Disclosure Relief: An Enlarged Structuring Toolbox

As widely anticipated, ASIC has released new employee incentive scheme class orders (CO 14/1000 for listed companies and CO 14/1001 for unlisted companies).

Disclosure relief: an enhanced structuring toolbox

The class orders provide conditional relief from a number of requirements in the Corporations Act, including the requirement to provide a disclosure document to executives and employees when granting equity-based instruments under employee incentive schemes. The new class orders will generally reduce the administrative burden involved in implementing such schemes, avoiding the need to apply to ASIC for individual relief.

Specifically:

For listed companies, the new class order now covers a broader range of financial instruments, including performance rights that:

  • are automatically exercised on satisfaction of relevant conditions;
  • are cash-settled rather than satisfied by way of delivery of the underlying shares; and/or
  • entitle the holder to cash payments or additional shares referable to dividends paid on the underlying shares.

The cap imposed on the amount of capital that can be issued in reliance on the relief has also been relaxed. Under the old class order, the number of shares that a company could issue in reliance on the class order within a five-year period was capped at 5% of the total number of shares in that class. The cap is now calculated over a shorter three-year period.

The new class order has been extended to include grants to contractors and casual employees (not just full-time and part-time executives and employees) and incentive loan arrangements under certain circumstances.

For unlisted companies, the new class order now offers disclosure relief for offers of fully paid ordinary shares as well as performance rights in respect of such shares. Previously, relief was only available for offers of options over shares in an unlisted entity.

There are, however, limitations on the application of the class order to unlisted bodies. These include an annual cap ($5,000) on the value of financial products that may be offered to an individual and more onerous disclosure obligations that those faced by listed companies.

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