On 1 December, 171 pages of Listing Rule changes took effect. Virtually all areas of the Listing Rules have been impacted, especially in the areas of related party matters and shareholder meetings. This is the first substantive change to the Listing Rules in three years.
The changes comprise a potent mix of substantive and procedural matters. They represent an improvement on the old rules by removing ambiguity and internal inconsistencies but also a raising of the bar for current and proposed listed companies. In the short time the new rules have been in effect, we have seen company officers grapple with the raft of new forms and requirements.
Nestled amongst the changes are matters that are significant from the perspective of company officers and their advisers, with some associated pitfalls in the case of breach.
ASX has tightened up requirements on a company dealing with persons of influence, which include restrictions on share placements. A listed company sometimes has a more than 10% shareholder with a contractual right to a board seat. Now, if the listed company wants to make a placement to that shareholder, this cannot complete immediately and needs shareholder approval. This is the case even if the placement is part of a broader placement where the percentage shareholding of the shareholder does not increase, no matter the size.
For an investor contemplating a stake of 10% or more in a listed company, it should consider the benefit of locking in a board seat in return for the inflexibility associated with the new share placement rules which might result in it being diluted.
As a direct consequence of this change, ASX will no longer give waivers permitting companies to grant "top-up" rights to shareholders with whom it has a strategic relationship (on the basis that those shareholders can simply buy on-market). Whether these changes have the potential to impact strategic investments remains to be seen, but there is some prospect they will.
A second notable change has been the substantial expansion of ASX's powers and discretions to monitor and enforce the Listing Rules. ASX is now expressly empowered to publicly censure a listed company for an egregious breach of the ASX requirements. This is new and brings ASX in line with other offshore exchanges.
ASX has seemed to struggle with the dilemma regarding the extent to which it is prepared to publicly question the candour of disclosure responses made by listed companies to ASX enquiries, especially as they relate to continuous disclosure. One can expect to see an uptick in ASX calling out a listed company in relation to the adequacy of those disclosures.
These changes go hand in hand with ASX's new requirement for non-director CEOs and CFOs of IPO candidates to be of "good fame and character" and an ability to reject IPO candidates where ASX has previously had "unacceptable" dealings with the applicant, a director, CEO or CFO. For new listings after July 2020, those tasked with liaison with ASX must pass an exam on the Listing Rules.
ASX is clearly taking proactive steps to raise standards and keep those with questionable reputations out of the market, and has been given wide-ranging powers to do just that. There can be no argument with this approach, provided the rules and powers are consistently applied and are soundly based.
Thirdly, ASX expects all Listing Rule resolutions to be decided on a poll. When allied to the ASX Corporate Governance Principles and Recommendations, a show of hands is now a relic of the past.
The new rules are now in effect and there is generally no transitional period.
It will be interesting to see how the amended rules operate in practice, including how ASX will deal with its discretions regarding new listings and breaches by listed entities (egregious or otherwise). At the very least, listed companies and their officers and advisers need quickly to get up to speed with the new changes and consider if they need to update their policies and procedures. This is particularly in light of ASX's enhanced enforcement powers and the consequences that can flow from continuous disclosure or other breaches of the Listing Rules.
This article was originally published in the Australian Financial Review.