EXPLANATORY STATEMENT for
ASIC Corporations (Takeovers – Accelerated Rights Issues) Instrument 2015/1069  

Prepared by the Australian Securities and Investments Commission

Corporations Act 2001

The Australian Securities and Investments Commission (ASIC) makes ASIC Corporations (Takeovers – Accelerated Rights Issues) Instrument 2015/1069 under subsection 655A of the Corporations Act 2001 (Act).

Subsection 655A of the Act provides that ASIC may declare that Chapter 6 applies to a person as if specified provisions were omitted, modified or varied as specified in the declaration.

1.                               Background

A rights issue is an invitation to existing security holders to purchase additional new securities in the company. A traditional rights issue is made on a pro rata basis—that is, an entity offers existing holders the opportunity to subscribe for new securities or interests in proportion to their holding of securities or interests in that class. The terms of the offer are the same for each holder, including the timing of the offers.

By contrast, in an accelerated rights issue, while existing securities holders are all offered an opportunity to purchase additional securities, offers generally proceed in two tranches: institutional and retail. Institutional holders are required to deal with their pro rata entitlement before other holders and are generally allotted their securities first. This allows issuers to receive a significant proportion of the offer proceeds from their institutional holders in a very short timeframe.

Item 10 of s611 of the Act provides an exemption for traditional rights issues that satisfy a number of conditions (e.g. the terms of all the rights issues offers are the same); however, this exemption does not extend to accelerated rights issues. Without an appropriate exemption, an accelerated rights issue offer would likely result in a breach of the Chapter 6 takeover provisions.

2.                               Purpose of the instrument

The purpose of ASIC Corporations (Takeovers – Accelerated Rights Issues) Instrument 2015/1069 is to provide an exemption from the takeovers provisions in Chapter 6 for accelerated rights issues.

In absence of an applicable exemption, a person is prohibited under Chapter 6 from acquiring a relevant interest in securities in an entity as a result of participating in an accelerated rights issue if that acquisition would result in the person's or someone else's voting power in the entity breaching the takeover thresholds stipulated in section 606.

The relief offered by ASIC Corporations (Takeovers – Accelerated Rights Issues) Instrument 2015/1069 is desirable because it creates an exception for persons who will, for technical reasons, temporarily exceed the takeover threshold in section 606 merely as a result of participating in an accelerated rights issue.

Without the exception provided by ASIC Corporations (Takeovers – Accelerated Rights Issues) Instrument 2015/1069, the market structure of many accelerated rights issues would result in technical breaches of the Corporations Act due to differences between the timing of the take-up offer between institutional and retail investors.

3.                               Operation of the instrument

ASIC Corporations (Takeovers – Accelerated Rights Issues) Instrument 2015/1069 provides a modification to section 611 by notionally inserting item 10A of section 611 (item 10A) to provide an exemption from the takeovers provisions in Chapter 6 for accelerated rights issues offers.

The accelerated rights issue exception in item 10A is similar to the rights issue exception in item 10, but allows for:

(a)          timing differences between the offer periods and dates of allotment for retail and institutional holders, to accommodate accelerated rights issue structures; and

(b)          differences in the offers resulting from the ability of retail holders, but not institutional holders, to trade their rights.

The exception only applies where the retail allotment of the accelerated rights issue occurs within two months of the allotment to institutional investors. The modification does not extend to shortfall offers or mean that an offeror does not have to comply with the nominee process in s615.

4.                               Consultation

The relief given in ASIC Corporations (Takeovers – Accelerated Rights Issues) Instrument 2015/1069 was the subject of public consultation in Consultation Paper 234 Remaking ASIC class orders on takeovers and schemes of arrangement (CP 234). CP 234 was published in August 2015 and is available on ASIC's website.

ASIC has determined that a Regulatory Impact Statement is not necessary for this instrument as it is a remaking of the previous Class Order [09/459], which was determined to be operating effectively and efficiently, and has thus been remade without significant changes.