In an effort to reduce monetary and time costs for issuers, the Australian Securities and Investments Commission (ASIC) has recently announced regulatory relief in respect of voluntary escrow arrangements and pre-IPO communications to assist companies undertaking an initial public offering of their securities (IPO), effective from 27 August 2020.
Voluntary Escrow Arrangements
ASIC Corporations (Amendment) Instrument 2020/721 (Instrument 721) amends the existing ASIC Class Order [13/520] to allow the exclusion of the interests of an issuer, underwriter, and lead managers for the purposes of the takeovers provisions contained in Chapter 6 of the Corporations Act 2001 (Cth) in the context of an IPO (Corporations Act). The relief cannot be relied upon in connection with a subsequent capital raise by an issuer or an M&A transaction in which the issuer will be issuing securities to the vendor.
This relief has been provided to allow issuers, underwriters, and lead managers to enter into voluntary escrow arrangements if it will assist investor confidence and marketing of the IPO. However, for escrow agreements ASIC has provided specific requirements in order for this relief to be effectively relied upon. The escrow agreement must:
- restrict disposal and not voting;
- allow the security holder to participate in a successful takeover bid;
- allow the securities subject to escrow to be transferred or cancelled as part of a merger by scheme of arrangement;
- terminate no later than two years after the date of the agreement in circumstance where the agreement is with the issuer;
- terminate no later than one year after the date of the agreement in circumstance where the agreement is with an underwriter or lead manager;
- be able to be transferred to another holder if the securities are beneficially held and there is no change in the beneficial ownership, duration of escrow, or any of the other restrictions imposed by the escrow agreement; and
- provide that, where the security holder is permitted to create security interests in some or all of the escrowed securities, the security interest can only be created if the third-party takes the security interest subject to the terms of the escrow agreement.
ASIC has also updated its Regulatory Guide 5 – Relevant interests and substantial holding notices to incorporate the above amendments.
Ordinarily, when an issuer is intending on or preparing for an IPO (or any offer of its securities under a disclosure document), subsection 734(2) of the Corporations Act prohibits:
- the advertisement of the offer or intended offer, or
- publication of a statement that:
- i) directly or directly refers to the offer or intended offer; or
- ii) is likely to induce people to apply for securities in the issuer.
Recognising that certain communications are low-risk and in certain circumstances appropriate and commercial, ASIC Corporations (IPO Communications) Instrument 2020/722 (Instrument 722) carves out the application of subsection 734(2) of the Corporations Act where non-promotional and factual communication is provided to existing security holders and current and former employees prior to a disclosure document being lodged with ASIC. Previously, issuers could apply to ASIC for relief in relation to factual communications in respect of an IPO. However, Instrument 722 allows for issuers to save costs and time during what can be already a time consuming and expensive process.
Issuers intending on relying on this relief cannot provide communications that discuss the advantages, merits, or benefits and benefits of the proposed IPO. Any such communication relying on the above relief must be limited to the matters detailed in the table below only.
|Current security holders||Current employees of the issuer||Former employees of the issuer|
ASIC has also updated its Regulatory Guide 254 – Offering Securities under a disclosure document to incorporate the above amendments.
Please contact a member of our national Capital Markets team if you have any questions about the above reliefs or would like to discuss your potential IPO.
Mahsa Taiebi | Lawyer | +61 7 3338 7542 | email@example.com