Australia: ASX says size does matter - new admission requirements

On 12 May 2016, ASX released a consultation paper proposing changes to the admission requirements for entities seeking to list on ASX, including increasing the financial thresholds for listing under both the profit test and the assets test and changing the spread test. According to ASX, the purpose behind the proposed changes is "to ensure that the ASX market continues to be a market of quality and integrity, and remains internationally competitive." ASX is also proposing to provide more express guidance on when it will exercise its discretion to not allow an entity to list on ASX, even when the entity technically meets all of the specific listing requirements.

The proposed changes will have a significant impact on small start-ups that are considering listing on ASX.

The key proposed changes to the admission requirements are:

  • increasing the financial thresholds for listing – both for the profit test and the assets tests;
  • introducing a 20% minimum free float requirement;
  • changing the "spread test" to better demonstrate a sufficient level of investor interest in the entity and its securities to justify listing;
  • making the minimum working capital requirements consistent across all entities admitted under the assets test; and
  • introducing a requirement for entities admitted under the assets test to provide audited accounts for the last 3 full financial years.

ASX also proposes to update its Guidance Notes to include further examples of application of the listing rule requirements.

ASX's proposed changes

Increasing the financial thresholds for listing

Entities must meet either the profit test or the asset test to qualify for listing on ASX. ASX is proposing to increase both the profit and assets test.

The profit test currently requires that an entity has consolidated profit from continuing operations of at least $400,000 for the 12 months prior to admission. Under ASX's proposed changes to the profit test, this threshold will increase to $500,000 for the 12 months prior to admission.

The asset test currently requires that the entity (other than an investment entity) has:

  • net tangible assets of at least $3 million; or
  • market capitalisation of at least $10 million.

Under ASX's proposed changes to the asset test, an entity (other than an investment entity) will be required to have:

  • net tangible assets of at least $5 million; or
  • market capitalisation of at least $20 million.

Introducing a minimum free float requirement

ASX does not currently have any formal requirements in place regarding the minimum proportion of an entity's securities that will be available at listing for investors to freely trade in the public market. ASX has addressed this issue through guidance and has generally expected that entities will list with a free float of at least 10%.

ASX proposes to introduce a 20% minimum free float requirement for ASX listings at the time of admission. "Free float" will be defined as the percentage of the entity's main class of securities that are not restricted securities or subject to voluntary escrow, and that are held by non-affiliated security holders.

ASX is currently exercising its discretion under Listing Rule 1.19 and administering the Listing Rules to require an applicant for an ASX listing to have a minimum free float of 20% at the time of listing.

Changing the spread test

Currently, ASX's spread test can be satisfied in one of three ways:

  • by having 400 security holders who hold a parcel of securities with a value of at least $2,000; or
  • by having 350 security holders who hold a parcel of securities with a value of at least $2,000, where there is a free float of at least 25%; or
  • by having 300 security holders who hold a parcel of securities with a value of at least $2,000, where there is a free float of at least 50%.

Under ASX's proposed changes to the spread test, an entity will be required to have:

  • 200 security holders if the entity has a free float of less than $50 million, or 100 security holders if the entity has a free float of $50 million or more; and
  • each security holder counted towards spread must hold a parcel of securities with a value of at least $5,000.

Applying the same working capital requirements to all assets test entities

All entities admitted under the assets test are currently required to have at least $1.5 million in working capital, after taking into account any budgeted revenue for the first full financial year after listing. For mining and oil and gas exploration entities, this $1.5 million must be available after allowing for the first full financial year's budgeted administration costs, and the costs of acquiring plant, equipment and/or tenements.

ASX proposes to standardise the current $1.5 million minimum working capital requirement by requiring an entity admitted under the assets test to have at least $1.5 million in working capital available after:

  • taking into account the entity's budgeted revenue for the first full financial year that ends after listing; and
  • allowing for the first full financial year's budgeted administration costs and the costs of acquiring any assets referred to the in the disclose document (to the extent that those costs will be met out of working capital).

Requiring audited accounts from assets test entities

Currently, entities admitted under the assets test are allowed to provide unaudited accounts and provide accounts for a period shorter than 3 full financial years. They must also ordinarily provide a pro forma statement of financial position reviewed by any auditor or independent accountant.

ASX proposes introduction of new requirements for entities seeking admission under the assets test to produce:

  • audited accounts for the last 3 full financial years. If the accounts for the last full financial year are more than 8 months old, the entity would also be required to produce audited or reviewed accounts for the last half year (i.e. as currently applies to the accounts for entities seeking listing under the profit test); and
  • 3 years of audited financial statements for any business to be acquired by the entity at or ahead of listing.

In each case, the audit report or review must not contain "a modified opinion, emphasis of matter or other matter that ASX considers unacceptable."

ASX has acknowledged that an entity seeking admission under the assets test may not be in a position to provide 3 years of audited accounts. Accordingly, it has noted that ASX will have discretion to accept less than 3 full years of audited accounts, or to accept a modified audit opinion, but that it will generally only do so in the circumstances where ASIC will accept less than 3 full years of audited accounts, or a modified opinion, in a disclosure document.

Reinforcing discretion to refuse admission

It is proposed that the ASX Listing Rules be updated to reinforce ASX's absolute discretion on admission and quotation decisions. ASX intends to specify that it will "take into account the reputation, integrity and efficiency of its market in exercising these discretions." Guidance Note 1 will also be updated to include a (non-exhaustive, but extensive) list of examples where ASX may exercise its discretion to refuse entry to the official list, which would include, for example, where ASX has had prior unacceptable dealings with the applicant or a director, promoter, broker, auditor, investigating accountant or professional adviser involved in the application.

Backdoor listings

ASX currently allows the securities of an entity that announces a backdoor listing to continue trading after the announcement up to the day on which its security holders are asked to approve the transaction. If the security holders approve the backdoor listing, ASX then suspends trading in the entity's securities until it has re-complied with ASX's admission and quotation requirements. ASX has changed this policy so that it will now suspend trading in an entity's securities from the moment it announces a backdoor listing transaction until it has re-complied with ASX's admission and quotation requirements.

This policy change has taken immediate effect and applies to all backdoor listing transactions announced after 12 May 2016.

Submissions

Submissions are due to ASX by 24 June 2016. It is expected that final changes to the ASX Listing Rules will be released in early August 2016, and will come into effect on 1 September 2016.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Kemp Strang has received acknowledgements for the quality of our work in the most recent editions of Chambers & Partners, Best Lawyers and IFLR1000.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.