Corporate 5 Minute Fix 05: ASIC on IPOs, IFRS S1 and S2, prescribed occurrences, lodgment fees

ASIC's watchful eye: lessons from the mining sector IPOs that apply to every industry

ASIC recently turned its attention to the mining exploration sector, evaluating the practices of selected companies that had recently completed initial public offerings (IPOs). In its Corporate Finance Update (Issue 13, June 2023), the regulator has made several observations that serve as a reminder to all companies completing an IPO, regardless of their industry. All companies completing IPOs should take careful note of ASIC's warnings in relation to the following:

Care and diligence in marketing efforts: ASIC has reminded entities that they should approach the release of information through their marketing and investor relations channel with the same level of care and diligence required with regulated disclosure documents. Consistency is key – ASIC has warned companies that it would take action, if information provided by companies via other channels (for e.g. social media) "materially differs" to information released via regulated disclosure documents.

Prompt release of price-sensitive information: Companies must not keep the market waiting when it comes to price-sensitive information. ASIC stresses the importance of prompt and timely release without unnecessary delays. Prolonged drafting periods for market announcements may indicate- either the company is not complying with its continuous disclosure obligations, or the announcement lacks significant price-sensitive details. ASIC will intensify its scrutiny of companies falling into these categories.

Robust governance procedures: Finally, ASIC has reminded entities that are materially changing their business or asset strategies shortly after listing must ensure they adopt robust governance procedures.

Directors must assess whether these actions are in the best interests of the company and its shareholders, through detailed inquiries and careful planning. ASIC warns against blind reliance on corporate advisers or blindly following shareholder proposals without conducting thorough due diligence.

So, what does this mean? – ASIC's surveillance is ongoing and is intent on taking regulatory action where entities fail to meet their obligations. Companies completing an IPO should review their internal procedures to ensure their disclosure and governance regimes are airtight.

Sustainability and finance – ISSB's IFRS S1 and IFRS S2 are here!

On Monday 26 June 2023, the ISSB issued IFRS S1 and IFRS S2 – its inaugural standards – aimed at improving sustainability and climate-related disclosures in global capital markets to improve trust and confidence in company disclosures and to better inform investment decisions.

Both IFRS S1 and S2 were developed with feedback from the market, the Financial Stability Board, the International Organisation of Securities Commissions, and business and investment leaders. The broad consultation in the development of both Standards demonstrates the widespread interest in a more consistent understanding of sustainability impacts on business prospects.

IFRS S1 is a set of disclosure requirements designed to enable companies to communicate the sustainability risks and opportunities they anticipate facing over the short-, medium-, and long-term.

IFRS S2 is designed to be used in conjunction with IFRS S1 and sets out specific climate-related disclosures. Both IFRS S1 and S2 incorporate the Task Force on Climate-related Financial Disclosures' recommendations.

These new standards mark a turning point, bridging the gap between finance and sustainability. For further information, see New global Sustainability and Climate-related Disclosure Standards: how they will affect Australian business.

On-market bidders – staying true to "prescribed occurrences"

In its recent Corporate Finance Update (Issue 13, June 2023), ASIC has offered some guidance to on-market bidders regarding the formulation of prescribed occurrences.

Although market bids are less common than off-market bids, but they present a compelling advantage – speed! A market bid is conducted through the ASX's trading platform, and market bids allow only cash consideration to be offered, with no attached conditions. Despite these limitations, bidders can withdraw their bid under specific circumstances referred to as "prescribed occurrences" before their voting power in the target reaches 50%.

But what precisely are these "prescribed occurrences"? They cover situations where the target (or one of its subsidiaries) undergoes a capital reduction, buy-back, share issuance, grants options or where the target (or its subsidiary) becomes insolvent.

ASIC has observed takeover bids that contain conditions that closely resemble, but do not precisely align with, the prescribed occurrences specified in section 652C of the Corporations Act. ASIC provides an example where the conditions included circumstances affecting both the target and any entities it controls, whereas the prescribed occurrences would have only covered the target and its subsidiaries.

Therefore, companies need to be mindful of even minor deviations between the conditions of a takeover bid and the prescribed occurrences. Such discrepancies could make bidders unable to rely on the relevant exceptions to acquire target securities on-market.

The importance of precise alignment with these regulations cannot be overstated, as it ultimately determines the success of a bid.

ASIC document lodgement fees increases

ASIC fees for commonly lodged documents have been subject to increases, and ASIC has released Information Sheet 30, which is a user-friendly compilation for all updated ASIC document lodgement-related fees.