ASIC changes to the new employee share scheme regime for listed entities

David Landy, Stuart Byrne, Brendan Groves, Andrew Hay, Liz Humphry and Stephanie Daveson
07 Feb 2023
Time to read: 2 minutes

From 1 March 2023, listed entities will be unable to make new offers under ASIC’s existing relief for employee incentive schemes in Class Order [CO 14/1000] Employee Incentive Schemes: Listed bodies.

From 1 October 2022, the new Australian regulatory regime for employee share schemes (ESS) of listed entities in Division 1A of Part 7.12 of the Corporation Act (New ESS Provisions) has been in operation.

With effect from 20 December 2022, ASIC has made changes to the New ESS Provisions to facilitate ESS offers by listed entities.

Secondary sales of ESS interests

ASIC has provided a broader exemption for secondary sales of ESS interests that are issued in connection with an employee share scheme and are quoted on an approved financial market. For the secondary sale exemption to apply, the body who issued the ESS interest must not have an on-sale purpose in regards to the ESS participant to whom the ESS interest was issued (or where the ESS interest was issued to a complying trustee of a trust, the ESS participant to whom the trustee transfers the ESS interest).

The ESS offer letter or other circumstances of the ESS offer will typically establish that the purpose of the offer is to promote mutual interdependence between the employer and its employees, give the ESS participant a stake in the company / business or similar. The mere fact that the issuer knows ESS participants have an on-sale purpose does not preclude reliance on the secondary sale exemption.

ASIC has clarified that the secondary sale exemption applies to financial products which are an ESS interest issued pursuant another ESS interest (for example, shares issued on the exercise of an option). ASIC has also confirmed that the secondary sale exemption can apply to ESS interests where the original offer for the ESS interests was received outside Australia.

ESS contribution plans

ASIC has clarified the ESS contribution plan provisions to cater for salary sacrifice arrangements (by referring to contributions rather than payments and wage / salary deductions). This reflects the position under the expiring ASIC Class Order [CO 14/1000].

ASIC has exempted salary sacrifice arrangements and complying loan arrangements from the ESS contribution plan requirements for:

  • contributions to be held in an Australian ADI trust account; and
  • contributions to be repaid to the ESS participant when the participant elects to discontinue making contributions.

ASIC has also clarified that the ESS contributions of more than one ESS participant may be held in the same Australian ADI trust account.

Issue cap

For ESS offers made for monetary consideration, the issuer must reasonably believe that the ESS offer complies with an issue limit on the proportion of the issuer's fully paid shares or registered scheme interests which can be acquired under the ESS offers.

ASIC has clarified that when calculating the issue cap, an issuer does not need to take into account ESS interests where:

  • the ESS offer has expired; or
  • the ESS interest itself has expired.

ASIC has also clarified that offers made to ESS participants which are not received in Australia will not need to be included when calculating the issue cap.

Requirement to update disclosure

A person who makes an ESS offer (offeror) must provide each ESS participant with an updated ESS offer document as soon as practicable after becoming aware that the document that was provided has become out of date, or is otherwise not correct, in a material respect.

ASIC has clarified that this obligation only applies if the offeror becomes so aware during the application period for the offer. ASIC has also confirmed that the obligation on the offeror to provide updated documents about options and incentive rights only applies during the period which they can be exercised or vest.

Expiring Arrangements

ASIC has amended ASIC Class Order [CO 14/1000] so that the financial product disclosure relief for primary offers provided by that class order only applies if the offer is made before 1 March 2023 and is only capable of acceptance until 1 April 2024. The incidental relief (ie. relief from Australian Financial Services licensing requirements, relief from managed investment requirements that may apply to contribution plans, and relief from on-sale restrictions) provided by that class order continues to apply for prior offers.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.