ASIC has recently reconsidered its policy position on certain difficulties under the Corporations Act applying to NZ foreign exempt listings. The result – a more consistent and simplified approach.
Corporations Act restrictions faced by NZ Foreign Exempt Listings In late 2015, the ASX Listing Rules were amended with the intention of making it simpler for companies listed on the NZX Main Board (NZX) to obtain a ‘foreign exempt listing’ on ASX. Despite this, it became quickly apparent that the treatment of these companies under the Corporations Act (Act) significantly limited the usefulness of these improvements.
A foreign company must register under the Act as a foreign entity as a necessary precursor to applying for admission as a foreign exempt listing. However a foreign entity which has an exempt listing is not a ‘listed disclosing entity’ under the Act. Accordingly, such companies cannot comply with the continuous disclosure rules contained in section 674 of the Act and therefore are unable to issue a ‘cleansing notice’ in compliance with sections 708AA or 708A of the Act.
As a result, these companies are unable to easily:
- manage the on-sale of securities in Australia which:
- have been issued in the 12 months prior to listing on ASX (Historic On-sale Restriction);
- will be issued after listing on ASX without a disclosure document (particularly in respect of issues which a company conducts outside of Australia) (Future On-sale Restriction); and
- conduct a rights (pro rata) issue involving Australian shareholders (and the subsequent on-sale of any shares issued within 12 months of their issue) without using a disclosure document (Rights Issue Restriction).
This issue has significant consequences for NZX companies seeking a foreign exempt listing on ASX who have had to resort to issuing disclosure documents or restricting the on-sale of the securities in Australia. This has been the case even in circumstances where no funds have been raised (eg. the infamous Xero one share offer to overcome the Historic On-sale Restriction). As a result, the benefits of the ASX streamlining the process for foreign exempt listings have been lost in the compliance requirements under the Act.
Previous relief
One method to manage the issues noted above has been to seek relief from ASIC. ASIC has declined to provide class relief on this issue but has previously granted individual relief to overcome the Future On-sale and Rights Issue Restrictions. The form of relief granted has usually required the company to lodge the equivalent of a cleansing notice in New Zealand at the time of the relevant share issue (NZ Cleaning Notice), subject to a three month waiting period after ASX Listing. However, ASIC has been inconsistent in its approach to this relief in the past.
New relief
We recently had cause to approach ASIC on behalf of an NZX listed client seeking an ASX foreign exempt listing. The client has been listed on NZX for several years and had recently undertaken a placement to Australian institutions. As a result it was not planning to raise any capital as part of the ASX foreign exempt listing process.
We approached ASIC to seek a broad based relief to address not just the Future On-sale Restriction and Rights Issue Restriction but also the Historic On-sale Restriction, on the basis that the policy arguments were the same.
As a result, ASIC reconsidered their approach to this topic and granted our client the relief as requested, addressing all elements noted above. Furthermore, they applied the 3 month waiting period to the company’s NZX listing, rather than ASX Listing.
This relief as granted overcomes:
- the Historic On-Sale Restriction, if the company was listed on NZX for at least 3 months and issued a NZ Cleansing Notice at the time of issue of the relevant securities;
- the Future On-Sale Restriction and the Rights Issue Restriction, if the company is listed on ASX, has not been suspended for more than 5 days in the previous 12 months (or since quotation if quoted less than 12 months) and issues a NZ cleansing notice which also states that:
- the relevant securities were issued without disclosure to investors under section 708A or 708AA (as the case may be) of the Act;
- the notice is being given under the paragraph notionally inserted by the ASIC instrument or paragraph 708AA(2)(f) of the Act (as the case may be); and
- as at the date of the notice, the company has complied with its obligations under ASX listing rule 1.15.2.
We welcome ASIC’s decision to grant the relief to our client and their revised policy position on NZ foreign exempt listings. This new policy should ensure a simplified and consistent approach for NZX companies seeking ASX foreign exempt listings.
Please contact us if you would like to know more.
This is for general information only and formal legal advice should be sought on matters of interest arising from this article.