Worth the wait! ASIC responds to consultation process by issuing not one, but two, employee incentive scheme class orders

ASIC has released two new class orders to replace the current class order in relation to employee incentive schemes, Class Order 03/184. One of the new class orders, Class Order 14/1000, applies solely to listed entities, while the other new class order, Class Order 14/1001, has application only to unlisted entities. As a result of submissions made to ASIC following the release of a consultation paper by the regulator in November 2013, ASIC has expanded the scope of its class order relief, which is a welcome development for listed and unlisted entities alike. It is critical, however, that all affected entities understand the differences between the two class orders and the subtleties of certain changes between the old and new class order relief.

In November 2013, ASIC released a consultation paper (CP 218) under which it proposed various amendments to the long-standing class order relating to employee share schemes (Class Order 03/184). After receiving 21 written submissions in response to the paper, with general support for the proposed expansion in scope of the existing class order relief (not to mention a number of respondents submitting that ASIC should extend its policy position even further than it proposed in CP 218), ASIC revised a number of its initial proposals.

As a result, ASIC has now issued two new class orders to replace Class Order 03/184, with one covering listed entities and the other applying to unlisted entities. At the same time, ASIC has updated the relevant regulatory guide, RG 49 Employee Incentive Schemes.

Although the scope of ASIC’s class order relief has been broadened, ASIC’s fundamental policy framework for employee incentive schemes has not changed.  Importantly, ASIC still requires the following elements in a complying employee incentive scheme:

  • the terms of the scheme support the long-term mutual interdependence between employer and employee;
  • employees have adequate information to assess the value of what they are being offered and to understand the terms and conditions, and
  • the scheme is not offered for fundraising purposes.

ASIC recognises that the users of the respective relief instruments will be different, making it sensible to separate the relief into two class orders. Given the different application and important differences between the scope of relief granted to listed and unlisted entities, respectively, we have prepared separate summaries in relation to each of the new class orders.

  • Click here for a summary of [Class Order 14/1000] Employee incentive schemes: Listed entities
  • Click here for a summary of [Class Order 14/1001] Employee incentive schemes: Unlisted entities

It is also important to note that the Commonwealth government recently released its ‘Industry Innovation and Competitiveness Agenda’, which contains a number of proposed tax reforms in relation to the rules that apply to employee share schemes. At around the same time, the government issued the fact sheet, ‘Encouraging employee share ownership and entrepreneurship’, outlining the tax reforms and highlighting its pledge to bolster entrepreneurship in Australia and support innovative ‘start-up’ companies.

It is hoped these tax reforms will enhance the attractiveness of options issued to employees as a form of incentive, as well as introducing significant new concessions for ‘start-up’ companies. Our taxation colleagues recently published a Taxation Update in relation to the new tax rules. We suggest you consider this update in conjunction with the ASIC reforms in order to fully understand the regulatory climate ahead of us when it comes to using equity to incentivise employees.

Hall & Wilcox has a great deal of experience advising listed and unlisted entities, both from a corporate law and taxation law perspective, on the establishment and operation of employee incentive schemes. Please feel free to contact us if you wish to discuss any issues regarding your existing employee share schemes or new schemes under consideration.


Deborah Chew

Deborah is a leading commercial transaction lawyer with extensive experience in mergers and acquisitions, and capital markets.

James Morvell

James has particular expertise in equity capital markets, corporate transactions, and public and private M&A.

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