Last updated: 7 May 2020

Introduction

The COVID-19 pandemic presents particular challenges for general meetings of Australian public companies and compliance with the requirements of Part 2G.2 of the Corporations Act.

Annual General Meetings (AGMs)

Section 250N of the Corporations Act requires a public company to hold an AGM at least once in each calendar year and within 5 months of the end of its financial year. Depending on the duration of the COVID-19 pandemic and the associated restrictions on public gatherings, this may well prove problematic, particularly for companies with financial years ending on 31 December which are required to hold meetings by the end of May.

Fortunately, section 250P gives ASIC the power to extend the time by which a public company must hold its AGM. Traditionally ASIC has exercised this power cautiously and granted only a relatively short extension in the circumstances contemplated in its Regulatory Guide 44.

However, in conjunction with other financial regulators, ASIC has recently announced that in the current climate it will take a facilitative approach to granting relief from regulatory requirements, including in respect of AGMs.

In order to mitigate the potential influx of applications for extensions under section 250P, ASIC further announced on 20 March 2020 that it has issued a no-action letter in respect of companies with a 31 December financial year end. This is because ASIC does not have the power to grant extensions of time and other matters dealing with AGMs on a "class" basis under Part 2G.2 of the Corporations Act.

A no-action letter is an expression of regulatory intent on how ASIC will exercise its powers. Companies should note that, unlike formal relief under the Corporations Act, a company taking advantage of ASIC's no-action position may still be in breach of the law. This means that there is the potential for third parties to take legal action against the company for any potential contraventions of the Corporations Act or the company's constitution.

The no-action letter outlines the circumstances where ASIC will take a "no-action" position, where ASIC has stated it intends to take no action against:

  • companies with a financial year end of 31 December 2019 for not holding its AGM by 31 May 2020, provided that it holds the AGM by 31 July 2020 (or such later date as ASIC advises). This effectively gives companies with a 31 December financial year end a two-month extension to hold its AGM before ASIC will consider any further action;
  • companies holding virtual AGMs in order to comply with its obligations to hold the AGM by 31 May 2020, or the extended period under its no-action letter by 31 July 2020. A condition to this no-action position is that companies holding virtual AGMs is that companies must ensure that the technology provides members with a reasonable opportunity to participate in the virtual AGM, which includes members being able to ask questions of the auditor and about management, and voting occurring by poll rather than a show of hands. While ASIC has taken a no-action position against companies to hold virtual AGMs, companies should seek legal advice on the validity of resolutions passed at virtual meetings under its constitution and the Corporations Act; and
  • companies that have already dispatched a notice of meeting for an AGM to be held before 31 May 2020, where at least two business days before the date of the meeting, can send supplementary instructions to its members for online participation by electronic message (if the member has provided an email address), a notice on the entity's website, and a market announcement (if the company is listed on a market).

While the no-action position from ASIC is available, companies should consider its own circumstances and whether it should apply to ASIC for an extension of time under section 250P of the Corporations Act if it considers that it may be vulnerable to third party action.

Other General Meetings (EGMs)

The mechanism for postponing pending EGMs will be less straightforward and is likely to depend on the relevant company’s Constitution. This will often confer on the Board and / or Chairman a power to postpone a meeting which has already been convened by the Board.

The position will be more complex in the case of meetings convened by shareholders under section 249F or requisitioned by shareholders under section 249D, which requires the meeting to be held within 2 months.

Ultimately, in the absence of a clear power in the company's Constitution, or reforms that permit postponements, it may be necessary to apply to the Court, which is empowered by section 1322(4) to make an order postponing a meeting where no substantial injustice has been or is likely to be caused to any person.

While the Courts have traditionally exercised this power sparingly, particularly in the case of meetings requisitioned or convened by shareholders, a more pragmatic approach could be expected in the current climate.

Virtual meetings

Unfortunately, it’s by no means clear that general meetings which take place entirely on-line are permitted by the Corporations Act. Section 249R requires a meeting to be held "at a reasonable time and place" and while section 249S authorises the use of technology, it contemplates this connecting “2 or more venues”.

While it could be argued that a website address or other on-line site constitutes a “place” or “venue”, the more orthodox view is that these terms imply a requirement for at least one physical location at which shareholders can attend in person if desired.

ASIC intends to take a no-action position on non-compliance with provisions of the Corporations Act that may restrict the holding of virtual meeting in the current environment, but it does not currently have the power to modify or exempt the operation of these provisions of the Corporations Act.  It should be noted that a no-action letter from ASIC does not necessarily protect against a challenge from a disgruntled or activist shareholder(s) nor does it prevent a Court from deciding that particular conduct infringes relevant legislation.

Under a determination made on 5 May, the Treasurer announced changes which will enable companies to convene shareholder meetings entirely online, rather than face to face.

Under the changes:

  • notices of meeting can be provided via email and must include details as to how to attend and participate in the meeting virtually;
  • a quorum can be achieved with shareholders attending online; and
  • meetings can be held online.

Shareholders must still be given an opportunity to participate, speak and put questions to the board members.

Companies will also need to find a way to enable shareholders to vote virtually and to participate in the usual manner and in real time. Votes must be taken on a poll (and not a show of hands).

These changes will be in effect until 6 November 2020.

We have already seen a number of companies hold AGMs virtually during the last two months relying on the ASIC's advice of no-action with respect to meeting procedures and recommending shareholders appoint proxy representatives rather than attending. These changes provide a clearer path for companies to hold their shareholder meetings over the next six months while COVID-19 restrictions remain in place.

Fortunately, the position is clearer in relation to hybrid meetings which have a physical location but are also webcast so as to allow shareholders to attend and participate online. In the absence of any inconsistent provisions in the Constitution1, it’s reasonably clear that hybrid meetings are permitted by the Corporations Act and are becoming more commonplace.

For the time being, hybrid meetings may provide a practical workaround given the current uncertainty surrounding the lawfulness of virtual meetings. However, it is understood that the COVID-19 crisis could provide impetus to expressly permitting virtual meetings in Australia by regulation or extending ASIC's "class order" powers. This would be a welcome reform given that virtual meetings are already permitted in many other parts of the world, including major US States and Canadian provinces.


Modern Constitutions will generally authorise “direct voting”, but older Constitutions which only provide for voting by hand or poll may be more problematic.

Foreign investment

The Government has announced very significant changes to Australia's foreign investment review framework during the COVID-19 outbreak.

Effective from 29 March 2020, all proposed foreign investment in Australia that is subject to the Foreign Acquisitions and Takeovers Act 1975 will require approval, regardless of the value of the investment or the nature of the foreign investor. The Treasurer has sought to implement this policy by reducing all monetary screening thresholds to $0. However, it is highly likely that the full implications of these announced changes will require the Treasurer to provide further comment and review.

To ensure sufficient time for screening applications (given the inevitable significant increase in the volume of transactions to be scrutinised), the Foreign Investment Review Board (FIRB) will be working with existing and new applicants to extend timeframes for reviewing applications to up to six months.

The Government has stated that the changes are in order to protect the national interest, "as the coronavirus outbreak puts intense pressure on the Australian economy and Australian businesses".

Temporary reduction in all monetary screening thresholds

The previously applicable monetary screening thresholds used to determine whether a proposed foreign investment is deemed a "significant action" or a "notifiable action" have been reduced to $0. The impact of the announced changes in screening thresholds can be summarised as follows:

Investor Action Previous threshold – more than: New temporary threshold from 29 March 2020

Privately owned investors

Acquisitions in entities and businesses

$275m ($1,192 million for Free Trade Agreement (FTA) country investors in non-sensitive sectors)

$0

 

Media sector

$0

Unchanged

 

Agribusinesses

$60 million ($1,192 million for certain FTA country investors)

$0

Foreign Government Investors

All direct interests in an Australian entity or Australian business

$0

Unchanged

*Note: The monetary thresholds are complex and contain a number of exceptions. The table above is a summary only.

 

Investor Action Previous threshold – more than: New temporary threshold from 29 March 2020

All investors

Residential land

$0

$0

Privately owned investors

Agricultural land

$15 million (cumulative) ($1,192 million for certain FTA country investors)

$0

 

Vacant commercial land

$0

unchanged

 

Developed commercial land

$275 million ($60m for low threshold land such as mines and critical infrastructure and $1,192 million for certain FTA country investors)

$0

 

Mining and production tenements

$0 ($1,192 million for certain FTA country investors)

$0

Foreign government investors

Any interest in land

$0

unchanged

*Note: The monetary thresholds are complex and contain a number of exceptions. The table above is a summary only.

 

Impact of the changes

The changes to monetary screening thresholds do not otherwise change the requirements for any proposed foreign investment to qualify as a "significant action" or "notifiable action", which only then would permit the Treasurer to exercise powers under the Act. However, it is likely that there will be further clarification from the Treasurer on relevant thresholds and tests in the coming period.

The changes expand the Australian foreign investment regime to all transactions involving the acquisition of an interest in an Australian entity, business or land, regardless of the size of the transaction.

This has the effect of applying the same very restrictive requirements for government investment approval that apply to foreign government investors, to all foreign investors.

We expect this will significantly affect the ability of foreign investors to compete for M&A deals and real estate assets in Australia.

Examples of common transactions that parties would generally not expect to be subject to the Act (but which now will be, provided that they otherwise satisfy the requirements under the Act) include:

  • offshore transactions involving a foreign acquirer, seller and target – but where there is a change of control of an Australian entity – even if the Australian entities are of immaterial value in the context of the transaction;
  • leases for more than 5 years (including any options to renew), agreements for leases or acquisitions of developed commercial land by foreign owned entities; and
  • internal reorganisations by multinational corporate groups involving changes in ownership of Australian entities (even if those entities are of little value).

Extension of timeframes for existing and new applications

Even prior to these measures being introduced, FIRB administrative processes have increasingly resulted in extensions of several months beyond the statutory 30 day review period.

With these changes significantly increasing the number of transactions that will need FIRB approval (and a corresponding increase in FIRB's caseload) additional significant delays seem inevitable.

In this context, FIRB is now seeking extensions of up to six months for the review of new and existing applications. According to the announcement, this is "to ensure sufficient time for screening applications" and the Government will be prioritising "urgent applications for investments that protect and support Australian business and Australian jobs".

Impact on current transactions where FIRB approval is pending

These delays are not only significant for investors contemplating new transactions but could have the effect of causing existing transactions to fail because FIRB conditions precedent are not able to be satisfied before the pre-agreed end date.

Impact on incomplete transactions that were below the pre-29 March thresholds?

It is not completely clear from the announcement how the revised thresholds will apply to transactions which were entered into before 29 March 2020 but which have not yet completed. However, given that for the purposes of the Act a person is deemed to acquire an interest when the transaction is entered into, to avoid unreasonable retrospective application we would expect that if the transaction was below the pre-29 March thresholds when entered into, it will be able to be completed after 29 March 2020 without breaching the Act.

How long will these measures stay in place?

The Government has stated that these measures will stay in place "for the duration of the current crisis".

When will we see the details of the changes?

The Government has stated that further administrative details to give effect to this announcement will be published on the FIRB website in due course.

Continuous disclosure obligations

Given the inherent uncertainty of the COVID-19 pandemic and its impact on listed entities, ASX has sought to clarify one of the exceptions to the continuous disclosure obligations by re-affirming that ASX does not expect listed entities to announce information that relates to matters of supposition or that is insufficiently definite to warrant disclosure. Put simply, ASX has clarified that a listed entity's continuous disclosure obligations do not extend to predicting the unpredictable.

ASX has also clarified that it does not expect listed entities to make forward-looking statements to the market unless they have a clear and reasonable basis for doing so.

The key practical guidance ASX has provided regarding disclosure obligations for listed entities is outlined below:

Earning guidance: ASX is strongly encouraging entities that have not reviewed their published earning guidance in light of COVID-19 to do so and, if it is no longer current, to update it or withdraw it entirely. ASX has indicated that withdrawal of earnings guidance without quantifying the magnitude of the expected difference (where there is no reasonable basis for doing so) is acceptable and understandable in the circumstances.

In our view, this should not be interpreted as a new rule or blanket excuse to withdraw all guidance without explanation in all circumstances. Entities should still first assess whether they need to withdraw their guidance (for example because they no longer have a reasonable basis for it). Having formed that view they should also consider whether they are nevertheless aware of information around their expected performance or the impacts of COVID-19 on their business which is price sensitive and which they do have a reasonable basis for. Information of this nature, even if only narrative in nature, should be considered for disclosure.

Material operational decisions: ASX has advised that operational decisions which are likely to have a material effect on the price or value of a listed entity's securities should be immediately announced to the market (for example, a decision to stand down a material number of employees or suspend certain operations).

Market announcements to be given to ASX first: ASX has reminded listed entities of the requirement not to release information that is for release to the market to anyone else, unless and until it has been provided to ASX and has been released by ASX to the market.

Reaffirmation of other key disclosure obligations: ASX has re-affirmed the immediate disclosure requirements of ASX-listed entities:

  • which decide to undertake a capital raising;
  • facing serious financial difficulty (in circumstances when a decision to appoint an administrator is made, or an event of default occurs with a major lender); and
  • which intend to cancel a dividend or distribution payment that it had already resolved to pay. On this point, ASX also makes the important observation that a listed entity needs to confirm the legal basis for cancellation, including by reference to the entity's constitution.

ASX has clarified these particular disclosure obligations to ensure listed entities are disclosing the appropriate information at the correct time so that the market remains properly informed during the pandemic.

ASX has also noted a disturbing number of instances where listed entities have made announcements with potentially misleading claims around COVID-19. ASX has specifically warned against this, in particular those claiming that the entity has found a cure or treatment for COVID-19, or claiming to be in negotiations to utilise their manufacturing facilities to manufacture necessary medical equipment. ASX noted its power to suspend or censure entities that make misleading COVID-19 claims to mitigate this behaviour.

Capital raising relief

ASX has introduced temporary relief to facilitate emergency capital raising by ASX-listed entities until 31 July 2020. ASX has introduced this relief as recognition that many ASX-listed entities will need to urgently raise capital in the coming months to sustain their operations and protect themselves from a steep drop in revenue caused by the economic disruptions of COVID-19.

Many ASX-listed entities are going to come to the conclusion in the coming weeks and months that raising capital is necessary. During a crisis such as this, effective boards should remain informed about the relief available to them and consider whether their financial situation warrants taking advantage of such relief.

ASX is introducing three key measures as part of this temporary relief:

Back-to-back trading halts: ASX will permit an entity to request two consecutive trading halts (enabling up to a 4 day trading halt) to consider, plan and complete a capital raising.

Increase in the 15% placement capacity to 25%: ASX has increased the 15% limit on placements in listing rule 7.1 to 25%. Entities that already have shareholder approval for the additional 10% placement capacity under listing rule 7.1A will be able to elect to use that additional placement capacity or the additional 10% placement capacity available under this temporary measure, not both. Entities who utilise this temporary additional capacity must also offer securities under a pro-rata entitlement offer or a follow-on offer under an SPP to retail investors at the same or lower price.

The increase in placement capacity is a one-off measure meaning, once utilised, an ASX-listed entity will not be able to replenish its temporary extra placement capacity. Furthermore, ASX will only allow listed entities to undertake one placement to take advantage of their temporary extra placement capacity. Should a listed entity seek to undertake more than one placement using their temporary extra placement capacity, the entity will need to approach ASX for an individual waiver.

Waiver of the one-for-one cap on non-renounceable entitlement offers: ASX will waive the requirement that the ratio of securities offered under a standard non-renouncement entitlement offer must not be greater than one security for each security held by a shareholder. The waiver of the one-for-one cap provided in listing rule 7.11.3 will apply to standard non renounceable entitlement offers and ANREOs. (Renounceable offers may still be offered at a ratio greater than 1 for 1, but we would expect that in many cases non-renounceable offer structures will be required in order for the offer to be successful.)

The above measures will be implemented by class waivers, meaning there is no requirement for ASX-listed entities to apply individually to gain access to the above relief measures. ASX will review the above measures with industry participants closer to 31 July 2020 to determine whether they warrant an extension or alteration if they are not have the desired effect on capital raisings.

ASX has also advised that it supports the guidance given by ASIC in its "Market Integrity Update – COVID-19 Special Issue – 31 March 2020" which clarified ASIC's expectations regarding fair treatment of retail shareholders in capital raisings. Importantly, as part of its relief measures, ASIC has increased the allowable suspension period for listed entities undertaking "low doc" offers (including rights offers, placements and SPPs) to include listed entities that have been suspended for a total of up to 10 days in the previous 12-month period (the previously allowable limit was up to 5 days in the previous 12-month period).

ASX also reiterated its expectation that capital raising will be conducted in the best interest of the entity – such as the need for quick and certain capital and that the capital raising relief being provided will not be abused by listed entities.

Updated temporary class waivers for capital raisings announced on or after 23 April 2020

ASX, in consultation with ASIC, has now released updated temporary class waivers that will apply to capital raisings announced on or after 23 April 2020.

Since ASX released the initial class waivers, there have been a significant number of equity capital raisings, with several entities seeking to rely on the increased placement capacity to quickly raise cash to support their businesses or continue to pursue growth opportunities in the current COVID-19 crisis. While the temporary measures implemented by ASX to facilitate capital raisings in these challenging times have been applauded by many, they have also drawn criticism. For example, some comments are directed to the perceived unfairness of preferencing institutional investors through the placement at the expense of existing high net worth and retail shareholders or the dark arts of the share allocation process.

However, there's more sides to this story of course, for example: share purchase plans can make many retail shareholders whole; high net worth shareholders can often bid into placements directly or through brokers (and some smart minds are looking to enhance this ability); boards will generally look to encourage participation by existing shareholders; some institutional investors are quality long-term investors that will enhance a register for the benefit of all shareholders; new cornerstone investors can be necessary to get deals away; and covering a retail "tail" with sub-underwriting to promote deal certainty can be harder than you think. The list goes on, reflecting the reality that every deal is different and that the fundraising process can be more art than science.

ASX is attuned to these intricacies and, having moved with considered speed, has refined its model. It requires details in advance around the proposed use of the 25% placement waiver and is willing to refuse access to the waiver where it feels it is unwarranted. The changes made in the updated waivers include enhanced disclosure obligations that seek to promote transparency in relation to the allocation processes adopted by entities that rely on the increased placement capacity in a way that reflects multiple sides of the story.

What are the changes to the ASX relief?

The most significant changes to the temporary class waivers have been to include additional disclosure requirements for those listed entities relying on the temporary extra placement capacity waiver (which increases the limit on placements from 15% to 25%). ASX have also included a number of changes to clarify the operation of the temporary class waivers.

The amendments to the temporary extra placement capacity class waiver include the following:

ASX has increased the disclosure requirements for entities wishing to rely on the increased placement capacity class waiver. Entities must announce to the market the following matters within 5 business days of completion of the placement:

  • results of the placement;
  • reasonable details of the identification and allocation processes, including details of the allocation objectives and criteria, whether there was an objective of pro rata allocation amongst existing shareholders and any significant exceptions or deviations from those objectives and criteria; and
  • confirmation that, as far as the entity is aware, no related parties, shareholders holding more than 30% of the entity's securities, or shareholders holding more than 10% of the entity's securities that also hold a Board appointment right (together, being Listing Rule 10.11 Parties), participated in the placement, subject to certain exceptions.

Listed entities relying on the waiver must also provide ASIC and ASX with an allocation spreadsheet (not for release to the market) containing details of participants and the number of shares allocated to each participant.

These enhanced disclosure obligations have been supported by ASIC, stating that "ASIC will be reviewing the allocation spreadsheets and monitoring the disclosures made by companies about placements, rights offers and SPPs to ensure they are accurate, sufficiently detailed and provide meaningful, rather than ‘boiler plate’ disclosure". 

Where there is a limit on the amount to be raised under an SPP, a listed entity must now disclose the reason for the limit, and how it was determined. A listed entity will also be required to use all reasonable endeavours to ensure that SPP offer participants have a reasonable opportunity to participate equitably in the overall capital raising.

ASX has clarified that any scale back under SPPs must be applied on a pro rata basis, based on either the size of a participant's holding, or the number of securities applied for.

Clarifications provided

The changes that clarify or expand the existing temporary extra placement capacity class waiver include the following:

  • entities are now able to conduct a follow-on standard entitlement offer, not just an accelerated entitlement offer or SPP (as contemplated by the initial temporary class waiver in ASX Compliance Update no 03/20). This will assist smaller listed companies that do not have a significant institutional shareholder base;
  • Listing Rule 10.11 Parties (including Directors) are now permitted to participate in an SPP on the same terms as other shareholders, pursuant to the grant of a waiver of Listing Rule 10.12 Exception 4 equivalent to the waiver granted to Listing Rule 7.2 Exception 5;
  • confirmation that any entity that has a waiver or exemption to allow it to make SPP offers of more than $30,000 to individual holders in any 12 month period will still satisfy the conditions of ASIC Corporations (Share and Interest Purchase Plans) Instrument 2019/547; and
  • any existing Listing Rule 7.1 or 7.1A placement capacity that has been used is counted for the purposes of calculating the remaining temporary extra placement capacity.

In addition, as noted above, if an entity wishes to rely on either temporary class waiver, ASX has explained that the notice of reliance to be provided by listed entities is not for public release and must:

  • be given to ASX before making the capital raising in question; and
  • explain whether the capital raising to raise urgent capital in response to the COVID-19 pandemic, or for some other reason.

    ASX has also clarified its power to withdraw the class waivers either:

  • in respect of a specific listed entity, by written notice to that entity; or
  • generally before the scheduled expiry date of 31 July 2020 by notice to the market.

ASX has also stated in its Compliance Update no 04/20 that entities wishing to seek two consecutive trading halts must make this clear in the request (otherwise ASX will only grant a single trading halt of up to two trading days). ASX also expects any request for two consecutive trading halts to state that the trading halt is for the purpose of considering, planning and executing a capital raising. 

Reporting relief

ASX has provided some guidance and relief on the reporting requirements of listed entities. The key reporting requirements dealt with by ASX in its compliance update are detailed below.

Reporting relief for listed entities with a 30 September, 31 December or 31 March balance date: ASX has indicated that it is open to granting individual waivers to listed entities with a 30 September, 31 December or 31 March balance date requesting an extension to the deadlines for filing their financial statements in circumstances where there has been unavoidable delay in having financial statements audited or reviewed. ASX will assess this on a case-by-case basis.

Quarterly reporters: ASX has indicated that it is unlikely to agree to an extension to quarterly reporters for the filing of quarterly cash flow or quarterly activity reports, as these reports are not generally audited or reviewed.

ASX/NZX dual-listed entities: The NZX recently announced that it had granted a class waiver extending the deadlines for filing financial statements and annual reports for NZX listed entities with balance dates between 30 September and 31 May. ASX has granted an equivalent class waiver under to dual listed ASX/NZX entities incorporated in New Zealand and admitted to ASX as a standard ASX Listing, extending the reporting deadlines to the substituted deadlines provided in the NZX class waiver.