steps to update the market with that information.

Report 393 Handling of confidential information: Briefings and unannounced corporate transactions provides information on how listed companies and their advisers should handle confidential, market-sensitive information.

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Experts and mining

Best practice in mining and exploration IPOs

We remind market participants of the best practice guidance in Report 641 An inside look at mining and exploration initial public offers (REP 641) and that we may intervene at any stage of the initial public offers (IPO) cycle.

Since REP 641 was published in December 2019, we have continued to monitor IPOs of securities in mining and exploration companies and have acted when necessary. We have made inquiries about:

  • misleading disclosure in a prospective IPO during its seed funding round
  • post-IPO mandates where a director was connected to an adviser 
  • management of conflicts of interest by an adviser also acting as a director.

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Mineral and resource asset impairments

Mineral and resource assets are important to mining and exploration companies and typically represent a significant portion of their assets. Companies need to critically consider whether carrying values ascribed to mineral and resource assets in financial statements remain appropriate and supportable, particularly where commodity prices decrease or remain depressed.

When calculating impairments it is critical that assumptions are reasonable and consistent with other information, including:

  • the operating and financial review
  • market announcements
  • investor presentations
  • commentary in board papers and reports
  • commentary on the market and economy.

Further information can be found in Information Sheet 203 Impairment of non-financial assets: Materials for directors.

Large impairments may be price sensitive and companies should consider if sections 674 or 675 of the Corporations Act require them to provide update the market about the likelihood of impairments and expected impairments. Delays in such disclosure may give rise to breaches of continuous disclosure requirements.

Our focus areas for financial reports have included the recoverability of the carrying amounts of assets such as goodwill, other intangibles and property, plant and equipment. We outlined our focus areas for 31 March 2020 and 30 June 2020 financial reports in COVID-19 FAQs on our website, and we will also issue a media release on the focus areas in June 2020. These focus areas include asset values and related disclosures.

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Last updated: 04/06/2020 12:00