Corporate Finance Update – Issue 6

Issue 6, September 2021

Related party transactions

Content requirements for related party notices of meeting

With the annual general meeting season approaching, we remind companies to ensure notice of meeting documents lodged with ASIC seeking member approval to give financial benefits to related parties satisfy requirements set out in Chapter 2E of the Corporations Act 2001 and Regulatory Guide 76 Related party transactions.

Meeting materials must provide sufficient information to members to enable them to decide if the financial benefit to be given to a related party is in the best interests of the company. We expect companies and their directors to consider, and disclose:

  • the details of the value of the financial benefit, including the principal assumptions behind the valuation
  • the nature of the financial benefit, reasons for giving the benefit and the basis on which it is given. This includes addressing why or how the benefit was chosen and a clear explanation of the substantive effect of the transaction
  • the terms of the financial benefit and, if relevant, the consequence or cost to the company and its members if the terms of the benefit are not met
  • each director’s recommendation, particularly the director’s view whether the value of the financial benefit is reasonable, and why. If there are alternative options, the director’s reasons for why the related party transaction is the preferred option is also relevant.

Lodgement process

We remind companies that the proposed notice, explanatory statement, any expert reports and proxy form must be lodged in final form (not draft).   

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Corporate governance

Temporary measures permitting virtual meetings now in effect

On 14 August 2021, the Treasury Laws Amendment (2021 Measures No. 1) Act 2021 modified the Corporations Act 2001 to permit the use of technology to convene and hold meetings. The amendments are in effect until 31 March 2022.

This change means that companies and registered schemes may now hold virtual meetings and send meeting materials electronically despite anything to the contrary in their constitution.

The legislation contains mandatory rules to ensure that companies and registered schemes that elect to use technology comply with minimum requirements to allow members a reasonable opportunity to participate in the meeting.

Our previous ‘no-action’ position was put in place to help convene and hold virtual meetings during the COVID-19 pandemic. As this is now permitted under legislation, both the ‘no-action’ position and the guidelines that supported it have ceased to have effect.

Treasury Laws Amendment (2021 Measures No. 1) Act 2021 also provided ASIC with new relief powers, including a power to extend the time for public companies to hold their annual general meetings. We have used the power to modify the Corporations Act 2001 to allow companies with financial year end dates between 21 February 2021 and 7 July 2021 an extension of up to two months to hold their AGM. It also allows companies limited by guarantee with financial year end dates of between 24 January 2021 and 7 April 2021 up to four months’ additional time to hold their AGM.

The extension replaces ASIC’s separate ‘no-action’ position which was put in place to allow additional time to hold AGMs. ASIC considers the extension of time is appropriate given the ongoing challenges of the COVID-19 pandemic as it allows companies additional time to plan, and adopt virtual technology if considered appropriate, in advance of the upcoming AGM season.

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Share purchase plans – the risks of early closure

We are concerned that some share purchase plans (SPPs) are being closed without warning and much earlier than the closing date in the offer documentation. Shareholders rightly expect to be given enough time to subscribe for SPP shares and rely on the timeframes given by the company.

In relation to SPPs, we recommend:

  • the offer document clearly explains the terms of the scale-back in the case of oversubscription
  • when offers are going to close early, shareholders should be given adequate notice prior to the new closing date.

We will continue to monitor this issue closely and may intervene where we believe shareholders are not being treated equally and fairly. We do not consider it appropriate to close offers early as a method of scale-back.

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Financial disclosure in prospectuses – your questions answered

The compilation and presentation of financial information in prospectuses can be complicated. To assist, we have prepared answers to some of your most frequently asked questions.

Should we still be pro-forma adjusting for the leasing standard (AASB 16)?

Over the past few years, many issuers who are materially impacted by the changes to AASB 16: Leases have been pro-forma adjusting historical income statements to highlight the impact of the changes in a prospectus. Some issuers have shown the impact by either including or excluding the impact throughout the historical and forecast period disclosed, with appropriate reconciliations.

The leasing standard is effective for reporting periods commencing on or after 1 January 2019. Given that most historical reporting periods are now likely to have been compiled under AASB 16, we do not believe that this pro-forma adjustment will continue to be necessary beyond financials years ended or ending in 2021.

Can we include management’s preferred profit or ‘underlying profit’ in a prospectus?

We accept that pro-forma adjustments can be made to show the effect of acquisitions, ‘one-off events’ and changes in accounting standards. These adjustments can contribute to clear, concise and effective disclosure. However, we do not accept that further adjustments should be made to derive alternative profit measures (or ‘underlying profits’) that are prominently disclosed in the prospectus. We believe the appropriate place to analyse and comment on the financial statements is in the financial information section of a prospectus.

Can we include revenue-based valuation ratios without profit-based valuation ratios?

Revenue-based valuation metrics are commonly disclosed in prospectuses for companies that are yet to generate a profit. However, if a company wishes to disclose a revenue-based metric and is profitable (even if marginal), we are of the view that the profit-based ratios should be disclosed as prominently as the revenue ratios. 

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Relief granted to increase the share purchase plan participation cap from A$30,000 to NZ$50,000

We recently granted relief to increase the participation cap under ASIC Corporations (Share and Interest Purchase Plans) Instrument 2019/547, from A$30,000 to NZ$50,000, for Australian retail shareholders of a New Zealand incorporated company. The entity is listed on NZX and has a secondary listing on ASX as a foreign exempt listing.

Under the NZX listing rules, an issuer may make an offer under a share purchase plan (SPP) up to a limit of NZ$15,000 per shareholder, over a rolling 12-month period. Further, under the NZX listing rules, an issuer may use their 15% placement capacity to ‘top-up’ the size of their SPP offer to a limit of NZ$50,000 per shareholder, over a rolling 12-month period.

We granted relief to facilitate a higher SPP participation cap of NZ$50,000 for Australian shareholders of a dual-listed NZX and ASX company because:

  • the relief would facilitate equal treatment between Australian and NZ shareholders
  • the proportion of shares held by Australian shareholders is insignificant
  • Australian shareholders have invested in an NZX-listed company on the basis that the company is subject to New Zealand law.

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Fundraising activity from January to June 2021

There has been a slight decrease in the number of original disclosure documents lodged with ASIC from January to June 2021 (298 lodged, $7.62 billion sought), compared to the previous period from July to December 2020 (358 lodged, $8.75 billion funds sought).

Initial public offering (IPO) activity in January to June 2021 continued at a similar level to the previous period (83 totalling $5.22 billion, compared to 97 totalling $5.41 billion in July to December 2020).

The top 10 fundraisings completed under disclosure documents raised $5.57 billion, similar to $5.63 billion raised in the previous period. The largest offer over the period was the PEXA (Torrens Group Holdings Ltd) IPO (raising $1.18 billion). The remaining offers included three significant hybrid security issuances from banks and a number of large IPOs.

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Disclosure relief

Below is a summary of the outcomes of applications for relief from the requirements of Ch 6D to provide prospectuses and other disclosure documents for the period 1 January to 30 June 2021.

Table 1: Outcome of disclosure relief applications determined in the period 1 January to 30 June 2021










Note: We are undertaking a new reporting regime in line with our transition to the ASIC Regulatory Portal on 27 July 2020. The statistics reported are based on individual relief decisions, rather than a singular head of power under which several decisions may be made (as demonstrated in our previous reporting).

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Mergers and acquisitions

Market integrity

We remind listed entities and market participants to be vigilant in managing risks associated with leaking or mishandling information. We will continue to monitor trading around significant market announcements to identify insider trading and other market misconduct.

For listed entities

Entities involved in control transactions should manage information about the transaction. This includes:

  • requiring consultants and contractors to enter confidentiality agreements
  • having appropriate arrangements to handle inside information including on a ‘need to know’ basis
  • recording to whom and when inside information has been provided.

Entities should have a formal leak policy outlining steps to monitor and react to any leaks of proposed transactions. Advisers to these entities should have policies and controls to limit access to inside information to only those who require it.

For more information, see:

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Opining on stub equity offered in control transactions

We have observed control transactions where target directors and experts have not provided an opinion on an offer of consideration which includes stub equity.

We remind parties that we consider it best practice to have company directors and an independent expert opine on scrip consideration for control transactions, where stub equity is offered as one of the alternative forms of consideration. We have observed several recent transactions where these opinions have not been provided.

As set out in Report 669 Response to submission on CP 312 Stub equity in control transactions, we consider that it is best practice for:

  • the expert to include a valuation and opinion on the scrip
  • the directors to include a recommendation on the scrip consideration
  • each of the above to be clearly and prominently disclosed in the scheme booklet.

Where the independent expert and directors do not provide an opinion on an offer of consideration which includes stub equity, we consider that the reasons why no opinion is provided should be clearly disclosed. Where the directors and expert do provide an opinion in relation to other forms of consideration offered, it should be clear that the opinion relates only to that form of consideration.

We also expect that disclosure in relation to a control transaction which includes an offer of stub equity should clearly disclose:

  • the terms of the stub equity, including any mandatory custodial arrangements and securityholder agreement
  • the rights and protections which will be available to target holders who elect to receive stub equity, compared with the rights and protections currently available
  • the risks associated with accepting stub equity consideration.

We will continue to monitor stub equity offers and raise concerns with deficient disclosure.

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Foreign tax withheld from consideration offered under a control transaction

Certain control transactions may require acquiring entities to withhold a portion of consideration to meet foreign withholding tax obligations that apply to the receipt of scheme consideration by target shareholders.

Entities should ensure the terms of tax arrangements are sufficiently disclosed to allow target shareholders to assess any tax amounts to be withheld and understand procedural requirements (e.g. completion of forms).

It is important that withholding tax arrangements are specifically brought to the attention of target shareholders. We expect that transaction documents will include prominent warnings to catch the reader’s attention and to also direct them to a comprehensive explanation of the arrangements.

It is also important to ensure that the way the entity proposes to deal with the withholding arrangements is appropriately structured. We encourage entities to:

  • consider whether to conduct follow-up communications where target holders need to provide documentation to establish their exemption from the foreign tax withholding arrangements and have not provided relevant documentation before the applicable deadline
  • in the case of schemes of arrangement, where the scheme proponent engages agents to hold the withheld scheme consideration on trust, collect necessary documentation from target holders or remit any withholding tax payable to the relevant foreign tax authority, ensure that the obligations of those agents are secured by entry into an appropriate deed or trustee arrangement
  • consider the implications of exchange rate fluctuations on payments to the relevant agents or in respect of any refunds from the relevant foreign tax authority. Where exchange rate fluctuations may impact these matters, ensure that the potential impacts are prominently disclosed.

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Relief granted to facilitate an in-specie distribution of shares issued as consideration

We granted relief to allow a company (Company A) to acquire a relevant interest above the takeovers threshold where the interest was only temporary to facilitate an in-specie distribution of the interest to its holders.

Company A had agreed to sell a subsidiary to a purchaser (Company B) in return for shares in Company B. On issue of the shares, Company A’s relevant interest in Company B would be above the takeovers threshold. However, these shares would only be held for a short time to allow Company A to conduct an in-specie distribution to its holders.

We granted relief as we were satisfied that the relevant interest was temporary in nature and would not undermine the acquisition of control over voting shares in Company B taking place in a competitive, efficient and informed market. We were also satisfied that it would not advance these objectives to require Company B to seek shareholder approval for the acquisition of a relevant interest.

Our relief was subject to Company A providing an undertaking enforceable by ASIC that it would not exercise, or seek to influence the exercise of, votes attached to the shares. It also required Company A to take all reasonable steps to ensure that the shares were transferred to its holders within three business days.

We also granted disclosure relief to permit Company A to issue a notice of meeting inviting holders to vote on the in-specie distribution and to permit on-sale of the shares by holders after their distribution.

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Takeovers Panel guidance note on equity derivatives soon takes effect

The Takeovers Panel has announced that updates to Guidance Note 20 Equity derivatives will come into effect on 4 October 2021. The Panel published its response statement to consultation on the changes in May 2020.

The revised Guidance Note 20 sets out the Panel’s expectations as to when economic interests from equity derivatives should be disclosed and when the Panel may find that non-disclosure is unacceptable.

For further information, refer to the Panel’s media release TP21/18.

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Merger and acquisition activity from January to June 2021

There was the same number of merger and acquisition transactions this period, but with a significantly larger total value:

  • January to June 2021 – 33 independent control transactions (17 takeover bids and 16 schemes) estimated at $30.29 billion
  • July to December 2020 – 33 independent control transactions (20 takeover bids and 13 schemes) estimated at $11.02 billion.

The increased value of transactions was due to numerous large individual scheme and takeover bid transactions over this period.

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Merger and acquisition relief

Below is a summary of the outcomes of applications for relief from the requirements of Ch 6.

Table 2: Outcome of merger and acquisition relief applications determined in the period 1 January to 30 June 2021










Note: We are undertaking a new reporting regime in line with our transition to the ASIC Regulatory Portal on 27 July 2020. The statistics reported are based on individual relief decisions, rather than a singular head of power under which several decisions may be made (as demonstrated in our previous reporting).

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Experts and mining

Fundraise with caution where it is known that material information is expected

Our intervention in a recent mining company fundraising mitigated investor losses. In this matter, the fundraising timetable was extended to allow for material exploration results, that were imminently expected, to be released to the market before the close of the fundraising offer.

Following the release of this material information, the share price of the company fell to below the issue price under the fundraising offer. The company decided to withdraw its offer given this price movement.

We appreciate that a company cannot control when it may become aware of material information that requires disclosure. However, where the receipt of material information is expected in the immediate near term, we consider that companies should either conduct any fundraising activities after its release or structure its offer timetable to accommodate the release of that material information where possible.

Where that information could result in adverse price movements, such as in this matter, there is foreseeable risk that investors for new shares will not make informed decisions. We will continue to monitor capital markets for situations where this risk is not mitigated.

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Retractions of non-compliant mining disclosures

We intervened in mining company initial public offerings to require retractions of estimates of mineralisation that were not compliant with the JORC Code or ASX’s listing rules for mining company disclosures.

This concern has been common among mining companies attempting to communicate early estimates of mineralisation for which there has been insufficient exploration to be able to be estimated as a mineral resource under the JORC Code. In such cases, either:

  • the information should not be disclosed given it risks being misleading and would be contrary to the JORC Code and ASX’s listing rules, or
  • it may be open for mining companies to instead disclose similar information as an exploration target in accordance with the JORC Code, if appropriate.

In one instance observed, this early estimate of mineralisation was also included in the company’s life of mine production target disclosures. While we appreciate that internal planning documents for mining companies may incorporate such information, the public disclosure was inappropriate as its uncertainty meant there did not appear to be any reasonable grounds for its inclusion and the disclosure was contrary to the requirements of ASX’s listing rules. This information was retracted because of our engagement.

We remind our stakeholders to ensure that mining company information is prepared in a manner that complies with relevant industry codes such as the JORC Code, market operator listing rules, and ASIC publications such as Information Sheet 214 Mining and resources: Forward-looking statements. We will also continue to work closely with ASX to ensure disclosure standards are maintained.

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‘Net zero’ statements clarified

We intervened in an energy company initial public offering to seek clarification about ‘net zero’ greenhouse gas emissions statements.

‘Net zero’ statements can be forward-looking statements for which there must be reasonable grounds. Where there are no reasonable grounds to underpin a ‘net zero’ statement that is predictive in nature, the disclosure may be misleading.

In this case, our intervention resulted in:

  • the removal of ‘net zero’ statements that inferred near-term implications
  • the addition of disclosure that explained the company’s vision to operate in a ‘net zero’ manner, the work proposed to achieve the vision, and the uncertainties and risks associated with achieving the vision.

The company did not pursue disclosing a ‘net zero’ statement with specific timelines that would have otherwise required further disclosure of the reasonable grounds underpinning the statement.

We continue to monitor ‘net zero’ statements in both fundraising documents and in the market generally. We will take regulatory action where warranted.

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Court-based relief

Provide sufficient time for ASIC to review documents before seeking a court order under section 1322

We have recently received requests from companies seeking our position in relation to their application for orders under section 1322 of the Corporations Act 2001 (Cth) (the Act).

Under section 1322, the court may impose an order extending the period for doing a particular act or declare that a particular act is not invalidated because of a contravention of the Act.

We will not always be able to comment on the section 1322 application. Companies notifying ASIC of an application should provide us with all documents filed with the court together with information on third parties that may be affected by the conduct that triggered the need for the application.

However, if we are not provided with a reasonable time to consider the materials, we may not provide an indication of our position before the court hearing. This may result in the court providing us with 28 days to object to any orders made.

Complying with the cleansing notice regime

Many recent section 1322 matters relate to a listed company’s failure to lodge a valid cleansing notice under section 708AA (for a ‘low doc’ entitlement offer) or section 708A (for a placement) of the Act, often because the cleansing notice has not been lodged within the statutory timeframe.

We remind companies to carefully consider the eligibility requirements for relying on the low doc regime, and the timing and content requirements for cleansing notices. Companies that fail to comply with the cleansing notice requirements risk having their securities suspended from trading by the ASX.

Further guidance is available in Regulatory Guide 173 Disclosure for on-sale of securities and other financial products and Regulatory Guide 189 Disclosure relief for rights issue.

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Last updated: 13/09/2021 12:00