Thinking | 1 May 2020
COVID-19: ASX regulatory relief for listed companies
In response to the COVID-19 pandemic and its potential impacts on the financial position of listed companies, ASX announced a number of relief measures on 31 March 2020, and clarified various continuous disclosure and other obligations during this unprecedented period. ASX subsequently released an additional Compliance Update, which clarified and further refined the changes and applies to capital raisings announced on or after 23 April 2020. The emergency provisions are to be implemented by way of class order waivers under ASX Listing Rule 18.1, and will expire on 31 July 2020 unless otherwise terminated or extended.
Listed entities wishing to take advantage of these class order waivers must provide a written notice to ASX outlining the circumstances in which they are intending to rely on the waiver. This notice must be given to ASX before offering any securities in the capital raising, but is not to be released to the market.
Emergency capital raising relief
One of these developments is the introduction of temporary measures aimed at streamlining the capital raising process in the short term.
Back-to-back trading halts
ASX will allow listed entities to request two consecutive trading halts of two days each, but only to provide additional time to structure and execute a capital raising. If the entity is unable to complete the capital raising process within this period, any further extension will need to be obtained through a request for voluntary suspension. A listed entity seeking the benefit of consecutive trading halts must make that fact clear in its request under LR 17.1, and must state that the consecutive trading halts are for the purpose of considering, planning and executing a capital raising.
Separately, ASIC announced that the restriction on ‘low doc’ offers for entities that had been suspended for more than five days in the previous 12 months has also been temporarily relaxed. Companies will now be allowed to undertake ‘low doc’ placements, rights issues and share purchase plan (SPP) offers if they have been suspended:
- for up to 10 days in the preceding 12 month period; and
- for not more than 5 days in the period beginning 12 months before the offer and ending on 19 March 2020 (which was when the Federal Government increased its travel advice to Level 4 - ‘do not travel’ overseas).
Temporary extra placement capacity
ASX is increasing the 15% placement capacity under LR 7.1 to 25%, but only if the listed entity undertakes a placement followed by a standard rights issue, a pro rata accelerated entitlement offer or an offer to retail investors under an SPP, in each case at the same or lower price than the placement price.
If an entity wishes to use this temporary extra placement capacity, there are a number of factors and limitations that must be considered:
- the extra capacity can only be used once, and can’t be replenished;
- placements must be of fully paid ordinary securities;
- entities that also are eligible for the extra 10% placement capacity under LR 7.1A may choose either to use that existing capacity or the temporary extra placement capacity under the Compliance update, but not both;
- entities that have already used part of their existing placement capacity will need to deduct that when calculating their remaining temporary extra placement capacity;
- if there is a limit on the amount to be raised under an SPP offer, the entity must use all reasonable endeavours to ensure that SPP offer participants have a reasonable opportunity to participate equitably in the overall capital raising, and must disclose why a limit is in place along with how the limit was determined;
- any scale back arrangements that are to be applied to an SPP offer (which must be pro rata) must be disclosed; and
- entities that wish to undertake an SPP offer will not be subject to the usual constraints on the number of securities offered and issue price under LR 7.2, although the issue price under the SPP offer must be the same as or lower than the placement price.
ASX has also imposed a number of obligations on listed entities once a placement is completed under this class waiver. Within five business days after completion, the entity must announce to the market:
- the results of the placement;
- reasonable details of the approach taken in identifying investors to participate and how their respective allocations were determined; and
- that, as far as the entity is aware, no securities were issued or agreed to be issued to any person referred to in LR 10.11 (that is, related parties and other persons in a position of influence) unless an exception or ASX waiver applies or it has otherwise been approved by security holders (or is conditional on such approval).
Within this timeframe, the entity must also provide to ASIC and ASX (but not for release to the market) a detailed allocation spreadsheet showing full details of the persons to whom securities were allocated in the placement and the number of securities they were allocated. ASIC has indicated that it will be carefully reviewing these spreadsheets to ensure that they provide meaningful disclosure.
Waiver of one-for-one cap on non-renounceable entitlement offers
Listed entities seeking to make a non-renounceable entitlement offer of their securities will be able to temporarily bypass LR 7.11.3, and will be able to select a ratio ‘that meets their capital raising needs and that is fair and reasonable in the circumstances.’
This will apply to both accelerated non-renounceable entitlement offers and standard non-renounceable rights issues.
ASX Chief Compliance Officer, Kevin Lewis, said that these emergency capital raising provisions will offer companies ‘flexibility to deal with urgent financing needs, while ensuring ongoing fairness and protection for retail investors’.
Requests from listed entities with a 30 September, 31 December or 31 March financial year end, to extend their deadline for filing financial statements will be assessed by ASX on a case-by-case basis. ASX has said, however, that such extensions will only be granted ‘where there has been an unavoidable delay in having financial statements audited or reviewed.’
ASX may agree to grant a short extension to the deadline for filing reviewed half yearly or audited annual financial statements where:
- ASIC has agreed to grant an extension to the relevant reporting deadline;
- the entity’s auditor has confirmed in writing that they will not be able to complete an audit or review by the relevant deadline;
- in the case of annual financial statements, the entity has released a Preliminary Final Report with unaudited results for the financial year; and
- in the case of half-yearly financial statements, the entity has released unaudited and unreviewed results for the half year.
Any relief granted by ASX in relation to financial reporting deadlines will be conditional on the entity:
- announcing to the market the anticipated date of lodgement for its audited or reviewed financial statements;
- confirming to the market that it is in compliance with its disclosure obligations; and
- immediately notifying ASX if there is a material difference between its unaudited results and its audited or reviewed financial statements.
Separately, on 13 May 2020, ASIC announced that it will extend the deadline for both listed and unlisted entities to lodge financial reports under Chapters 2M and 7 of the Corporations Act 2001. Unlisted entities will now be able to take one additional month to lodge financial reports for financial year ends from 31 December 2019 to 7 July 2020. Listed entities will be able to take one additional month to report for full-year and half-year financial reports for 21 February 2020 to 7 July 2020 balance dates, provided that any reliance on the extension is disclosed to the market, ideally with an accompanying explanation of the reasons for doing so. The extended deadlines will not apply for entities with balance dates to 7 July 2020 where the reporting deadline has already passed.
As ASX is currently assessing applications for extended financial reporting deadlines on a ‘case-by-case’ basis, listed entities should be aware that the automatic extension from ASIC does not at present mean that their ASX reporting obligations have been modified. However, we anticipate that ASX may shortly update its position to reflect the new ASIC guidance, and that in any event, the ASIC extension seems likely to make it simpler to obtain case-by-case relief from ASX.
This article was written with the assistance of Michael Henderson, Graduate Lawyer.
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