ASX updates guidance note 19 for performance securities
Following ASX’s substantive amendments of Guidance Note 19 Performance Securities (GN 19) in August 2020, ASX has recently released a further updated version of GN 19 to clarify ASX’s position in a few areas relating the issue of performance securities. These include:
the treatment of agreements to issue or transfer ordinary shares in future upon achieving a nominated performance milestone;
the interaction between the issue of or the agreement to issue performance securities, and an entity’s capacity to issue securities under Listing Rule 7.1;
the circumstances under which in-principle advice should be sought;
the circumstances under which shareholder approval should be sought; and
the circumstances under which an independent expert’s report is required.
In particular, ASX is of the view that an agreement by an entity to issue or transfer securities upon achieving certain milestone in future has the same economic substance and effect as a deliverable performance right, and hence it is treated by ASX as if it was a performance security.
In addition, in explaining ASX’s position in relation to whether in principle-advice, shareholder approval or independent expert’s report is required or recommended, GN19 has expressly addressed the circumstances where performance securities are issued:
as “arm’s length control transaction securities” (that is, pursuant to a takeover bid or by way of scheme of arrangement);
as “ordinary course of business remuneration securities” (that is, as part of a director’s or employee’s remuneration package or under an employee incentive scheme);
as “ordinary course of acquisition securities” (that is, securities issued by an entity under an agreement to acquire an undertaking); and
in relation to new or re-compliance listing.
The update to GN 19 means that entities will need to carefully consider ASX’s requirements and expectations when structuring remuneration, incentives, deferred or contingent consideration involving issue of securities.