We set out below a brief reminder about a company’s obligations when issuing securities, whether these security issues have been approved by shareholders or are simply issued pursuant to a company’s placement capacity. In particular, we would like to remind our clients of the requirements that must be satisfied to validly issue a cleansing notice to ensure securities are cleansed for subsequent on-sale.

As clients would be aware, to issue a cleansing notice the following factors must be satisfied:

    the class of the relevant securities must have been quoted at all times in the previous 3 months;
    trading in that class of securities has not been suspended for more than 5 (trading) days in the previous 12 months
    during the past 12 months, the company has not obtained an:
         -  exemption under sections 111AS or 111AT of the Corporations Act; or
         -  order under sections 340 or 341 of the Corporations Act; and
    the notice must be provided before the relevant securities are on-sold and in any event within 5 days of the securities being issued.

In relation to the factors raised in points 1 and 2 above, if a company re-complies with the ASX Listing Rules following a reverse takeover it is important to note that the 5 day period does not start from the date that its securities have been reinstated to official quotation as in an IPO. The company’s securities remain quoted during the period of suspension and as such, a company must look back a full 12 months to determine if it satisfied the 5 day condition set out in point 1 above.

Clients should therefore carefully consider whether they satisfy the factors set out in section 708A(5) of the Corporations Act (as summarised above) as well as the requirements for the content of a cleansing notice (including that there is no excluded information and as otherwise set out in section 708A(6) of the Corporations Act) before issuing a cleansing notice to cleanse the on-sale of relevantly issued securities.

ASX has advised that should there be a breach of the cleansing notices, ASX will suspend the listed entity’s securities from quotation until such time as the breach is rectified. In the event that securities have been on-sold in breach of the secondary sales provisions in the Corporations Act, the listed entity may, in addition to lodging a cleansing prospectus, need to commence court proceedings to rectify the effect of the breach.