20 Jun 2016

CU LAB: IPO basics: what to consider when putting together your IPO board

There are a lot of details to sort through when putting together your new board, says Stuart Byrne, so the earlier you start the better.

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Identifying the IPO board is an important part of an initial public offering.  This facilitates an efficient process and allows the directors to get comfortable with the company that they're about to become a director of in the public environment. 

There's quite a lot of things that you need to sort through in relation to directors before you can list.  We'll talk about a few of these now. 

All directors to companies looking to list on ASX need to satisfy good fame and character checks, including bankruptcy and criminal checks.  These checks need to be carried out in each jurisdiction that the director has been resident in in the last 10 years and so for Australia the process is fairly simple. If you've got a director that's lived in one or more jurisdictions in that period outside of Australia then the process can become involved and time-consuming as we have to contact government agencies from those countries.  So again it's important to get your directors on board so this process at least can be started because ASX will not let the company list until it is satisfied with the fame and character of the incoming directors. 

The Corporate Governance Guidelines Listing Rules and Corporations Act all contain provisions affecting the appointment of directors, disclosures about directors and their background and the composition of a listed entities board.  We'll look through a few of these now. 

For example, one of the first things you should do is sort out your agreement with directors.  The agreement with the directors and the company makes it clear what are the expectations of the director and what are the expectations of the company. 

You also need to get in place a deed of indemnity, access and insurance.  These documents are heavily affected by provisions in the Corporations Act and directors take a keen interest in them as they're a primary mechanism of protecting the director in the future while a director of the company and also following their directorship. 

Another key thing to put in place early is what fees and benefits the director will take as part of preparing for the IPO process and going forward, because these fees will need to be described in the prospectus along with the key arrangements that the directors will enter into. 

You also need to look at the director process because very often you need shareholder approval processes to be run to allow for the appointment of directors or benefits to be given to them. 

And you also need to get on top of the significant number of ASC corporate governance guideline requirements around the policies that your businesses need to put in place: things like board charters, audit committee charters, remuneration committee charters, whistle-blower policies, security trading policies.  All of these policies have guidance from the Listing Rules and the Corporations Act and the Corporate Governance Principles but they're also things that directors take a keen interest in and want to put their personal spin on. 

The disclosure around directors in your prospectus also needs to be balanced and this can be quite delicate because ASIC policy requires you to disclose details of the directors' management of companies that have gone into administration due to insolvency.  Tackling these issues sensitively and upfront in a transaction can avoid issues and delicate things occurring later on. 

The key to all of this is to remember that it's not as simple as just identifying and appointing new directors. There's a lot of different work streams that need to be brought together in relation to your board, and getting on top of them early is key to ensuring that your timetable is met.