Pay Invoice

Amended Guidance on Performance Securities

Corporate News - 19 March 2021

The rules around issuing performance securities continues to be a hot topic for the Australian Securities Exchange (ASX) with further updates being made to ASX Guidance Note 19 – Performance Securities (GN 19). The amendments clarify:

  1. ASX’s position on deferred scrip consideration and the interaction with an entity’s Listing Rule 7.1 capacity;
  2. that “arm’s length control transaction securities”, “ordinary course of business acquisition securities” and “ordinary course of business remuneration securities” do not require in-principle advice; and
  3. the circumstances around when an independent expert’s report (IER) is required.
Deferred Scrip Consideration
ASX has reiterated that it treats deferred, future and contingent scrip consideration as performance securities which must comply with GN 19 and which will require security holder approval (and potentially an independent expert’s report) unless one of the exceptions set out in GN 19 applies. 

In-Principle Advice
Under revised GN 19, in-principle advice is not required in relation to an issue of:

  1.  “arm’s length control transaction securities” pursuant to a takeover bid or merger by scheme of arrangement;
  2.  “ordinary course of business remuneration securities” as part of the remuneration package under an employee incentive scheme; and
  3.  “ordinary course of business acquisition securities” issued by a listed entity under an agreement to acquire an undertaking (which includes an acquisition of a company as well as assets and businesses) provided the performance milestone is clearly linked to the value of the undertaking being acquired and not to some other measure of value,
where the terms attaching to the performance securities have been approved by the entity’s board and conform with GN 19 except where the issue is being undertaken in connection with a re-compliance listing.  In ASX’s view, the terms of performance securities issued in connection with a re-compliance listing are often significantly influenced by the promoters of the re-compliance listing and tilted in their favour and therefore require in-principle advice to be sought.

Where in-principle advice is required, the ASX recommends obtaining the advice before an entity makes and announcement to the market or enters into a legally binding agreement committing it to issuing the performance securities.

Independent Expert’s Report
Late last year, ASX introduced the requirement for an IER in certain circumstances including where the number of ordinary shares to which performance securities convert is greater than 10% of the number of ordinary shares the entity proposes to have on issue at the date the performance securities are to be issued (for listed entities) or at the date of admission (for entitles applying to list). ASX has now clarified its rules around this requirement:

  1. listed entities:
    1. in determining the 10% threshold, separate issues of securities are to be aggregated if they are proposed to be undertaken at or around the same time, or, if in ASX’s opinion, they form part of the same commercial transaction; and
    2. the IER must opine on whether the proposed issue of performance securities is fair and reasonable to non-participating securities holders.
  2. entities applying to list:
    1. in determining the 10% threshold, all performance securities on issue at the date of the entity’s admission to quotation are to be aggregated, even where they are held by different parties and on different terms; and
    2. the IER must opine on whether the performance securities the entity proposes to have on issue at the date of its admission to quotation are fair and reasonable to non-participating  security holders.
In both cases, ASX expects the independent expert to assume that the relevant performance milestones are met, assess the impact that would have on the value of the entity compared to the situation if the relevant performance milestones were not met, and then determine whether the resulting number of ordinary shares to be issued by the entity to the holder of the performance securities is fair and reasonable in the circumstances.

ASX has also stated that an IER will not be required for an issue of “arm’s length control transaction securities”, “ordinary course of business remuneration securities” or “ordinary course of business acquisition securities”.

Boards will need to carefully consider ASX’s position in GN 19 in structuring incentives, performance milestones and deferred scrip consideration.  Please contact us on our Perth office on +61 8 9321 4000 or our Melbourne office on +61 3 9111 9400 if you require advice in this regard.

Back to News Updates