The Corporations Legislation Amendment (Simpler Regulatory System) Act 2007 amends the Corporations Act in a number of areas, including company reporting, corporate governance and fundraising. In this update we highlight some of the key corporate changes.
Disclosure of executive remuneration for listed companies
Listed companies must now disclose the remuneration of:
- "key management personnel" as defined in the accounting standards – this includes directors, but also extends to "persons having authority and responsibility for planning, directing and controlling the activities of the company"; and
- the 5 highest paid executives.
This disclosure is to be made in the director's report instead of the financial report.
Directors must also disclose any policies in relation to the hedging of directors' and executives' share based remuneration.
These changes apply to the financial year beginning 1 July 2007.
Changes to "large proprietary company" thresholds
The "large proprietary company" thresholds have been increased. The 50 employee threshold remains unchanged, but:
- the threshold for consolidated revenue has been increased to $25m (from $10m); and
- the threshold for consolidated gross assets has been increased to $12.5m (from $5m).
As a result of these changes, Treasury estimates that approximately 1,600 fewer companies will be required to prepare and lodge annual reports with ASIC.
These changes apply to the financial year ending 30 June 2007, so companies can take advantage of these changes now.
Electronic distribution of annual reports
Companies now have the option of only sending annual reports to shareholders who specifically request them.
Shareholders can elect to receive annual reports by post or by email.
Shareholders that do not elect to receive an annual report must receive notification that the annual report is available on the company's website (and such notification can be by email if the shareholder has previously elected to receive electronic notifications).
These changes apply to the financial year ending 30 June 2007, so companies can take advantage of electronic distribution of annual reports for the financial year just ended if the relevant notification requirements are complied with.
Electronic registration of charges
Registered agents can now register company charges on ASIC's website.
Financial benefits of up to $5,000 can be given to related parties without shareholder approval
Shareholder approval is not required if a public company provides financial benefits (monetary and non-monetary) to a related party of up to $5,000 over a financial year (s213).
A related party includes directors and their spouses but also extends to entities that control public companies or that act in concert with related parties, and parents and children of directors and spouses.
Under the old s213, shareholder approval was not required for payments of up to $2,000 to directors of public companies or their spouses.
Rights issues without prospectuses
Companies with quoted securities can now make a rights issue offer to shareholders without a prospectus, making rights issues a more attractive fundraising option.
To make a rights offer without a prospectus a company must:
- give the ASX a "cleansing notice" which, amongst other things, will:
- confirm that the company has complied with its reporting and continuous disclosure obligations;
- include information relating to the potential effects of the rights issue; and
- disclose information that has been excluded from continuous disclosure (provided that it is information that an investor would reasonably require);
- have quoted securities; and
- not have had its securities suspended from trading for more than 5 days during the prior 12 months.
A rights issue without a prospectus can exclude non-Australian/NZ shareholders if it would be unreasonable to make offers to foreigners (taking into account the number of foreigners in each jurisdiction, the number and value of foreign held shares and the cost of complying with foreign laws).
A person authorising a cleansing notice will be guilty of an offence if:
- the cleansing notice contains false or misleading statements or omits required information (s1308(2)); or
- that person fails to take reasonable steps to ensure that the cleansing notice does not contain false or misleading statements or omit required information (s1308(4)).
Secondary sales – sales by controllers – 3 month period
Controllers can now take advantage of disclosure relief if a cleansing notice is provided by both:
- the controller; and
- the entity that issued the securities.
Secondary sales without disclosure are possible if the securities are quoted for at least 3 months (down from 12 months).
Offer information statements
Companies can now raise up to $10m (up from $5m) under an offer information statement.
Extended sophisticatedinvestor and professional investor disclosure exceptions
Offers of securities to the following persons will not require disclosure:
- an offer to a company or trust controlled by a sophisticated investor (new s708(8)(d)); and
- an offer to a person who has, or who controls, assets of at least $10m (new s708(11)(b)).
Employee share schemes for unlisted companies
An ASIC Class Order issued in 2003 gave listed companies relief from regulatory issues associated with implementing and running an employee share scheme. The new provisions extend such relief to unlisted companies so that if an unlisted company prepares a disclosure document (prospectus or offer information statement), the issuer/employer can:
- provide general advice on the scheme;
- deal in securities through a licensed broker (inside or outside Australia - this enables employees of multinationals to participate in schemes operated by the parent company outside Australia); and
- inform employees about the scheme and invite them to participate.
Advertising rules relaxed for quoted securities
Issuers can advertise offers of quoted securities before a disclosure document is lodged if the advertisement includes:
- information on the identity of the issuer (and the seller, if applicable);
- a statement that a disclosure document will be available later and when and where it will be available; and
- a statement that investors should consider the disclosure document and use the application form contained in it.
Afterlodgement, any advertisement must include statements:
- that the disclosure document is available; and
- indicating where the disclosure document can be obtained.
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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.