The Australian Securities and Investments Commission (ASIC) today set limits on the maximum value of small parcels that can be bought back under share buy-backs treated as equal access schemes.
ASIC provides case-by-case relief so that a company can buy back a small parcel of shares from each shareholder without the company obtaining a special resolution approving a selective buy-back, under the Corporations Act 2001. A buy-back is selective if the shareholders are not treated equally. Without ASIC relief, a buy-back of a small parcel is selective primarily because the small parcel represents a different percentage of the holding of each shareholder. Usually the company buys small parcels as part of a larger buy-back involving a scale-back mechanism.
After considering the submissions we received on our consultation paper released in December 2004, ASIC has determined to impose the following maximum amounts on the size of small parcels:
- Companies with a market capitalisation of less than $1 billion:
(a) $2,000 for shares to be bought back from each participating shareholder including the entire holding of participating shareholders whose holding is less than $2,000 (threshold parcel); and
(b) $500 where a participating shareholder’s remaining shares are worth less than $500 after the threshold parcel is bought back (residual parcel) - Companies with a market capitalisation of more than $1 billion:
(a) $5,000 for threshold parcels; and
(b) $2,000 for residual parcels.
The company’s market capitalisation and the size of the parcel of shares to be bought back should be determined using a weighted average five-day trading share price, calculated four weeks prior to the announcement of the buy-back.
‘We have set these maximum amounts because we have been seeing relief requests for increasingly large parcels’, ASIC’s Assistant Director, Regulatory Policy, Andrew Fawcett said.
‘All shareholders should have an equal opportunity to participate in a buy-back, otherwise the buy-back requires the approval of shareholders. But if we allow buy-backs of small parcels, companies can reduce the cost of maintaining their share registry, which can benefit all shareholders. It can be uneconomic for companies to administer small parcels. This is one, discrete issue in buy-backs.’
ASIC has adopted a two-tiered approach to the maximum amounts for threshold and residual parcels in response to submissions we received on our December consultation paper. These maximums strike a balance between the needs of very large companies in conducting buy-backs and the risk that maximum amounts that are too high may impact the market in shares for smaller companies.
Further issues regarding buy-backs are covered in ASIC Policy Statement [PS 110], available from the ASIC website at www.asic.gov.au/ps.